Information Techonology in Insurance

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INDEX

Sr.No Subject PageN

o

1. Introduction 03-13

2. The Earlier Business Model 14-15

3. Application Of IT in Insurance 16-19

4. The Need for IT 20-24

5. Technologies for Insurance 25-30

6. Insurance and E-Commerce E-Insurance 31-41

7. Information Technology and LIC 42-49

8. IT Department in an insurance company 50-51

9. Y2K Remediation 52

10. What will IT be Like in the coming Years? 53

11. Future Scenario 54

12. Conclusion 55

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OBJECTIVES

Technology plays a vital role in effortlessly and transparently

integrating the various arms of the company to deliver to the customer and

organization the corporate envisioning. To improve their technical proficiency by

upgrading their information support by developing strong research and development

department in their respective organization. Further, in an era of high customer

expectations constant efforts of increasing services through the use of technology

become imperative (vital). IT has to be used effectively to tap (strike) the potential

market.

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INTODUCTION TO INSURANCE

What is Insurance?

The business of insurance is related to the protection of the

economic value of assets. Every asset has a value. The asset would have been created

through the efforts of the owner, in the expectation that, either through the income

generated there or from some other output, some of his needs would be met.

For Example:

1. In the case of a factory or a cow, the production is sold and income generated.

2. In the case of a Motorcar, it provides comfort and convenience in transportation.

There is normally expected life time for the asset during which

time it is excepted to perform. The owner, aware of this, can so manage his affairs that by

the end of that life time, a substitute is made available to ensure that the value or income

is not lost. However, if the asset gets lost earlier, being destroyed or made non-functional,

through an accident or other unfortunate event, the owner and those deriving benefits

therefore suffer. Insurance is a mechanism that helps to reduce such adverse

consequences.

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Definition of Insurance

it is a form of a contract or agreement under which one party

agrees to pay in return of consideration an agreed amount of money to another party to

make good loss, damage or injury due to some uncertain event in which the insured has

interest.

Purpose & Need of Insurance

Assets are insured because they are likely to be destroyed or made

non-functional, through an accidental occurrence. Such possible occurrences are called

perils. Fire, floods, breakdowns, lightening, earthquakes, etc, are perils. The damage that

the perils may cause the asset, is the risk that the asset is exposed to. The risk only means

that there is a possibility of loss or damage. It may or may not happen.

The mechanism of insurance is very simple. People who are

exposed to the same risks come together and agree that, if any one of the members

suffers a loss, the others will share the loss and make good to the person who lost.

A human life is also an income generating asset. This asset also

can be lost through unexpectedly early death or made non-functional through sickness

and disabilities caused by accidents. Accidents may or may not happen. Death will

happen, but the timing is uncertain. If it happens around the income will normally cease,

the person concerned could have made some other arrangements to meet the continuing

needs. But if it happens much earlier when the alternate arrangements are not in place,

insurance is necessary to help those dependent on the income.

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In the case of a human being, he may have made arrangement for

his needs after his retirement. These would have been made on the basis of some

expectations like he may live for another 15 years, or that his children will look after him.

If any of these expectations do not become true, the original arrangement would become

inadequate and there could be difficulties. Living too long can be as much a problem as

dying too young. These are risks which need to be safeguarded against. Insurance takes

care of it.

Insurance does not protect the asset. It does not prevent its loss due

to peril. The peril cannot be avoided through insurance. The peril can sometime be

avoided, through better safety and damage control management. Insurance only tires to

reduce the impact of the risk on the owner of the asset and those who depend on that

asset. It compensates, may not be fully, the losses. Only economic or financial losses can

be compensated.

The concept of insurance has been extended beyond the coverage

of tangible assets. Exporters run the risk of the importers in the country defaulting as

well as losses due to sudden changes in currency exchange rates, economic policies or

political disturbances. These risks are now insured. Doctors run the risk of being charged

with negligence and subsequent liability for damages. The amounts in question can be

fairly large, beyond the capacity of individuals to bear. These are insured. Thus,

insurance is extended to intangibles. In some countries, the voice of a singer ort the legs

of a dancer may be insured, even though the advantage of spread may not be available in

these cases.

There are certain basic principles which make it possible for

insurance to remain popular which make it arrangement. The first is the fact that people

are exposed to risks and that the consequences of such risks are difficult for any one

individual to bear. It becomes bearable when the community shares the burden. The

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second is that no one person should be in a position to make the risk happen. Ion other

words, none in the group should set fire to his assets and ask others to share the costs of

damage. This would be taking unfair advantage of an arrangement put into place to

protect people from the risks they are exposed to. The occurrence has to be random,

accidental, and not the deliberate creation of the insured person.

Function of Insurance

The function of insurance is divided into two parts:

A. Primary Function

B. Secondary Function

A. Primary Function:

i. Insurance provides certainty:

Insurance provides certainty of payment at the uncertainty of loss.

There is different types uncertainty of risk. The risk will occur or not, when willoccur how much loss will be there? Insurance removes all these uncertainty and the

assured is given certainty of payment of loss. The insurer charge premium for

providing the said certainty.

ii. Insurance provides protection: -

The main function of the insurance is to provide protection against

the probable chances of loss. The insurance guarantees the payment of loss and thus

protects the assured from sufferings. The insurance cannot check the happening of risk

but can provide the losses at the happening of the risk.

