Handheld Device Trends in the US Insurance Industry [0608]

8/4/2019 Handheld Device Trends in the US Insurance Industry [0608]

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Executive Summary

owerGroup has been engaged in a series o research projects on how wireless technology and mobility are inuencing business decisions in the nancial services industry. Tis report examines usage o wirelesshandheld devices in the US insurance industry. o urther rene our observations, we dierentiatedbetween roles o users o handheld devices in the insurance industry, ocusing on eld personnel in salesand claims.

Our observations indicate that handheld device utilization in the insurance industry is growing. owerGroupbelieves this growth is primarily due to wide-scale improvements in ease o use o applications or handheld

devices and, perhaps more important, technological advancements in wireless sotware applications andplatorms that make the solutions reliable.

A undamental shit has occurred that improves the value proposition o handheld device solutions orinsurers. Te shit is toward accelerating business velocity by mobilizing customer-acing applications. Tisis in direct contrast to the early days o mobile devices, when cost justication or adoption o wirelesshandheld devices was based simply on their use or internal e-mail communications. Handheld devices arerapidly becoming a necessity or doing business because they permit real-time access to important revenue-generating data and inormation.

o summarize the key ndings rom our research:

• Te insurance industry's spending on mobile technology has been increasing at a compound annualgrowth rate (CAGR) o 18%.

• Adoption o handheld devices in the insurance industry continues to escalate, although it lags a ew years behind the adoption curve in the US banking and securities and investments industries.

• Mobile solutions can drive an eciency gain o up to a 30% gain in claims processing.

• One o the most innovative and practical deployments o wireless communications via handhelddevices is near-real-time notication to adjusters o a new claim. Dynamic case assignment, including

the transmission o rst notice o loss, location, and routing, is tied to an emerging claims utility thatacts as a conduit between independent and captive claims adjusters and a handul o leading carriers.

Handheld Device Trends inthe US Insurance Industry

Cynthia SaccociaResearch Director, Insurance

Bob EganResearch Director, Emerging Technologies

August 2006


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© 2006 The Tower Group, Inc.


• Te prolieration o mobile devices drives benets in business continuity because implementingbusiness applications on handheld devices orces simplication o business processes and data as

well as standardization.

• Te key question an insurance company should ask is not whether it should employ mobile solutionsbut where in the organization mobility can be most eective.

• Successul investment at the lowest cost o ownership can only be realized i an insurer determines what platorms and applications best align to the company's overall business operations and whenmobile applications should be deployed in various operations.

Mobility is an inevitable technology solution or insurers. Te rise in mobile and wireless technology capability is the catalyst that the insurance industry needs in order to keep pace with agents’ and customers’insatiable demands or real-time business processes. Real-time eciencies will be critical to the internaloperations o insurance companies i they are to grow and ourish. Te prolieration o mobile technologiesmakes their use in people’s daily routines viable and commonplace.

Tis research report outlines opportunities and options available to insurers to respond to a highly competitive marketplace through mobile technology.

Background on Handheld Device Adoption

Handheld devices such as personal digital assistants (PDAs), smartphones (cell phones capable o supporting mobile application solutions), and tablet or notebook PCs are no longer on the cutting edgeo innovation. Tey are now commonplace tools o business and daily lie. owerGroup research ndsthat mobile devices and services are nearly ubiquitous in the nancial services industry, where they join

communities o internal and external users. As they become commoditized, nding greater value romthese devices will depend on maturing individual usage rom business governance to unctional processesand will require platorm extension.

Early trends demonstrated that use o handheld devices in business yields benets by converting downtimeto productive time. At major nancial services institutions (FSIs), early adoption occurred at the seniorexecutive level. Te demand or time-saving business governance applications such as e-mail, calendarunctions, and contact inormation was the initial key driver o adoption o this mobile technology.Industry studies in 2004 ound that executives could save approximately one hour per workday by usingmobile technology, which allowed them to respond more eciently to other demands.

