The imperative to stay ahead of the technology curve is no less pressing for providers of insurance information. LeRoy A. Boison, Jr. explains the latest developments at the Insurance Services Office, Inc.

The US property/casualty insurance business' reliance on technology is gaining momentum, as the benefits of electronic commerce, lower costs, and higher productivity begin delivering bottom-line results.

Electronic commerce - marrying technology with business operations to facilitate workflows and communications with customers - is the new engine propelling businesses to change their operations. E-commerce is not only retail sales over the internet, but also business-to-business information transfer. Such technology is no longer the province of the industry's big multiline, countrywide writers. Today, any regional insurer, broker, or agent with a personal computer and modem can play.

The imperative to stay ahead of the technology curve is no less pressing for providers of insurance information. One example is Insurance Services Office, Inc. (ISO), a leading provider of statistical, actuarial, underwriting, policy-forms, specific-property, and claims information to insurers, reinsurers, agents, brokers, regulators, and government agencies. ISO has tied its strategic vision to e-commerce technology, not only to meet changes that affect its own operations, but more importantly, to meet the changing marketplace needs of the insurers and reinsurers it serves.

The key is e-commerce. From using the internet as a primary delivery platform for information products, to integrating technology and information into innovative products on CD-ROM, insurers are responding to technology as a medium of information exchange as never before.

A staple of e-commerce is electronic data interchange (EDI) - the electronic transmission of business information between the computers of businesses, government agencies, other organizations, and individuals. For EDI to work, the computer systems of trading partners must be able to communicate - either through a public or private network, a dedicated telecommunications line, or a modem and standard telephone lines.

Insurers can use EDI to improve underwriting efficiencies by integrating EDI with expert systems - computer systems that attempt to replicate the way an expert would go about solving a problem. An expert system using EDI could gather information, examine reports, and analyze information according to a company's guidelines. This process would allow an insurer to free up underwriters to evaluate more complex risks.

Imaging, another e-commerce staple, uses technology for electronically storing and managing documents and making information available by computer. Imaging can yield benefits that include improved workflows; more timely response to information requests; and reduced costs for filing, storing, and retrieving paper documents.

Getting the most out of the internet The best-known and fastest growing tool of e-commerce is the internet. The internet allows computers of different types - and using different software - to access a tremendous array of text, pictures, graphics, audio, and even video. Many insurers and reinsurers have websites which provide collections of related information and ways of navigating through material and finding desired sections. The level of functionality in insurer websites varies widely. Some sites contain only general information, while others let consumers send electronic messages to the company and help consumers locate the company's agents.

Insurers are using e-commerce technologies - websites and data transmission - for a variety of transactions. Those include:
• Processing new applications for automobile insurance, start to finish, on-line over the internet
• Facilitating claims reporting for agents and insureds through a secured website on the internet
• Settling auto and property claims at the damage scene
• Accessing underwriting and pricing information and integrating it into their operations.

The US property/casualty insurance industry lags behind other financial-services industries in total information technology (IT) spending - $11.4 billion, compared with $20 billion for the commercial banking industry and $13.8 billion for the securities and investment industry.

But as consumers become more accustomed to the instant, anytime, anywhere service made possible by e-commerce technologies, insurers will have to develop the means to meet those expectations. Insurers are realizing that one of the realities of doing business today is the need to provide service around the clock, every day of the week.

Electronically delivering essential information
ISO has taken the plunge by committing to deliver its loss projections, standard policy forms, and other commercial lines information through the internet. A key element of this undertaking is ensuring that customers can easily integrate information delivered by the internet into their operations. At the same time, internet delivery service helps insurers save money by reducing filing, storage, and internal routing costs. And we're not talking about eliminating a few file cabinets. For instance, if stacked vertically in paper format, the information available over ISOnet would be taller than a twenty-story building.

Internet delivery of advisory information has been opened to insurance agents and brokers who need loss costs and underwriting and specific-property information from ISO. ISOnet also provides insurers with catastrophe information from ISO's Property Claim Services unit.

Underwriting and pricing information on CD-ROM
ISO, mirroring the industry it serves, is exploiting a full range of media to provide timely access to large amounts of data.

A Multi-distributional Increased Limits Developer (MILDSM) software package is one example. This self-contained exposure-rating model was designed to analyze increased limits for casualty reinsurance excess of loss pricing - general liability, medical professional liability, and commercial auto liability. Pricing commercial property reinsurance has always been a challenge because of the absence of up-to-date, accurate, aggregate loss-history information. Today's technologies leverage data from a 5.5-billion-record industrywide database of losses and premiums into a CD-ROM product for pricing commercial property excess of loss reinsurance.

The result? A property size-of-loss database that contains industrywide information on more than 600,000 occurrences, in 50 states and 21 occupancy groups that produce more than 770,000 severity curves, which show the size of the expected loss for various policy limits.

A space-age underwriting solution
The insurance industry has reached the heavens - literally - for e-commerce solutions. E-commerce technology combined with satellite images and topographical and street maps is the latest underwriting tool used by insurers to assess commercial and personal-property wildfire risks in California - the largest insurance market in the United States. By finding heavy concentrations of highly flammable brush, geocoded maps pinpoint the location and severity of wildfire risks that can cause billion-dollar catastrophe losses.

Taking a bite out of claims fraud
The US property/casualty industry is using e-commerce technologies to target and ferret out cheats who defraud the industry to the tune of $20 billion a year. ISO's all-claims database - a repository of 140 million records for auto, property, liability, and workers' compensation claims - provides insurers with the cross-referencing that exposes auto accident rings and criminal acts that otherwise might go undetected. In the coming months, ISO will offer internet access to this system to help insurers better report claims information, detect fraudulent claims, and process meritorious claims.

Link-analysis visualization is another that could revolutionize the way insurers detect fraud. This type of software analyzes large volumes of records in an insurer's claims system, then cross-references them against records in an industrywide database to find hidden connections, such as one address or Social Security number tied to several names or multiple claims. In the past this kind of analysis would take weeks, now software can do it in minutes. Insurance investigators can use this information to decide whether to probe a claim more deeply or go to the authorities. E-commerce and related technologies will revolutionize insurance along with every other industry. But the insurance industry's transition to e-commerce may take longer because of the complexities of selling insurance over the internet. Sales of automobile and homeowners' insurance over the internet - the simplest insurance lines - will generate approximately $2.5 billion in premiums by the year 2006, according to Conning and Company. That figure represents just 1.1% of the projected 2006 industry total premium for those lines of business. More complex lines likely will take longer to make the transition.

Less apparent, though certain to produce evolutionary and lasting changes, is the bottom-line impact expert systems will have on the business. Such systems could ultimately automate marketing and certain kinds of underwriting.

Information will be the cornerstone of those expert systems. To meet the information demand, insurers are beginning to rely on value-added information that helps them target potentially profitable markets, profile businesses, and evaluate risks.

The past offers abundant examples of how quickly a new technology can evolve from a novelty to a necessity. Using technologies such as the internet can yield strategic advantages through lower costs, increased efficiency, more effective marketing, and improved customer service. The effective implementation of e-commerce will soon become an economic imperative for survival.

LeRoy A. Boison, Jr., is senior vice president of insurance services for Insurance Services Office, Inc., a New York-based property/casualty information company.