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iii. Risk sharing: -

Life and property of person are subject to a number of uncertain

risks. Thus the loss that a few may suffer is spread over to a number of people who

have insured against the same risk. The premium paid by a large number of persons are

used to compensate the loss, that a few may suffer i.e. insurance company never takes

the risks; it covers the risk and immediately spreads the risk among many insureds.

Because the premiums for insurance are paid by large number of insureds whereas the

loss is suffered by few insureds. Thus from the premiums collected the compensations

are paid to the sufferers.

B. Secondary Function:

i. Prevention of Loss : -

The insurance join hands with those in situations which are

engaged in preventing the losses of the society because the reduction in loss caused

lesser payments to the assured and so more saving is possible which will assist in

reducing the premium. Lesser premium is reduced to, which will stimulate more

business and more protection to the masses.

ii. It provides capital : -

The insurance provides capital to the society. The accumulated

fund are invested in productive channel, the dearth (Lack) of capital of the society is

minimized to a greater extent with the help of investment of insurance.

iii. It improves efficiency: -

The insurance eliminates worries and miseries of losses at death

and destruction of property. The carefree person can devote his body and soul

together for better achievement. It improves its efficiency.

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iv. It helps economic Progress: -

The insurance by protecting the society from huge losses of

damage, destruction and death, provides an initiative to work hard for the betterment

of the masses. The next factor of economic progress, the capital, is also immensely

provided by the masses.

Kinds of Insurance

The insurance can be classified into three categories from business point of view:

I. Life Insurance

II. General Insurance

III. Social Insurance

I. Life Insurance

Life Insurance is a contract or agreement by which InsuranceCompany agrees to pay in return premiums or lump sum premium, an agreed

amount of money at the time of death or maturity of policy whichever is earlier.

Life Insurance is the latest type of insurance and popular type of

insurance. In India the business of Life Insurance is conducted by Life Insurance

Corporation of India, which is an example of statutory Company. This life insurance

is based on two principles i.e. utmost good faith and insurable interest. Life Insurance

contract is not a contract of Indemnity. It is a contract for the payment of a specific

amount, as the value of human life cannot be measured in terms of money.

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II. General Insurance:

The General Insurance includes property insurance, liability

insurance and other forms of insurance. Fire and Marine insurance are property

insurance. Motor, theft, fidelity and machine insurances include the extent of liability

insurance to a certain extent. The strictest form of liability insurance is fidelity

insurance, whereby the insurer compensates the loss to the insured when he is under

the liability of payment to the third party.

III. Social Insurance:

The social insurance is to provide protection to the weaker section

of the society who is unable to pay the premium adequate insurance. Pension plans,

disability benefit, unemployment benefit, sickness insurance and industrial insurance

are the various forms of social insurance. With the increase of socialistic ideas, the

social insurance is the obligatory duty of the nation. The government of the country

must provide social insurance to its masses.

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INFORMATION TECHNOLOGY AND INSURANCE

Introduction: -

Now days Information Technology permeate virtually every aspect

of modern business to the extent that its effective use can easily mean the difference

between success and failure. The effective use of Information Technology is one of the

biggest challenges facing most of the organization today. Understanding the role of

information technology plays and how to make the best use of Information Technology

systems is an essential requirement for any organization seeking competitive advantage.

What is IT?

IT stand forInformation Technology and in its widest sense,

refers to any technology controlled by a microprocessor (or a computer chip). For

example: Microprocessor is used to control the delivery of essential services such as

water, electricity and telecommunication.

There is no organization that can afford to ignore the empowering

technology of the modern world. Todays IT systems can help a business to be more

responsive, efficient and flexible in the face of continuous and rapid change. Properly

used Information Technology will allow every company to stream line its processes and

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focus on its core skills and abilities that differentiate if form its competitors in the market

place failure to embrace the opportunities that are ace offered by Information Technology

today is likely to result in business failure.

The developments in Information Technology (IT) are working

wonders in all fields of activity. It has become possible to send and receive information

almost instantaneously. If circulars do not reach the agents does not have details of new

plans announced in the press, the agent may face awkward situations with the prospects.

These problems can be totally avoided with the use of IT. Insurers traditionally, have

been quick to adapt latest advances in technology. This is happening in the areas of IT as

well. The extent of IT application will vary between insurers.

Using the power of modern Information Technology systems to the

best advantage is a strategic skill that has become an essential requirement if an

organization already of its competitors Information Technology fulfills many functions in

an organization including automated process and systems management; but for manager

the key role is as an enabling technology. Manager must select and use Information

Technology systems to simplify business process and to acquire analyze and manage data

on which their business depends.

Information Technology is a business tool that can radically improve the way

business is managed. If systems are to deliver real benefits, then they must be: -

1. Transparent to the user:

Users need not know how systems work; the requirement is

simply that the systems perform as and when needed.

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2. Fast and Easy to use: -

Users should find the systems simple to use and must be

able to complete the tasks without having to wait any significance time for the

system to respond.

3. Flexible: -

Changing needs require systems that are capable of being

adapted quickly.

Changes with the technology sector of the insurance industry are

occurring with unique speed, traveling beyond and impacting companies more fully than

ever expected. Business drivers are leading insurers to look for technologies and business

processes that are significantly different from anything they have used before. Driving

forces such as market globalization, merger and acquisition activity, and the critical need

to adopt market segmentation strategies are forcing companies to move to the information

age at a unique speed. Those unwilling to make the move risk being left behind with

unsatisfactory business levels, declining profits and ultimately, the inability to survive.

On Account of various reasons, the insurance industry in India has

not kept pace with the rapid development in technology. It is only in recent years that an

attempt is being made to become technology-wise.