Te allure o “any time, anywhere” access simply or business governance is now waning, owerGroupnds. But there is rising demand rom executives or real-time inormation such as sales reporting and key perormance indicators. Te availability o real-time applications will pave the way or broader adoptiono mobile solutions enterprise-wide. Characteristically, adoption o handheld devices at an FSI ows romsenior executives to business line managers and eventually permeates select business units. Companiesrepurpose older devices and upgrade devices or experienced users. As an institution expands usage o handheld devices rom a limited number o executives to hundreds o users, there is a greater need or thebusiness to justiy the investment. It is at this point that we see the role o I expanding to a centralizedunction to establish strategy, standards, and policies regarding these devices and to better evaluate thecompany’s inrastructure needs.



Handheld Device Trends in the US Insurance Industry



Te ollowing sections explore these trends urther as they relate to the insurance industry. We will ocuson how handheld devices and the business applications they enable will be an important aspect in the daily routines o insurance industry eld personnel and how these devices provide some competitive edge in themarket today.

General Mobility Trends in the Insurance Industry

Te benets o using mobile solutions are changing the ace o the insurance industry. Mobile devicessuch as handheld devices, laptop computers, and tablet PCs enable eld personnel to do their jobs moreeciently with less downtime.

Challenges

Besides benets, the uses o mobile and wireless technology in the insurance industry present new challenges, including:

• Dening the need or mobility or lines o business and ensuring alignment with I strategies

• Procuring the right device(s)

• Controlling and managing the prolieration o devices

• Determining the right combination o mobile operator(s) and suitable telecom plans

• Selecting the applications platorm or dierent business units

• Ensuring ease o use o applications

• Addressing new data security and personal privacy issues

• Upgrading existing inrastructure to realize ully the value o the mobile investment

Exhibit 1

US Insurance Industry Spending on MobileTechnology (2001–0P)

Source: TowerGroup

$12

$1

$2

$2

0

5

10

15

20

25

30

$35

2001 2003 2005 2007P

(USD in Millions)

CA G R = 1

. %



TowerGroup Analysis



Spending on mobile technology is one o the astest growing components o I spending in the insuranceindustry. Over the past ew years, insurance industry spending on mobile technology has been increasingat a compound annual growth rate (CAGR) o 18%, while the industry’s total I budget growth has beenless than 3% year over year. Exhibit 1 illustrates how owerGroup expects this trend to continue through2007. Tis spending trend indicates that CIOs and business managers recognize the value o mobile

solutions and are willing to adjust their budgets and spending priorities to reect that value.

owerGroup believes that larger carriers that are in a position to deploy mobile technology while mitigatingthe associated risks will gain the greatest advantages. Some ambiguity still exists in the insurance industry as to whether mobile solutions are merely nice to have or truly necessary. However, owerGroup believesthat the organic growth o adoption observed in the industry is likely to have a compounding eect. As aresult, mobility will be a business necessity i a rm is to stay current and competitive.

owerGroup research has shown that handheld device adoption in the US insurance industry continuesto escalate. Although it lags a ew years behind the adoption curve in the US banking and securities and

investments industries, the trends are nearly identical. Further, the insurance industry is quickly ollowingsecurities and investments industry in deployment o handheld device solutions or eld sales personnel.

Handheld Device Usage for Insurance Sales

Gathering assets through partnerships and aliations is critical or insurers to increase revenue, and third-party distribution will continue to dominate the distribution o insurance products. Exhibit 2 illustratesthe importance and variety o partnerships by showing the distribution o sales o variable annuities by thevarious distribution channels. Te variable annuity product is a bellwether or other products.

Exhibit 2

Sales Distribution of Variable Annuities by Typeof Distributor (200)

Source: LIMRA

1%

16%

12%

%%

21%

21%

BANKS

INDEPENDENT AGENTS

CAREER AGENTS

STOCKBROKERS

INDEPENDENT BROKER-DEALERS

DIRECT RESPONSE

OTHER






Exhibit 2 indicates that insurance distribution is complicated and involves a network o specialists to reachand support a variety o retail distribution outlets. Although each distributor oers distinct opportunitiesor insurers to increase sales, each distributor also adds to the complexity and diculty o supporting andservicing a burgeoning network o distributors. Insurers typically manage these relationships through anetwork o eld sales personnel.

