ORLANDO, Fla., Nov. 3, 1997 — Faced with intensifying competition, growing catastrophe losses and intractable costs for fraud, property/casualty insurers must use technology strategically to succeed, said Fred R. Marcon, chairman, president and chief executive officer of Insurance Services Office, Inc. (ISO).
Speaking at AISG INSTECH '97, a conference sponsored by American Insurance Services Group (AISG), a unit of ISO, Marcon observed that technologies that provide strategic advantage today may be the minimum insurers will need to survive in the future.
"The winners in our industry will be those companies that properly use information — and leverage technology — to gain a strategic competitive edge," he said." Those who are slow to adapt, risk being driven from the field."
Marcon noted that managers traditionally see information technology as a tool to improve productivity and cut costs by processing standard kinds of information more efficiently. "That is valid today, but the approaches are becoming ever more sophisticated," he said.
Marcon said that insurers now are using expert systems in underwriting to screen policy applications and automatically order electronic reports to evaluate individual risks: motor vehicle reports and property surveys, for example.
"One strategic advantage that expert systems provide in underwriting is that they let humans concentrate on more complex risks, handle more policy applications and take less time to issue new policies," he said.
In addition, insurers are using imaging technology to cut costs and improve service, according to Marcon. "Imaging as well as the Internet and its World Wide Web support the concept of the virtual office" in which "electronic access to data no longer depends on the physical location of the data or the person using it."
He pointed out that some companies now are using the Internet in their agency-management systems and for submission of policy applications, claims reporting, marketing, sales and a variety of business-to-business applications.
"Insurers are beginning to appreciate the value of using the Internet for company-to-company transactions," said Marcon. "And insurers are beginning to see that, used with imagination, the Internet can change the way products are marketed, customers serviced, and suppliers identified and negotiated with.
"The big excitement over the Internet is what many see as its potential to build revenues — particularly at the expense of less technologically sophisticated competitors," said ISO's chairman.
Marcon also pointed out that information technology is playing a crucial role in helping the industry blunt the blows of future natural catastrophes and control the costs of fraud.
He explained that new catastrophe rating methodologies, based on computer simulation models, are providing far more reliable pricing information than older loss-experience formulas.
In addition, geographic information systems, such as ISO's Geographic Underwriting System (GUS), are helping insurers map their books of business to avoid over-concentration of risk in catastrophe-prone areas, according to Marcon.
He noted that information from the industry claims data bases now independently maintained by AISG and the National Insurance Crime Bureau (NICB) are key weapons in the fight against fraud.
To fight the property/casualty industry's $20 billion-a-year fraud problem even more effectively, ISO is establishing a single all-claims data base, located in a single repository, with the capacity to process all claims for all lines, he said. Planning is now under way to consolidate AISG's data bases with those maintained by NICB.
"The payoff: a more effective fraud-fighting fact file that will benefit insurers, law enforcement agents, and honest citizens — everybody except perpetrators of insurance fraud," Marcon said.
As insurers move rapidly to client-server-based, Internet-compatible platforms, he said ISO will deliver its products and services electronically, making many available over the Internet.
However, he cautioned, technology won't do the job alone. "Success requires a strategic plan that leverages technology, not only to cut costs, but to grow revenues, as well," said Marcon.
"Technology today is not merely a means of executing business strategy," he said. "Technology strategy is an integral part of business strategy."