The revolution in communications and Information Technology is

promising to change the way business is done. These innovations are promising to make

things transparent, quicker and accessible. From their controlling offices located

thousands of miles away a company like M/s Hindustan Lever claims it knows the stock

movement at remote depots a minute-to-minute basis.

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A patient undergoing tests in the U.S in the evening finds his reports processed and

ready in the morning.

A lawyer dictates his notes in his recorder late in the night. The next morning neatly

typed out notes is available in his computer. The processing work has been done in a

distant country like India.

In Insurance also, Technology will play a vital role. Any player in

the market will have to be technology know-how, to be competitive and to enable the

organization to survive. It should be possible for a proposal in guwahati to be evaluated

in Mumbai and acceptance confirmed immediately. All these new technologies promise

to reduce operational costs significantly.

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The Earlier Business Model: -

In the pre-computer days, agencies, handled almost all customer

service. Though manual, this system was efficient in the there was no duplication of

processes by agencies and insurers. The insurers main role was to provide financial

backing and keep statistical information.

The advent of computers in the 1960s allowed insurers to change

their business model. As mainframes became entrenched, more functions flowed back to

home office. Agencies did less, and big bureaucracies in both home and branch offices

became necessary to run the companys business.

Built around centralized control and a large bureaucracy at the

home office, the old business model customarily relies on a mainframe or other large

computer system. This technology foundation offers centralized processing power and

huge data storage capacity. However, under this model, customer support for billing,

claims, and policy servicing are often split between the agent and the company, and the

often handled by different company departments. Customers with multiple concerns are

bounced from agents to company and from department to department, introducing many

opportunities to commit errors. That often results in a dissatisfied customer and high

service costs that are difficult to manage.

In this environment, a cadre of highly trained and expensive

programmers is needed to maintain the mainframe or large computer system. Users, such

as marketing staff and underwriters, must make a written request to the information

systems (IS) department, which then puts the request in its queue. The order may take

weeks, months, or years to fulfill. The first attempt is often sent back for fine-tuning

because of communication gaps between the business unit and the IS department and

time lags need definition and programmed resolution.

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Today, the mainframe or other large computer system is still an

industry workhorse. But insurers are recognizing that it is a millstone because the

environment is so inflexible. Changing business process is time-consuming and requires

expensive programming and even then the results may not be optimal. The enormous cost

and anxiety spurred by year 2000 compliance issues provides an extreme example. Thats

why many insurers are no longer putting new lines of business on their mainframes,

turning instead to client/server systems that offer a superior, user-friendly development

environment centered on fulfillment at the point of sale.

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Application of Information Technology (IT) in Insurance (The New

Business Model): -

There has a revolution in the way insurance companies do business.

The new emerging business model depends heavily on information technology.

What is this new business model? Primarily, it is customer-

oriented. That is, all processes are designed to satisfy customer needs, rather than the

companys needs. The new model is also decentralized; with more responsibility and

power given to the people who are on the front lines with the customers-whether they are

independent agents, brokers, captive agents, or company employees.

Giving these people the automated tools they need to handle all

customer requests, often in a single session, lets insurers satisfy customer needs faster

and better. As result, the new business model is flexible, responsive and cost-efficient.

Many established companies, especially those with a keen eye on

the strategic advantages of leading- edged automation, having already adopted the new

technology-driven business model either comprehensively or in specific niches, such as a

specially line or a residual market. And forward- thinking start-ups are now running their

entire company on the new business model and powering with a network of personal

computers.

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The Need for Information Technology:

The rapid innovation in the field of information and

communications technology has posed serious challenges for the insurance industry in

India. The use and applications of Information Technology in wide variety of Insurers

operations has now become strategic in the sense that it has direct impact on the

productivity of resources, and a sweepening impact on reducing the cost of various

activities.

With the arrival of private insurance players, the competition has

become more intense and an important role is being played by the insurance sector. Even

though the use of information technology is not new to the insurance sector, yet we may

find tight compartmentalization regarding the use of information technology in various

departments of the insurance companies including the major players since last years. The

most visible of these departments are accounting, policy issue and servicing, claim

processing sales management etc. The innovation in information technology can be

effectively utilized in the following areas

Therefore the imperative for all the insurers, especially LIC and GIC is to build up an

efficient interface between the various departments and segments. This would reduce the

Speedy and correct issuance ofdocuments.Expenditure disposal of claims

Proper building of accounts andstatistics

Quality Assurance

& Efficiency

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representatives or agents desktop, or even on a laptop the agent can take to a meeting at

the clients home or place of business. (The internet will one day become an important

point of sale and service as well.) An integrated client/ server system can provide the user

With proper processing rules at the desktop, resulting in consistent enterprise-wide

processing. This offers many advantages, including quotes that match the actual

premium.

Flexibility: -

In todays competitive environment, insurers dont have the luxury

of time. They must respond quickly to take advantage of market opportunities. Software

that new automation model is tool-based. Instead of having to rely on programming, the

user/ analyst simply select a tool; to quickly change a rate, add a field, or modify an

endorsement. In business terms, insurers get a much more cost-effective and timely way

to address new or changing market conditions.

Scalability: -

New style automation can be used anywhere because it is scalable.

The full version of a processing system is used for company-wide functions. The same

software can be scaled down to fit on a laptop. This means lower costs, flexibility;

more focused access to information, and improved service across the insurers

organization.