Sales personnel typically spend most o their workday away rom an oce, and their workday requently includes irregular hours. Tese work customs should compel insurers to seek cost-eective ways to deliver“any time, anywhere” interactions between sales personnel, their home oce, and their clients. Since mostinteractions involve day-to-day contact on simple communications or updates and inormation, insurersmust make eciency a priority.

Although sales roles and responsibilities dier across the insurance industry, usage o eld devices doesnot vary widely. It typically involves some orm o PDA or smartphone and a portable computer such asa tablet PC. Te key dierences in usage o these two devices is that people tend to use handheld devices

or simple tasks such as e-mail to access contact inormation or customer data or simple interactionsbut use portable computers (laptops or tablet PCs) to collect and analyze large amounts o data to makecomplex decisions. In our research, we ound that much has changed in device adoption because o a directcorrelation between device usage and application readiness.

Initial trends indicate a substantial increase in deployment o handheld devices among insurance wholesalersand product specialists over the past 18 months, especially at top-tier lie and annuity (L&A) insurancecompanies. Te key reason is that wireless sotware is advancing beyond business governance applicationsto more revenue-intensive ones. Tis progress in wireless sotware applications provides a window intoexisting systems and exposes pertinent data housed in dierent repositories to the handheld user. In mostcases, this window is simply a dashboard or client, marketing, portolio, and reporting data in real time.Large-scale activations now entail some orm o platorm extension in customer relationship management(CRM), sales production data, and analytics and involve any one or all o these areas.

For example, users now have a view into data such as account values, positions, recent activity, and clientinormation. Value is added when companies include regular updates o sales production reports andterritory analysis. What is interesting is that the size o the device is orcing companies to decide about

what data is most valuable to sales productivity, what investments in the network are necessary, and whatplatorm to use.

Insurers also recognize benets in business continuity because implementing business applications on

handheld devices orces simplication o business processes and data. Te prolieration o applications anddevices promotes standardization, which maximizes the return on investment (ROI). Tis is an importantexercise because it brings the business needs and I capabilities closer together. Further evidence indicatesthat when pertinent data housed in dierent repositories is available to users o handheld devices, adoptionrates o the devices increase, which drives down the total cost o ownership.

Increasingly, insurance companies are able to articulate clearly the business reasons or expanding theirinvestments in mobile devices and the required inrastructure. Te natural progression in unctionality orhandheld devices to support sales makes perect sense. Field personnel spend most o their time away romthe oce and need access to revenue-generating data and inormation. While mobile business governance

saves approximately one hour per day in internal-acing productivity, these gains are no longer sucientby themselves. I adoption is to be widespread, insurers must ocus their investments on wireless andhandheld device solutions and applications that emphasize increasing business velocity. Mobile devicesequipped or business applications have a better value proposition because their use can improve the



TowerGroup Analysis

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insurer’s own value proposition. Generically, these applications center on sales orce automation (SFA)and customer relationship management (CRM), especially when tailored to the requirements o a specicline o business, owerGroup believes. In our research, we ound a number o viable wireless sotwarevendor solutions to support eld sales personnel. Such support is necessary or insurers to rationalize theinvestment in handheld mobile solutions.

Handheld Device Usage for Claims Services

Besides sales personnel, the other group o insurance industry employees or whom mobile devices areessential are the eld personnel who support claims adjustment. Tese workers investigate claims, assessdamage, and audit claims inormation. Tey perorm the majority o their work away rom their homeoce, so their needs or mobile access to data are similar in many ways to the needs o sales personnel. Itis important to note that not all insurers directly employ the people who deliver these unctions. Instead,many insurance companies outsource the claims adjustment unction entirely. Others have a small sta o ull-time adjusters or day-to-day business and hire adjusters on a part-time basis in times o catastrophe.

