The Insurance Industry Enters the “Cloud” Era

REDMOND, Wash. — May 18, 2009 — Although the U.S. insurance industry has not had to deal with any Katrina-type natural catastrophes in recent years, it has hardly been smooth sailing. The financial crash has severely cut insurers’ earnings on their investments, while the near-collapse of insurance giant AIG has damaged the reputation of the industry.

Today, insurers look to technology to help weather economic storms and build stronger relationships with customers. There is much ground to make up. Most insurers retain systems heavily reliant on mainframe computers and paper-based forms. This means that transaction costs are high, and insurers lack the agility to respond quickly to customer needs or a changing business environment.

This week, many in the insurance industry are meeting in Florida for the ACORD-LOMA Insurance Systems Forum 2009, the industry’s largest business and technology conference. Microsoft is demonstrating its software-plus-services offerings and announcing organizations, including Esurance Inc. and the ACORD standards body itself, that are turning to some aspect of Microsoft’s software plus services strategy to solve their business problems. PressPass spoke with Bill Hartnett, U.S. insurance industry solutions director, and Colin Cole, U.S. insurance industry technical strategist, about Microsoft’s offerings for the insurance industry.

PressPass: Tell us about the business model used by most insurers today. Is it an up-to-date industry?

Bill Hartnett: The business model of insurance, frankly, has been substantially unchanged since the Lloyd’s of London days, when the modern insurance industry was first established. It’s a paper-based model with a heavy reliance on human-based workflow, and it has really held the industry back in terms of technology.

The first major wave of technology that came through the business was mainframes, and that’s 50 years ago. Honestly, the business model, and the workflows, and the business process of insurance have really been unchanged since then, and a lot of it has been dictated by these legacy pieces of technology that reside on mainframes.

Today, there still are many processes where an insurance contract — or some document necessary for the production of an insurance policy — is created on a computer, printed out, taken somewhere and scanned back in at the other end. None of that makes any sense any longer. Some of that is enforced by regulation, but now is the time for us to really re-examine how those things are done.

Colin Cole: In life insurance, for instance, it can take up to 40 days to turn a new application into a policy. And often there’s a lot of drop-off there, as the customer might end up finding a better rate, or going with somebody else, or just deciding they don’t even want it. Obviously, we can shorten that gap using technology.

PressPass: What are some of the particular opportunities for deploying better technology within the insurance industry?

Cole: For one thing, we can use tools such as Microsoft Office SharePoint Server to offer better coordination between the customer, the broker, the agent and the insurance carrier. That helps ensure that applications are truly in order and can go to the underwriter as fast as possible. That could reduce that time gap from 30 or 40 days to less than 10, we think. We’re going to show that scenario front-to-back in our booth at the show. It’s all about closing more business.

With the right technology, insurance companies can really start to innovate and come up with new ideas. Then technology allows them to get those new products out quickly. We think we have great technologies that help get a new product out, get the sales force trained on it, and allow the company to get it for sale quickly. At the same time, technology can significantly help reduce costs, which is important to everyone as well.

PressPass: What about cloud computing? Will that play a role for insurers in years to come?

Hartnett: It will play several roles. Because of things like pandemics, natural disasters or even violent events like a terrorist attack, we have regulators saying insurers have to have redundant data centers that are geographically dispersed and distributed, so that they can stay in business if one of these things happens to them them. That’s clearly an application for cloud computing.

Within insurance companies themselves, the fact is that 85 percent, roughly, of every IT dollar goes for maintaining legacy systems. That’s money spent essentially for the care and feeding of the mainframes. So there’s very little left to do innovation around product, innovation around distribution, innovation around customer service and customer experience.

We need to shift that equation. We believe that cloud computing changes the financial equation in a way so that instead of just outsourcing people and machines, entire workflows and applications can be sent to the cloud. I don’t think it’s unreasonable to expect that within a 10- to 15-year period of time you’ll have some major insurance companies that do not have datacenters on their premises at all, at least not in the traditional sense. The applications that support their business will be run elsewhere — in the cloud.

Cole: Bill’s right. We’re experts at running in a large datacenter, and we do it in a way where a company can literally offload its processing to that cloud-based cluster, and not have to pay the maintenance, the operations support, the support for the building. That can really save insurance companies money, and frees them up to focus more on new products and services for customers.

PressPass: How would that work for an insurance company?

Hartnett: For instance, we can create a unified interface that makes it very easy for someone who is trying to underwrite a homeowner’s policy, for instance, to use Virtual Earth to see where a home is in a flood plain, to see how close it is to wildfires, or other natural disasters that may occur. There are feeds available for that. Then they can look at the image of the property from Virtual Earth with Bird’s Eye view to get an idea of what kind of condition it’s in or what kind of neighborhood it’s in. It really simplifies what used to be a very complex process that took many people and several days to get completed.

PressPass: Earlier you mentioned Microsoft Office SharePoint Server and some other applications that many businesses use. What are some specific products Microsoft has developed for the insurance industry?

Cole: Well, last year at ACORD we delivered our ACORD Software Factory, which was a new development from our team involving two things; first a .NET accelerator for ACORD messaging and ACORD-based web services, and second, a rich internet better user interface for insurance, and rich Internet features for insurance through the Microsoftour Silverlight technology.technologies. The Software Factory is hosted on Microsoft’s open-source development portal CodePlex and it’s available at no charge to the insurance community. The factory includes Microsoft Visual Studio development projects, samples, white papers and a next-generation Microsoft Silverlight 2.0 reference user interface — all of which can be implemented within insurance environments today.

With the Software Factory, we show how an application specific to the insurance industry and that meets ACORD standards for interoperability can be built in a very rich way, and actually work in a cross-browser, cross-platform environment. That is very important for the federated model of insurance, where the producers, agents and brokers all work outside the insurance carriers themselves. That’s fairly unique to insurance.

In an environment where you have different companies working together you’ve got to have standards. So we showed by both using Web open standards from the W3C (World Wide Web Consortium) standards body, as well as insurance standards from the ACORD standards body, that companies can work together to enable that.

PressPass: Why else are tools such as the ACORD Software Factory and the related ACORD.NET Accelerator important?

Hartnett: Because it’s been very, very difficult to implement ACORD standards. They’re not easy to work with and it’s not easy to adapt older systems that have been in use for quite a while. One of the things that we decided would be very beneficial for our customers and our partners was to develop an accelerator based on Microsoft technology. We have a history of commoditizing and making development very easy for people. Colin led a development effort that resulted in this ACORD Accelerator that you just mentioned, which vastly simplifies the implementation of industry standards and of ACORD industry standards, in both property casualty and life insurance.

We have several very large insurance companies that are using that accelerator to essentially Web-enable their existing applications and create an environment where standards-based computing becomes the norm. We’re very excited about that technology. One of the things that we’re showing at ACORD this year is the ability to host those types of applications on Windows Azure, which is our cloud platform. All of our demonstrations of proof-of-concept insurance applications are hosted on Windows Azure.

These are exciting times to be watching the insurance industry. It has been behind the technology curve for years, but now we see an opportunity for it to make a big leap that will help insurance companies, their agents and brokers, and ultimately their customers.