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Advantages of Information Technology: -

First, costs are lower. In part, this stems from lower hardware

costs; For example, disk storage on a personal computer (PC) is about one-twentieth the

cost of the same amount of mainframe storage. A powerful PC client now costs the same

the same as a dumb terminal once did.

More importantly, hardware savings are ultimately dwarfed by

personnel savings and increased business opportunities. Since users are empowered,

programmers and system analysts can be freed from maintenance and development and

redirected toward providing more immediate business services to the consumers and the

company.

Extendibility is another key advantage of the new environment.Creating a new product or revising an existing one is not as monumental a task as it is

with the old automation model. Insurers can easily adjust both their business tactics and

strategies. They can test new market- places quickly and inexpensively. If a specific plan

doesnt work out, they havent lost months of time and lakhs of rupees in programming

and management expenses.

The internet along with the company or industry specific intranets

will ultimately put significant insurance information directly in the hands of the consumer

at a reasonable cost. Customers will be able to inquire about their policies and

coverages, make changes and get quotes all from the convenience of their home

computer.

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Better access to critical information is another benefit of the new

automation model. Integrated new-model systems put information about losses, expenses,

market penetration, and agencies at managements fingertips instantaneously. With vastly

superior data, company executives can take steps to lower operating costs with more

confidence and craft better short and long term strategies.

Finally, the new IT driven model also insurers give better, more

focused service to the insureds and its agents. With an integrated system, service

Representative can answer almost any question posed by a policyholder or agent. They

can readily go into the system and prepare a quote, find the cost of a policy change, or

check the status of a claim payment.

Since processing is more efficient and more work can be done with

fewer employees, progressive companies have begun to feel the positive impact of the

new business and automation models. One-and- done may be a catchy phrase, but it

does underscore an important message. It means that one employee can take care of most

requests from start to finish in one transaction. One-and-done also reiterates a key

concept expressed earlier in this chapter; by virtue of being customer-centered, the

combination of a new business model and new automation provides much greater scope

to increase business, lower costs and offer better service.

For decades, the insurance industrys old model of automation has

been both a hindrance and a help in enabling companies to achieve business goals. With a

new model of automation supporting todays revolutionary insurance distribution

condition, technology has again become the industrys servant, instead of its master.

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Technologies for Insurance:

There has never been a time when the effective use of Information

technology has been more crucial to the success of the insurance industry. The industry

markets are being revolutionized by technology at a high speed pace. IT and software

solutions, allowing cross-border trade to become electronic and paperless, are

increasingly on offer to importers, exporters, shipping companies and financial

institutions. Following technological advancements can really enhance the performance

of insurance companies.

Database Management Systems:

The principles of tracking and measuring responses can pay off the

conventional insurance industry. To find more clients, insurers needs to consider many

factors, including lapsation, cash value, premium and competition. But the need to recordand study the characteristics of persistency the length of tie we retain policies,

customers and agents is most important for insurance companies.

In order to find out profitable combinations of households or

clients, products and agents, a database with five to ten years history is of immense

importance. Such historical retention was profitability expensive in the past. But clear

advantages of new PC (Personal Computer) and RISC (Reduced Instruction Set

Computing) technology give s companies power to keep tens of millions of policies on a

device with thousands of bytes of data per policy/client/agent. Analyzing a year

database is cost effective. Reviewing the database provides information on how many

clients have actually migrated not just how many policies have lapsed or surrendered.

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Using database technology companies can get a comprehensive, Performance, loyalty and

lost opportunity.

Data Warehouse: -

Data warehousing technology is based on integrating a number of

information systems into a one stop shopping database to achieve vision of making

company national in scope, but regional in focus. Traditionally, the sale of policies and

the claim settlement are two separate areas for the insurance companies. Data

warehousing allows managing by profit levels with an integrated approach rather than by

limiting losses. Data mining can be used as a means to control costs and increase revenue

resulting in enormous earning for effective users.

Decision Support System: -

The path of business applications of computers, computer based

information systems (CBIS), encompasses many stages including the very early

applications like transactions processing systems (TPS) followed by the management

Information systems (MIS). The computer applications like decision support systems

(DSS), expert systems (ES) and executive information systems (EIS) are still awaited in

insurance business. Office automation (OAS) happens to be a continuously ongoing,

dynamic process for any business. Companies need to utilize decision support systems by

implementing data warehouses that pull information form existing legacy systems into a

customer information database. Such decision support system will equip the insurance

managers with ability to allow for customised products and services that are more in line

with what customers want.

Group Linking Software: -

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Group-linking software enables sharing of information and

particularly suits documents heavy insurance business. Tracking of policy application

shows how information that is input and accessed from a number of locations can

increase efficiency.

An application for coverage is entered into the groupware system

from a forms generation package. Key fields in the form are already linked to this

software allowing a user to click on a field and view information regarding that area e.g.

cost of average for similar risks. The user clicks again and taps into research information

regarding such risks, underwriting guidelines or other documentation. If underwriting

guidelines have been updated the changes are highlighted in red and marked with a start.

The basic promise behind the groupware is to allow an unlimited number of users to

collaborate on a project at any time, in real time, and to track the location and progress of

the project. The ability to replicate (reproduce) information and to synchronize (match)

databases or applications no matter where you are in the world is what made group

linking software a breakthrough technology. Some of the group linking software is lotus

notes, exchange, and first class.

