October 1 - 3, 2000, The Westin Providence, Providence, R.I.

Straight Talk About the Future of Financial Services David Annis, chief information officer, The Hartford Financial Services

Strong Technology Infrastructure, Expertise Are Keys to Success
By Barbara Bowers, senior associate editor, Best's Review: Barbara.Bowers@ambest.com

Insurance companies that want to come up winners these days must have an understanding of the Internet economy, invest in a strong technology infrastructure and learn how to experiment with business models, said David Annis, group senior vice president and chief information officer, information technology, The Hartford Financial Services Group Inc., Hartford, Conn.

"Predicting the future in our industry is extremely tough," Annis said. "I'm not going to tell you what's going to happen in the future. But I can tell you what to do to position yourself to be a winner in this economy."

Annis spoke at "E-Fusion: Where Insurance and Technology Converge," a conference sponsored by A.M. Best Co. held Oct. 1-3 in Providence, R.I. Full coverage of the event is available online at http://www.ambest.com/e-fusion.html.

In his presentation, "Straight Talk About the Future of Financial Services," Annis noted how doom-and-gloom prophets have been predicting that the insurance industry is heading into a death spiral, marked by, among other things, net-based price competition, the commoditization of products, falling prices, plummeting profits and the acceleration of industry consolidations.

"I don't think the future is quite that simple or quite that gloomy," he told the insurance executives and technology experts, adding that he sees brighter prospects ahead for the industry.

Over the course of the last century, he noted, economic power in the United States has evolved from producers like automaker Henry Ford to giant distributors like Home Depot and Wal-Mart. Today, the power base is moving to the customer who "has more information than ever before," Annis said. This last phase is exemplified by the success of a company like Microsoft.

"We are in the middle of a power shift of enormous proportion. It's a very profound shift and we are not going back," he said. "Clearly, the companies meeting customer expectations in our economy are winning."

The Internet is accelerating the shift in power to the customer, Annis said. Customer expectations are changing, with people demanding 24-hour, seven-day-a-week service, rich information, unbridled communication and free services. Moreover, the availability of information is driving transparency of price, product features and competitive alternatives.

In this economy, large companies no longer have the deep pockets advantage, with access to capital markets favoring start-ups that are perceived as agile and capable of experimenting, Annis said.

While risks abound in this new world, there also is opportunity, he said. He advised companies to find additional sources of revenue and profit in the new economy; drive growth and profitability with best-in-class functional capabilities; focus on niche marketing as important pools of profits and yield; and harness opportunities that emerge from the redefinition of basic offerings.

"There are certain opportunities to bundle and unbundle services that were never thought of before," Annis said.

Although agents remain the single most important distribution chain for his company, the dynamics of distribution nevertheless are changing. For example, in terms of Hartford's property/casualty products, direct sales, which include the Internet, are projected to rise from 16.5% in 1998, to 27.9% in 2003.

For its part, Hartford is preparing for this brave new economy. It has formed alliances with affinity groups like the AARP. The company also has been building out end-to-end architecture for e-business for a long time, Annis said. And, in terms of new ventures, The Hartford has half a dozen spin-offs in various stages of development, some involving venture capital, he said.

The Hartford Financial Services Group Inc. is one of the nation's largest international insurance and financial services operations, with 1999 revenues of $13.5 billion. The company is a provider of automobile and homeowners coverages; commercial property and casualty insurance; reinsurance; and a variety of life insurance, investment products, employee benefits, group retirement plans and institutional liability funding products.