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

Emerging Technologies Set to Change the Insurance Industry
By David Pilla, David.Pilla@ambest.com

Emerging technologies will have a major impact on the insurance industry, but what kind and how much of an impact depends on what the insurer is trying to accomplish, an information technology expert told insurance professionals.

Chuck Johnston, vice president and director of insurance information strategies for Stamford, Conn.-based Meta Group, said that while "our industry seems to look back to the old models" to determine strategy, so-called "fast companies" are using new technologies "to go after parts of your value chain."

Johnston spoke Monday 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.

Emerging technologies--including Internet protocols, handheld devices, smart cards, sensors and data-management strategies--are mostly unproven, Johnston said, but that doesn't mean they won't have a profound impact on the industry in the future. He pointed out that technologies--such as the fax machine--go through an often long development phase during which few are sure they will ever have a profitable use. "If you have one fax machine, it's useless," said Johnston. "If you have two, it's a little more useful. Once you have many, it becomes indispensable."

The "fast companies" Johnston spoke about use technology to focus on specific niches in the insurance market, such as benefits analysis, quote generation and claims processing. Although Johnston said he believes that most of these new players eventually will fail, some will carve out a significant niche for themselves and will take some business away from traditional insurers by making pieces of their operation redundant.

The new technologies also are having an impact on overall business strategy, Johnston said. Product life cycles are becoming shorter. "You now make most of your money in the first 18 months of a product's life cycle," he said. "You are going to have to become more agile, and your technology will have to allow you to do that."

Some of the influence Johnston sees emerging technologies having on the industry in the near future include using remote sensors to track the movement of cargo containers in shipping, sensors in cars that can allow an auto insurer to adjust the rate charged depending on where and for what purposes a driver travels, smart cards that carry a person's medical and credit history, and wearable or handheld devices that allow agents to interact with clients rather than spend time chained to a desktop computer.

All of these technologies exist, but most are not yet feasible, because the infrastructure is not in place, Johnston said. The single biggest obstacle is a lack of broadband capacity for wireless devices. A second major concern is privacy issues associated with putting an individual's personal data on small, easily accessible devices.

"A major industry issue is that many insurance products have been commodified," he said. "What differentiates products will be nuances and the ability to change. In the end, it's all about understanding the customer. The customer doesn't want complex products, and he doesn't want products he doesn't need. Technology can get you there by allowing you to manage knowledge, in real time, and in a way the customer wants."

Johnston joined Meta Group in March 1999. Before that, he was senior vice president of operations for Phoenix Global Solutions, the technology consulting and outsourcing subsidiary of Phoenix Home Life Mutual Insurance.

Meta Group Inc. provides information technology research and consultation services to more than 2,000 companies worldwide.