Imaging and Work-flow Technologies: -

The proposal forms may be scanned into an imaging system, data

may be extracted for update to computer and for automated underwriting workflow may

be implemented. it is estimated that imaging and workflow enabled underwriting could

reduce the time taken to issue a policy as much as 60%. Under the imaging system, every

document-be it correspondence, forms, photocopies of cheques, faxes etc. are all

maintained in a shareable electronic folder-neatly indexed, updated, and available

simultaneously to all concerned.

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For example: The recent report of MetLife insurance indicated the performance

improvement attributed to imaging and workflow technology to the extent of 50,000

claims document-clearance in 8 hours in case of dental claims of health insurance

services.

Mapping: -

Mapping technology can be used by Insurers to meet different

needs, such as identifying loss prone areas or geographic claim analysis. It helps the

insurer to analyze the extent of its network i.e. the insurer can determine whether it has

too many or to few agency force in particular area. Mapping is a very convenient way to

layer (cover) disparate (different) information from various databases to create pictures.

Maps can illustrate how many building are located in a flood plain, or whether two

buildings covered by the same insurers fire policies are close by each other and thus

present a potential double loss if fire breaks out in one of them

Call Centre Technology: -

Good customer service is a crucial element in gaining, maintaining

and retaining profitable customer. Call centre concept based on Interactive Voice

Response Services (IVRS) are gaining importance in this aspect. Employees based the

primitive concept of call centre on an enquiry system providing information services to

customers through telephone lines answers. The totally automated computerized

exchange but lacks in flexibility i.e. only predefined queries are serviced. The insurance

companies world-wide are accepting the auto manual Call Centres as one of the

important strategies for Customer Relationship Management.

Video Linking: -

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A video Linking facility between two remote units of an insurance

company or between an insurer and a broker allows underwriters at one place and broken

at other unit to discuss risk inherent in a proposal face to face. The video link helps

maintain the personal relationships between underwriters and brokers which is very

valued for insurance business and in turn would help to draw business it would not have

seen if people use telephone or fax alone for contacting.

Cat Models: -

Catastrophic models use data from the recent spate of natural

disasters that helps develop more predictions of insurers property exposures in future

disasters. Using this data curious what-if scenarios of Probable Maximum Loss (PML)

using the best estimate available at an insurers exposures are tested. Finally an

underwriting policy that limits the companys exposure to catastrophic losses is

implemented. Other information such as where the faults are, construction specifications,

soil type, amount of ground motion likely to occur at a given site is also used in the

models.

This new technology is helping insurance companies to better

understand their exposure to Mother Natures perils with more accurate computer models

providing precise information on catastrophic (disastrous) exposures. This helps insurers

and reinsures to better access their catastrophic exposures and be in a position to better

price and spread the risk. This could mean that fewer insurance companies would be

seriously hurt or driven out of the market by a single catastrophic event and the buyer

will benefit from a stronger insurance industry. The technology may show insurers that a

given type of property or a specific area is so susceptible to catastrophic that they will

refuse to underwrite such risks at all.

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INSURANCE AND ELECTRONIC COMMERCE- E-INSURANCE

On a global basis, there is mad rush of companies willing to enable

their business. E- Insurance ispo-facto, not aloof, is one of the growth areas in India.

Enormous opportunities are being created by the Internets new connectivity such as

improving customers service, reducing cycle time, becoming more cost effective, and

selling goods, services or information to an expanded global customer base. As entire

industries are being reshaped and rules for competition are changing, enterprises need to

rethink the strategic fundamentals of their business in order to be successful. Globally,

insurance on the net has lagged behind other financial service products such as bankingand brokerage. Of the total online users only 5% used insurance service online.

This lag was due to lack of relevant and adequate content.

Traditional insurers, while leveraging on new information technologies, have been slow

to utilize the internet as an alternative distribution channel. Generally the largest insurers

have been focused on static marketing presence online, encompassing product

information, FAQs and quotes. Only a few insurers have added the ability to submit

applications online. This lack of participation in the e-business revolution is seen across

lines. The insurance companies attribute two factors for the slow take off. First and

foremost, insurance is a product that is sold and not bought. The internet is perceived to

be a buyers medium, with online customers able to search quickly and for the most

competitive prices and variety of products. Insurance is one product that cannot be easily

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commoditized. The more personal the selling. Insurance is one product, which involves

personalized selling. The process of insurance sales requires a series of face-to face

interactions.

International Trends: -

The convergence effect of IT is being felt by the insurance industry as well in developed

countries. In the US, personal savings are almost evenly distributed between banking,

insurance, mutual fund and other financial institutions. The insurance industry is

expected to lose market share to banking and other financial institutions. Customers

today expect enhance levels of service due to increased competition. This customer

demand is likely to result in non-traditional access to specific information. The global

online insurance market is expected to achieve and exponential growth in the near future.

In the life insurance segment alone, the total online business will grow to $21 billion by

2003. Premium income from the non-life policies will go up to $18 billion in the next

three years. The Gartner Group in a study conducted by them says that in a year 25% ofall customer contacts and enquiries for enterprises will come via the internet, e-mail and

online forms. Bancassurance customer service, which has been almost exclusively done

via the telephone (96% of all transactions), will become increasingly e-mail based in the

next four years; decreasing telephone related service by 28%.

In response to these trends in customer preference, insurers are

mobilizing their online sales and customer account management capabilities. This move

towards building Internet based business solutions benefits the insured by providing

greater flexibility, greater customization of information and improved customer service

for the insurance company, this drastically reduces the costs involved. Similarly, by

essentially outsourcing administrative and cost intensive processes such as policy

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administration to customers, the cost of administration and servicing the insurance policy

also decreases sharply.

