We are being mugged by IT…but there is a solution

F or insurance managers who have been involved in procurement processes, the word ‘system’ prompts a mixed reaction, of desire and aversion.

There is no word to describe these contradictory reactions, the mind-bending frustration and intrusive disruption contrasted with the hope of administrative liberation and the glory of bucket-loads of automated sales.

The closest word to describe their IT purchase experience is all too often ‘mugged’.

As in many aspects of life, satisfaction is linked to expectation, and in the abstract environment of a new ‘system’ development, it does not help that the sellers of insurance and the sellers of IT are two peoples divided by a common language.

For example ‘you can have delivery next week’ translates as ‘the system will be available in test mode once you have signed off the statement-of-requirements and we have uploaded the necessary tables and text.’

Now that 25% of all UK trade is via the internet, with the expectation that services such as insurance will be 90% e-traded within the next five years, we must find a way of overcoming the general lack of credibility with which insurance managers regard IT providers.

What are the problems? Recent research points to uncertain delivery price, escalating maintenance charges and time slippage as top of the list of insurance managers’ concerns about IT. This is a situation so bad that many insurance managers put IT constrictions in front of HR legislation and compliance in their list of business ‘blockers’.

In another survey, when asked why they had technology concerns, 80% of senior managers said that legacy issues restrained the ability to trade more widely and 90% agreed with the suggestion that IT suppliers “rarely delighted” (on contracted delivery to time and price).

The customer has spoken and the next generation of platforms will have to be much more dynamic and better able to deliver on expectations.

Cost is a real issue. There has been too much price elasticity in IT contracts and this has contributed to insurers’ lack of trust in software houses.

Accepting that some of the blame lies with customers (always a dangerous precept) because they are naïve purchasers of IT, some of the charges made by software houses for even the simplest system changes are eye-watering.

For the entrepreneurial small broker, arguably the lifeblood of our industry, the cost of entry to an internet trading platform must seem prohibitive when it need not be.

Many problems stem from the fact that insurance providers either do not know exactly what they want, or cannot translate their needs. As a consequence, they buy systems which they think offer flexibility when in fact what they are buying is what the software house wants to sell – static screens built around static products.

“The customer has spoken and the next generation of platforms will have to be much more dynamic

For all the talk about insurance systems being complicated, the reality is that most should be quite simple, in that they are all based on asking questions to establish facts, which are then used to drive pricing (for example, basic or deluxe cover with loadings or discounts to reflect features). Then, a series of documents is generated from the database of captured answers held in response to the questions.

Now that systems have reached a level of maturity and recognising the relatively simple nature of what is demanded, systems should be designed so that the user can take charge of all key functions – from setting the different levels of authority for each user through to having the ability to change rates in real time.

The technical answer is to use object orientated programming and to make the system as dynamic as possible.

The way to do this is to start at the top level with each product template and then copy and customise the most common data streams. Then we can add, remove or alter the questions that have come together to make that particular quote unique, and create differently branded versions of the same quotation form from the same template.

This means that underwriters can be empowered to develop and brand new products from their desktops without any software house involvement – customising cover, rating and commission structures in multiple brands and making them live to market the same day!

It may not suit the establishment to offer this level of user control, but why shouldn’t the user be able to introduce a rating change this very morning? Why should this have to wait until a software house can ‘get around to it?’ And if we really want to be revolutionary, why shouldn’t systems providers be paid by results?

One new pricing concept being pioneered is for the system provider to make no charge for developing or maintaining the system. There is a price of course, but instead of uncertain contract models, the new model requires a supplier to make delivery for a defined transaction or volume-based fee.

This provides an alignment of interest that has been missing in the sector and it means that the software supplier has a strong interest in maintaining the system because otherwise it does not get paid.

One other reason for the wide mismatch of expectations between sellers and buyers of insurance IT has been changes to the specification. Often these occur late in development because of late buy-in from the ‘real’ users at the front end, who have not had the chance to be involved until testing of a pre-launch release.

Never forgetting our ultimate customer, we must recognise that internet marketing is developing exponentially and the techniques for bringing visitors (clients) to the site are evolving daily – pay per click is already old news.

This also means that the new generation of systems must provide management information of a completely new kind. For example, how many viewed the page but did not ask for a quote? How many abandoned the quote process and at which point or question did they tire? How many quotes are not taken up, and why?

Only by delivering the new wave of systems with real flexibility and accountability will the IT sector reap the rewards of working with the UK insurance industry to fulfil its massive international potential.

If we do not deliver, there is probably someone in China who will.