Tech Slowdown Is Not Halting IT Projects, Study Finds

Kavitsky strongly supports selling insurance products via an agent as opposed to an online service and asserted that companies who pursue this direction may disrupt ties to the agent community.

"The companies that move in that direction are going to break that relationship with their agents," he says.

Indeed, the Internet has permanently transformed the traditional business model, but insurers, in response to weakened market conditions, are proceeding with caution, observes analyst Judy Johnson, vice president of insurance information strategies at Meta Group in Stamford, Conn.

"Everybody is moving more cautiously in terms of costs," she says.

Large enterprise-sized projects are on hold, Johnson says, and insurers are focusing more on developing a "business case," a well-defined purpose, before embarking on Web-based projects.

"Insurers are asking the question: Why are we doing this and when are we going to see results?" she says.

During the late-1990s, a period marked by widespread enthusiasm over the Internet, several insurers embarked on Web-based initiatives in response to their competitors efforts, rather than their own immediate need, Johnson points out.

A lack of genuine need for those projects prevented insurers from obtaining an adequate return on their investment, she notes.

"They failed because there was no business case," she says.

Citing information shared by one of her clients, Johnson says 75% of CRM (customer relationship management) projects fail because there is no clear idea of why such an involved project is needed.

But as high expenses, coupled with a lull in the tech market, slow Web development throughout the industry, insurers are also grappling with how to effectively build Web offerings in line with offline services, according to Johnson.

"Insurers are trying to apply the same kind of underwriting metrics to Web-based initiatives," she says.

"They are still learning how to approach the Internet," she adds.

Asked if selling insurance policies online may expose the company to a rise in rating errors, Yonker confirms Johnsons observations and says State Farm underwriters will take a wait-and-see approach.

"We have never done this before, so the information is not yet available," she notes.

For now, current underwriting strategies will be applied and modified as needed, Yonker says.

Johnson, however, agrees with the study findings that indicate more Web operations are finding their way into insurers core business plans.

She says it is common for new projects, like offering insurance polices online, to start in a back-office capacity.

Typically, Johnson says, the mission of modern technology is to find its way into a companys core business strategy.

"The trend is to get e-business into the mainstream from an IT perspective," she explains.

One of the promises of the Internet is that it will help a company save on communications costs, Johnson says.

"Technology, like XML, is being used to streamline costs," she says.

According to Johnson, industry research concludes that the longer it takes to process an insurance policy, the greater the odds the sale will not be completed. But employing Internet strategies will speed up this process, she says.

Johnson agrees with study findings that assert the importance of the Internet in the business community, but also says a 12% forecast for all business sales was too optimistic for the insurance industry.

Robert W. Mitchell is a staff writer for NUs Property & Casualty/Risk & Benefits Management Edition.

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 3, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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