E-Insurance in India: -

The intriguing question before all associated with the insurance

industry is that will it be possible for private companies or even public sector monoliths

to sell the insurance online in India in the near future? Insurance companies will probably

have to wait for internet penetration to increase and the still ambiguous E-commerce

rules to take concrete form. However, what is not debatable is that new private entrants

will change the rules of the game for the Indian insurance business, both in the life and

the non- life segment, unfolding opportunities for software engineers and professional

agents.

To peep into the possibilities and opportunities emerging out of the

integration of insurance and information technology, various organizations have

organized seminars and conferences in the recent past to explore the possibilities of

selling insurance on the Net and gauge the opportunities for the growing Indian software

industry.

According to T. Ramanan of Assocham, life insurers were among

the first to go online with informative content and features like actuarial calculators.

However, according to him, they have been relatively slow to embrace online commerce,

which currently makes up about 1% of the total term life market. Only 12% of insurers

companies globally sell policies online. Experts expect the percentage of term life sold

over the internet to increase from 1% to 15% by 2003, which in monetary terms works

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out to $21 billion. Although traditionally term life insurance has been sold through

independent agents, the big shift will become manifest sooner than later. And more

importantly Indians cannot watch from the sidelines as this paradigm shift in the

insurance sector takes place. In the non-life sector, automobile policies are popular aver

the internet. Premium income, points out the paper, is expected to rise to $ 18 billion

form about $1 billion currently. The growth of global online insurance business augurs

well for the Indian IT sector. The exponential growth in the online insurance business

will unfold significant business opportunities for software companies / consultants. The

opportunities that rise out of this will be both global and local, because new entrants will

have to either fine tune or prepare customized packages for the Indian market. Online

insurance will also companies reduce costs and keep premiums low, a pre-requisite in a

price sensitive market like India. The government, however, will have to address

problems relating to bandwidth on an urgent basis to make online insurance a reality in

India. Other major challenges to face Indian insurers will be to design and develop

strategies for delivering services to well segmented customers. The third challenge lies in

developing the right combination of customer segments and applicable distribution

channel strategies.

Most web sites offer contact numbers of their branch officers

where we can get further details of the products on offer. The agent locator feature,

available on maxnewyorklife.com, iciciprulife.com and on bimaonline.com help one

locate an insurance agent most accessible to you based on a search facility. One would

expect downloadable proposal forms on insurance websites, but these are missing in most

cases. Only licindia.com seems to offer downloadable proposal and claim forms for a

few of the schemes.

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LIC of India

Om Kotak Mahindra

Max New York Life

Birla Sun Life

ING Vysya Life

HDFC Standard Life

ICICI Prudential Life

Portals on Life Insurance

www.licindia.com

www.omkotakmahindra.com

www.msxnewyorklife.com

www.birlasunlife.com

www.ingysyalife.com

www.hdfcinsurance.com

www.iciciprulife.com

www.bimaonline.com

www.bimaguru.com

The features offered by most of the Indian insurers websites are:

Basic details of the various products classified by type- endowment, whole life,

money back policies etc...

A primer on insurance basics explaining the need for insurance, glossary of

insurance terms, FAQs etc...

Downloadable forms (not offered by all), online customers help lines, tax andpremiums and bonus calculators.

Sections on the various tax benefits of insurance products on offer.

A contact mechanism whereby you can get in touch with their nearest branch

office or marketing personnel.

Customers can also compute the premium for various policies in a matter of

seconds, using premium calculators

These sites also serve as a virtual community for insurance professionals with

features such as the latest insurance news, career opportunities, insurance

education, message board for discussions and events in insurance sector.

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http://www.licindia.com/http://www.omkotakmahindra.com/http://www.msxnewyorklife.com/http://www.birlasunlife.com/http://www.ingysyalife.com/http://www.hdfcinsurance.com/http://www.iciciprulife.com/http://www.bimaonline.com/http://www.bimaguru.com/http://www.licindia.com/http://www.omkotakmahindra.com/http://www.msxnewyorklife.com/http://www.birlasunlife.com/http://www.ingysyalife.com/http://www.hdfcinsurance.com/http://www.iciciprulife.com/http://www.bimaonline.com/http://www.bimaguru.com/


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Major factors Affecting E- Insurance:

Growth of net:

It is estimated that India would have about 150 million net users

by2010. These figures represent a huge buying potential.

Competition Pressures :

Insurance companies because of competitive pressure would be

driven into internet rather than a clear ROI justification.

Customers:

The availability of net-based services will be a huge factor for

customer retention.

Cross sells :

When linked with other financial products, a portfolio approach to

investment, savings and risk coverage will increase cross sells and customer

loyalty and retention.

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Costs :

In the beginning E- insurance will be a cost factor rather than a

profit drive, but in the long run it will be a cost reducing factor.

E-Insurance Business Challenges

Electronic insurance will not only provide many benefits but will

also pose business and technological changes.

Business Challenges

The following points have been detailed in a study on insurance

and E-commerce done by Grace,Klien and Straub of the centre for risk Management

and Insurance Research, Georgia State University.

i. Disintermediation Increases business :

Study has shown that the cost of distribution decreases with the

increased value of connection. Products with relatively high fixed costs and low

value such as travel, credit or burial insurance are relatively expensive to produce.