Exhibit

Mobile Claims Adjusting Example (2006)

Source: TowerGroupNote: LAN = local area network; WAN = wide area network.

MOBILEDEVICE

Check is printed, andclaim is settled

WIRELESSCELLULARNETWORKS

ADJUSTER

INTERNET

Adjuster is dispatched and routed basedon current location; takes digital photo

Insurance Company

WANLAN CORE CLAIMSYSTEM

Bluetooth or Wi-Fi

Overall, mobile solutions are organically being adopted in claims processing and can improve day-to-day service as well as eld service in times o disaster. Mobility lessens the need or temporary oces requently established as part o a disaster response. Instead o adjusters shuttling between a temporary oce andthe customers aected by a disaster, they can assess damage on site and immediately communicate withthe carrier. For example, Te Hartord used mobile technology to settle more than 51,000 claims relatedto Hurricane Katrina. By mid-2005, the company had settled 96% o those claims, thanks largely to its“Claims Expediter” mobile system, which helped adjusters make immediate claims payments on site even

though they lacked electricity and phone service. Te company’s adjusters used global positioning systems(GPSs) to nd the claimants’ locations in places where landmarks and road signs were gone. Te Hartordis not an isolated example, State Farm having leveraged wireless technology in Florida in 2004 to respond






to over 59,000 claims ater Hurricane Charley. However, Te Hartord’s use o mobile technology in themore recent disaster was innovative because it was so pervasive.

Exhibit 3 illustrates a typical claims process ow using mobile devices to move data and inormation romthe eld to the home oce. owerGroup estimates that eciency increases 20% to 30% because the

transmission o inormation is on demand and more ecient than the traditional process o taking notesand photos and using them later to compile a report. Te mobile solution reduces a two-step process to aone-step process.

owerGroup rst reported the emergence o some handheld device usage among eld claims personnel someyears ago and now sees prolieration o devices because o advancements in wireless sotware applications.

While most eld claims personnel are still using handheld devices or internal-acing business governance,there are a ew interesting developments. We ound that carriers could expedite claim handling by instantly notiying adjusters o a new claim and assigning them the case dynamically. Carriers can transmit key dataon rst-notice o loss, location, and routing. Te adjuster can accept the business in real time, thereby

improving continuity between the two parties. Te best use o this business ow is with an emergingclaims utility that acts as a conduit between independent and captive claims adjusters and a handul o leading carriers.

With nearly 205,000 claims adjusters in the industry, this group oers the best example o a heavy user o technology in the eld or business services. Te benets are clear—a claims adjuster using mobile devicescan collect detailed inormation on the spot, which oten improves the accuracy o data and transactions.Mobile technology streamlines claims processing, increasing productivity in the process and reducing thepotential or adjudication o claims and raudulent claims. Insurers must consider how a business process

will work with handheld devices and be diligent in watching the emergence o applications and services tooptimize these processes urther.

Barriers to Adoption

Te insurance industry is not unique with respect to barriers to adoption o handheld devices. Te sameobstacles are prevalent across the nancial services industry. Te rst is security: Nearly 84,000 handhelddevices are lost in taxicabs in New York City alone each year, a statistic indicating that keeping customerdata secure is o utmost importance. Another obstacle is storage capacity: Embedded storage in handhelddevices is very limited. Broadly exposing and increasing mobility or existing system data raises awarenessabout the quality and security o the constituent data repositories. A third obstacle is inconsistent

connectivity: Te inrastructure cannot support a broad wireless community. Te perormance o wirelessnetwork connections remains inconsistent, spotty, costly, and insecure.

Te list o objections is long and presents arduous challenges. However, solutions and advancements in anumber o these areas oer a host o dierent ways to overcome these issues.

• Security.Te importance o securing sensitive customer data requires robust solutions in encryptionand device access control. A number o alternatives are available, including biometrics or userauthentication, password control, USB keys, and tokens. Protection against thet may also includesotware that will authenticate, monitor, log, and remotely wipe devices in addition to an “always on”or “archival” encryption. Each security solution has a dierent price point or deployment.

