Application of Eis in Insurance Industry

Application of Eis in Insurance Industry

Research on

Application of EIS in Insurance

Industry

Introduction

Insurance market is a vitally important economic institution where mutually beneficial exchange between consumers - insurance takers and vendors - insurance companies is carried out. Consumers purchase the promise of the insurer to cover the financial consequences of a possible loss, paying the insurance premium for this service. The insurers take the liability to cover the losses in case of a probable harmful event and issue a special document testifying the power of the contract - the insurance policy. Information is crucial for market exchange to occur - consumers have to possess the information about supply and prices, vendors - about demand and paying ability of their clients. Modern economic theory attributes to the market an important innovative function too - the market encourages vendors to create new products and bring them to the market in response to the emerging demand for them.

Security for the future strongly influences the welfare of people by making better the personal well-being and by allowing for more risk taking activities unfolding the entrepreneurial spirit in an environment where insurance against harmful loss is available.

Role of Information Technology in Insurance Sector

The insurance industry has a particular dependence on information technology. Insurance was one of the first industries to apply computers transaction processing -- to handle the vast number of claims, reserve estimates, payments, codes, etc. required. Examples of this data processing commitment began in the 1950's.

Not long into the information revolution, the need to make sense out of this mass of data was recognized. Hence the origins of Management Information Systems (MIS) in the 1970's. The goal of MIS was to consolidate data into meaningful reports. Yet these reporting systems were often paper-intensive and provided a weak basis for decision--making. The reporting volume can overwhelm. Even today, many insurers and large third-party administrators print millions of pages of loss runs (claim listings) each month. Bury a nude photo (or 100 Pound note) in the middle of one of these reports and will rarely hear of it! Something better was required.

Adaptation to be made

The insurance industry today might be compared to the U.S. Pony Express service that in the 1860's provided a 'high-speed' private mail service. It required just ten days to move mail 2,000 miles between St. Joseph, Missouri, and Sacramento California. The feat required riding day and night and changing horses every seventy-five miles.(2) Yet for all the heroic effort and romantic bravado, the Pony Express was driven out of business after less than two years by a strand of copper wire: the telegraph.

The Pony Express people faced a grim future because they could not incorporate the new information technology. Improving on the horses or the riders would have had little impact on stemming the tide of electrical communication. Fortunately, the insurance industry can embrace technology and adapt it for its particular services.

However, it must face up to the 'telegraph' technologies of today .Information services must make a commitment to:

▪ Flexibility - Generating exactly the information desired in the most compact way;

▪ Exception reporting - So that only those conditions that need attention are extracted, i.e. large claims, with questionable reserves, etc.

▪ Decision support - Usually loss or claims data alone do not provide a complete picture. Instead one has to have access to underwriting and exposure information - even to demographics on the possible claimants.

▪ On-line access to the data - The willingness to accept processing delays is rapidly disappearing. When an executive wants information, he wants it now.

▪ Access to more than numeric and character data - Reliance on only numeric or character data ended in the 1960's. Today, risk management/insurance applications should (must) consider voice, images of documents, notes, photographs, video and graphics.

▪ Participation in the loss adjusting process - Insurers, loss adjusters, etc. are not the only parties with and involvement in the loss management process. Deductibles, self-insurance and various alternative financing plans have put more of the financial responsibility directly on the organization. Hence, the demand for participation. In 1993, for the United States commercial lines market, Sedgwick estimates that 43% of such premiums are in alternative markets ($56.5 billion) not surprisingly, access to adjusters' notes and electronic mail has become a common requirement in corporate risk management specifications.

▪ Empowerment - Most data processing focuses on the end-users, not the workers in the process. What is missing is that workers in the process want the information to allow them to do a better job.

Organizations routinely charge "insurance" costs directly to their field operations. Accordingly, these people want timely access to causes, trends, exposure-weighted performance to guide them to take action. Equally, the adjusters need to have information access to measure their performance. The revolution in claims adjusting will come when we give such line people the systems with which they can create their own success.

Building a Risk Management Information System

One must identify why data is collected to insure that the effort is justified. Some key reasons for data collection are:

▪ Regulatory/administrative requirements

▪ Monitor the adjusting process

▪ Model the loss reserving/settlement process

▪ Eliminate future losses by analysis of current causes

There is good reason to ask 'why' when evaluating data collection plans.

Acquire the resources

Software

For most, using existing software is a far better idea than developing a new system. Keep in mind that risk management/insurance software has been commercially available for almost twenty years. Even the largest organizations rarely can justify investing in a 'do-it-yourself' system. Indeed the software itself is only a small part of your total needs. Training, account service, data quality control, are equally necessary to complete service and need to be considered.

While you may find information services bundled with adjusting or brokerage services, recognize the negatives: this can produce a fragmented system and no system at all if you change service vendors. Bundled services make sense if they are delivered with flexibility, independence and on-going service commitment to address these concerns.

Some recommendations are:

▪ Choose software that offers flexibility to do the broadest possible risk management/insurance applications. Training and maintaining user skills are expensive. Minimize these costs by using a common family of software with identical 'look and feel'. Equally fundamental is to integrate data into a single Risk Management Information System. There is major frustration when systems that do not talk to one another.