Customers pay a high price per dollar of coverage for these products. The internet

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allows the disintermediation of this relatively high overhead for these low face

value products. This means that prices can be lowered and more insurance can be

sold by reducing the transaction costs of the exchange.

ii. Reorganization of companies-virtual companies :

Many insurers will be prompted by the opportunities presented by

E-commerce to restructure the packaging of insurance services. Insurance

companies using E-commerce may re-engineer, outsource, and/or streamline their

management functions, or marketing and distribution arms. To more efficiently

deliver these services, some insurers will be able to reduce their significant

investments in physical facilities and certain personnel. E-commerce will enable

independent agency insurers to more easily adapt their distribution mechanism to

market competition and expedite their transactions with intermediaries.

iii. Insurance customers what do they want?

Customers could get better and different service through

the internet. It is possible to obtain quotes from a number of companies. In some

cases, the internet provides rating agencies evaluation of insurers. The internet

and outsourcing can provide additional cost savings to the consumer. Technology

can bring the customer closer to the insurance contract, by removing layers of

inefficiencies. Consumers will also obtain price comparisons for relatively generic

contracts, such as life insurance and rates for a standard set of auto insurance

coverage for given vehicle and driver characteristics. Consumers also could have

access to internal records to see where their claims are in terms of payment, when

their next annuity payment is due, and how their mutual fund is performing. This

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can be done without calling a burdensome voicemail system, being put on hold, or

finding a person who can give them the desired information efficiently.

iv. The Death of Insurance Agent?

One of the reasons why insurers have been slow to use electronic

commerce could be the fear of swallowing up the agents business. The internet

does not necessarily imply the death of the agent. Many insurers are examining

their agents role in the process and are also developing direct contacts with the

insured through their web presence. Agents could enhance their advisory role to

consumers as their paper and money processing functions diminish.

Technological challenges

One of the most prominent challenges of E-commerce is security.

It is very evidence that many users are reluctant to do business on the internet due to

security reasons. Issues of transmission security, host server security confidentiality,

authenticity and ways to counter these challenges are covered in the following topics.

Security:

a. Database Security :

The business database security is utmost important. This has to be

monitored by security of the web server and web access.

b. Web Server Security :

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Front End Operations: -

With a view to enhancing customer responsiveness and services, in

July 1995, LIC started a drive of On-Line Service to policyholders and agents through

computers which enables policyholders to receive immediate policy status report, prompt

acceptance of their premium and get revival quotation, loan quotation on demand.

Incorporating change of address can be done on line. Quicker completion of proposals

and dispatch of policy documents have become a reality. All 2048 branches across the

country have been covered under front-end operations. So LIC claims that all its 100

divisional offices have achieved the distinction of 100% branch computerization. New

payment related Modules pertaining to both ordinary and SSS policies have been added

to the Front End Package catering to Loan, claims and Development Officers Appraisal

to reduce time lag and ensure accuracy.

Metro Area Network:

A metropolitan Area Network, connecting 74 branches in Mumbai

to pay their Premium or get their Status Report, Surrender Value Quotation, Loan

Quotation etc. from and branch in the city. The system has been working successfully.

More then 10,000 transactions are carried out over this Network on any given working

day. Such Networks have been implemented in other cities also.

Wide Area Network: -

All 7 zonal offices and all the MAN centres are connected through

a Wide Area Network (WAN). This enables the customer to view his policy data and pay

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Info Centres: -

It has also set up call centres to provide information about our

products, policy services, branches addresses and other organizational information.

Information Technology in LIC for Service to Policyholders:

Twenty to twenty five years ago a few of us had heard of

information technology. On 5th August there was thunderous applaud and the horizon

reverberated and every body heard that LIC has been bestowed upon the Nasscom

Award. LIC has itself on the fast track of technology up-gradation right from the year

198. As such it has taken about 20-25 year, with enormous number of programmersworking for 10 to 12 hours a day. They have toiled hard to develop, test and put the

systems in place. It may be recalled that in the year 1980 various vendors while selling

the microprocessors had strongly advocated the need to induct trained and technically

qualified programmers from open market, to man the microprocessors. It was the

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This is for on the spot policy completion. The processing time foe

a new policy is brought down from days to minutes by cutting down the various

processes in acceptance, scrutiny and underwriting of proposals.

Single Window System: -

The Single Window provides all policy servicing at one single

point. Management information system has been developed for faster and better decision

making and offering in an instant, the latest information at all levels. The advantage of

the single window system is that the policyholder gets the required services across one

country without having to go to different departments in the branch.

Networking:

LICs Wide area Network covers 100 Divisional Offices

connecting about 1500 Branches through network. It is expected to cover all the

remaining Branches by the end of this year. This helps the customer to pay his LIC

premium in any of the Branches connected to the network. A Policyholder gets status

report of his policies in these branches as well as quotations for revival, loans surrender

etc

Online Premium Payment: -

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Intranet :

LIC has an Intranet, Jeevan Sanchar which interconnects our

offices and is used to make files available to employees, send or receive e-mail, host

online discussions or publish information within the organization. The departments of the

central office have an intranet presence of their own through which they provide

information about the latest circulars and these help the offices in speedy decision

making.

Benefits to Policyholders / Prospects:

They can get details of the various policies, the benefits there under, the

premiums payable, etc

Prospects can get advice on the suitable insurance plan for themselves.

Policyholders can get information with regard to the status of the policy, the

premiums due, the bonuses attached, the surrender values or loans available,

revival possibilities, nearest office for any further transactions.

Details can also be had about housing loans or other benefits available to

policyholders

Premiums can be paid without having to go to the office of the insurer, by direct

debit to the policyholders credit card or bank account.