• Storage. As the demand or more data and complex presentations o inormation grows, so does theneed or storage capacity. Companies can now employ “removal storage” cards, such as Secure Digital(SD) devices, in order to compensate or the lack o resident storage in PDAs and smartphones.



TowerGroup Analysis



Insurers would be well advised, however, to consider the increased security risks and variablesintroduced by removable storage devices.

• Connectivity.Latency or network-only based applications is still high, and under many circumstances connections are not 100% reliable all o the time. Tereore, consideration mustbe given to a sel-synchronous model, or ofine mode wherein individuals can work even withintermittent connections. With this approach, updates to the data occur when the connection isrestored. (Te updates occur via a mechanism that is transparent rom a user’s point o view.)

• Networkstandards. A number o more eective options in cellular networks oer a betteralternative to the 802.11 (Wi-Fi) network standard. Tese cellular options are the Evolution-DataOptimized (EV-DO), Wideband-Code Division Multiple Access (W-CDMA), and Enhanced DataRates or Global Evolution (EDGE) technologies. Because Wi-Fi access depends on location andthere are issues o signal strength, cost, perormance, and security surrounding the Wi-Fi standard,companies must consider the alternatives in mobile broadband as options that are more reliable.Tese standards are also easier to integrate into business operations in many instances.

Conclusion

Much like the personal computer in the 1980s, mobile devices are nding their way into corporateenterprises virally through organic growth because o the convenience and unctionality they oer. Like PCs,mobile devices are a premier example o consumer adoption o technology being a prelude to institutionaladoption. Adoption o mobile and wireless technologies in the insurance industry is no dierent. In act,casual adoption o mobile devices already in play in insurers’ enterprises should raise security and privacy concerns as well as cost-o-ownership issues (that today may be invisible) that reect negatively on costso operation.

Tus, the key question is not, should an insurance company employ mobile technology and solutions,but where in the organization can mobility be most eective? It is critical that insurers determine how

widely mobile solutions should be deployed in the enterprise, what platorms and applications best alignto the company’s business operations and strategies, and how soon the company should invest in broaddeployment. For example, in an attempt to drive new eciencies in claims processing, many insurersare investing in real-time enterprise (RE) technologies. But how can an insurer achieve the benets o RE i its business is in non-real-time mode between its central operations and its eld-based businessconstituencies and customers because the organization lacks a mobile inormation ramework?

Te choice or insurers is absolute: Exploit the rise in mobile and wireless technology capability that aligns with business objectives. Deploy mobile sotware applications and devices to advance business velocity internally and with agents and customers. Use it to increase eciencies in areas like claims processing andto acilitate rapid and meaningul disaster relie responses.

Te implications o adoption o mobile technology or the insurance business vary, based on thebusiness perspective and model. Some companies have more demand or mobility and handheld devicesbecause they employ a great many eld personnel, whereas others have less demand because the insurercontracts with other providers, outsourcing claims adjustment, or example. No matter what directionan insurance company chooses, it is increasingly important or executives and line-o-business (LOB)managers to understand in detail the emerging trends in device usage and to work closely with their Idepartments to introduce innovation in the company’s various work groups. Tis active participation is very important so that both corporate executives and LOB managers can understand clearly how the trends in





mobility will aect their rm’s business operations and competitive standing. Whereas corporate executivesare responsible or institutional strategy and competitive standing, LOB managers will drive morebusiness-localized initiatives. Te only dierence in their decisions is likely to be one o scale and not oneo choice.

Research in Motion Limited commissioned TowerGroup to conduct independent research and analysis to assess

the use of handheld mobility in the insurance industry. The content of this report is the product of TowerGroup and

is based on independent, unbiased research not tied to any vendor product or solution. Although every effort has

been made to verify the accuracy of this information, neither TowerGroup nor the sponsor of this report can accept

any responsibility or liability for reliance by any person on this research or any of the information, opinions,

or conclusions set out in the report.

Handheld Device Trends in the US Insurance Industry [0608]

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