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.
36
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