Benefits to agents:

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If the insurer has an intranet, the agent can, sitting at his place of work, be

attending the insurers office, making enquiries about status of proposals or

claims or discussing with any officer or other agent, for clarification or advice,

whenever he wants to do it. The physical distance between the agent and the

office will not be of any consequence at all. The benefits to the agents will be

He can receive all circulars and instructions issued by any office. All

delays on account of postal transmission, being forwarded from one level

to another, dispatch department, absence of peons, wrong addresses,

misplaced through oversight, lost on transit, etc., are avoided.

Any doubts with regard to proposal, benefits, premium, taxation, medical

examination, insurability, etc, can be discussed and got clarified directly

from the person concerned.

Communications to and from the office will be immediate through e-mail

and at low cost.

IT Department in an Insurance Company:

Functions:

The IT department in an insurance company performs thefollowing functions: -

Provision of hardware and software resources.

Adoption of latest technologies for competitive advantage.

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Training of employees at operating, head and controlling offices on offices

automation and networks.

Advise the top management on Business Process Re-engineering (BPR).

Develop, maintain and implement insurance related applications.

Maintenance of networks.

Set up:

Generally the insurance organization has three-tier set-up

Operating Office (BO/ DO), Controlling Offices (RO/DO) and central office (HO). The

organization and responsibility of the IT department and its sub-departments is more or

less in the hierarchical order of the various offices. The IT department at HO is

responsible to the chairman/ CEO of the organization for implementing of IT plan. The

department is responsible for procuring new technologies, conducting training and

preparing the broad IT policy framework. The RO and BO are respectively responsible to

the CO the head of the IT departments may have the following Functional Managers with

their respective tasks:

Technology Manager

Evaluation and Acquisition of new technologies in

hardware, software, networking and packaged solutions.

Recruitment and supervision of system and network

engineers

Conducting of various training programmes

Systems analysis and design

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Systems Manager Functional Specifications

Development of application and user manuals

Assignment of work to project leaders, System analysts

and programmers Evaluation of studies

Network Manager Network Administration ( Including WAN)

User administration, systems security, e-mail etc.

Controlling and supervision of network administrators

Operations Manager Maintenance of hardware

Job scheduling, backups and file control

Assigning work to operators and DEOs training of users

Controlling of data flow

Y2K Remediation

Much of 1999 went in Y2K remediation. This took up lots of time

and money, but at least ensured that a lot of very old computers were replaced. LIC and

subsidiaries also took up plenty of time and energy in formulating a strategy for the

exclusion of Y2K related claims. Road shows were conducted repeatedly in major cities

to educate the branch managers and key customers about the Y2K exclusions. Y2K audit

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also took up considerable effort, as these were monitored at the level of a national Y2K

task force consisting of all leading ministries.

What will IT be Like in the Coming Years?

The Malhotra Committee had recommended that Information

Technology should be used as the enabler to give the insurance industry its cutting edge

over competition. It would help in reducing administrative costs and these savings could

be used to build on its customer service and brand building. This can be done most

effectively through the use of efficient IT infrastructure. It can be argued that much of the

internet related technologies developed only in the last four years, and were not fully

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available to the nationalized insurance companies. It is also true that with all the

problems of working in a public sector environment, several quality projects like

networking, implementation of investment management software and the

implementation of the integrated software for underwriting and claims management

brought the IT preparedness of the industry to a fairly decent level. Rugged use of IT in

the year 2001 will tell whether at all the nationalized insurance companies will give

competition a run for their money.

Future Scenario

Some of the IT solutions that are essential for the working of a

modern insurance company are given below. This will help build brand, strengthen

loyalty from customers and business partners (agents mostly), and ensure a lean and

mean company.

1. A Good web site through which customers can actually transact business.

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2. A good back office infrastructure which can deliver insurance products and

documents. This would be connected with a rugged computer network.

3. A study call centre fully integrated with all operations which interact with the

customer for all his requirements. The objective would be to ensure that all

channels of business art fully integrated.

4. A rugged (rough) data warehouse which

5. would provide the backbone for customer Relationship Management (CRM), Data

Mining, and Channel integration.

6. Excellent storage management with failsafe disaster recovery infrastructure.

Global best practices are best possible only when the IT

infrastructure uses best-of-class components. This will enable the company to work

efficiently with the bare minimum staff strength and devote all its energies to

customer care. The customer today is very demanding and will not do business if

feels that he is not getting excellent service. It is essential to provide him service

levels even beyond his expectations if his loyalty to the Insurance company.

Conclusion

The supporting Technology requirements will be are all time,

rather than batch; longitudinal rather than episodic, will require connectivity rather

than be self contained; will be interactive; will rely on large relational databases.

Todays consumers dont like to wait. Insurance companies that are unable to react to

their customers demands will lose market share to their competitors that can.

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There have been a lot of changes in the insurance industry in the

country with the opening up of insurance sector for competition and with the

establishment of IRDA.

Suggestions:

As the pace of change is going to be faster than what was

witnessed in the last decade, there is a need for a system of continuous research,

better understanding the change process and its Implications on insurance. The

suggestion is that we must institutionalize insurance research, say by way of having

an institute of insurance research to meet the above challenges. Modalities are to be

worked out in this direction. Similarly, each bank should have asset- up where

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insurance specific research takes place in terms of emerging areas and their possible

solution.

BIBILOGRAPHY:

1. Insurance and Risk Management - Dr. P.K. Gupta

2. IC-33 - Life Insurance

Information Techonology in Insurance

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