The tentacles of the information age have spread in all sectors of business. It is reported that there has been more information in circulation in the last 30 years than in any previous periods before. A lot can be attributed to this dynamism but the majority of the credit will be given to the advancement in Information Technology and Information Systems. The insurance industry has not been left out in the rapid change of events, again owing to the advancement in IT/IS, especially the development of the Internet over recent years.
The Internet with the advent of e-commerce has revolutionized that way business is done. Without the need for physical presence and sometimes only at the touch of a button, business transactions, financial trading and even customer service is being carried on. The internet has proven to provide efficient communication links between companies and their clients cutting down the resources spent on public relations.
There has also been significant downside to the development of Information technology. For instance the speed of development of IT has created a needs to be a constant awareness of the market situation to maintain a competitive advantage. Insurance companies are greatly affected by this because a peep into the last few years shows an impressive rise in the use of internet by insurance companies in selling their policy options popularly referred to as Internet Insurance.
This report is on the effect of Information Technology and Information Systems on the Insurance Industry. A substantial amount of focus will be on the Association of British Insurers (ABI). During the course of this report I hope to explain to the reader the importance of IT/IS in transforming the Insurance Industry both in the positive as well as the negative ways. A major area where IT/IS have the most impact will be my focus, namely that of Customer Service and Distribution Channel Support. I intend to focus on the British Association of Insurances (ABI). Being the largest insurance industry in Europe, it should adequately provide enough points to drive the message across
What is an Information System/Information Technology?
Information Systems are somewhat complicated because it encompasses a lot of things and thus difficult to define. However the following definitions will give a good insight on what an Information system is.
* A system, whether automated or manual, that comprises people, machines, and/or methods organized to collect, process, transmit, and disseminate data that represent user information.
* Any telecommunications and/or computer related equipment or interconnected system or subsystems of equipment that is used in the acquisition, storage, manipulation, management, movement, control, display, switching, interchange, transmission, or reception of voice and/or data, and includes software, firmware, and hardware.
Information Systems generally improve the effectiveness and efficiency of business operations. It takes advantage of innovative IT to enhance the value of products and services.
Information Technology is a term that encompasses all forms of technology used to create, store, exchange, and use information in its various forms (business data, voice conversations, still images, motion pictures, multimedia presentations, and other forms, including those not yet conceived). It is a convenient term for including both telephony and computer technology in the same word. It is the technology that is driving what has often been called "the information revolution".
. The history of the insurance industry
The insurance industry has start up by using internet as a mean of promoting its company. The first insurance gateways were created at this stage, Where people can resort to, in older to search for information on several different insurance company and different types of insurances as well, it is an useful technique and information, especially it allow the clients to find a insurance which cover a lot and not necessary to be expensive. The internet has become so popular because of these gateways. As insurance companies develop they move to different style, it was not easy to find and share information with the client in the past.
The internet enables the clients to access to their insurance company's website, therefore, they can get more information about their insurance and could even makes changes to it. This particular service was very helpful to agents when they are promoting their insurance to clients, also the agents could use the internet to coordinate the client's insurance request within it's database management system that may depend on it's old main frame.
Therefore, all the jobs can be down without the handwritten process, which means it helps the agents to save times of doing all the paper work. Most of the insurance companies are still using this second style in using internet. However, it is the third 'model' that the insurance companies are interesting in; the one that can integrate each other's business process through the internet, also in the way that insurance companies can benefit from the new potential that Web Services have.
Development in Insurance Systems
Despite the promising outlook and the introduction of a great number of products by many insurance companies such as Lotus notes or Novel GroupWise, there is still room for development in the Insurance Industry.
The Insurance Industry has grown more rapidly than anyone could have envisioned even five years ago, opening up new vistas of communication, collaboration and coordination between consumers, businesses and trading partners. What started out as an alternative marketing channel has quickly turned into a complete economic system consisting of?
(i) Low cost detailed communication networks using Internet technologies and standards,
(ii) Applications and human capital and management tools that enable business to be conducted over a network infrastructure and
(iii) Interconnected electronic markets that operate over the network and applications infrastructure.
These potentials are transforming the role of the traditional Insurance Companies. Nowadays Insurance is purchased over the internet saving time and also reducing the amount of paper work for the company and in turn increasing effectiveness and acquiring more customers.
A survey carried out on Alico Insurance Ltd reveals that the internet has increased customers by 60% since their website is available 24 hours and also reduced the amount of paper work by 20% since the customer's details are stored straight onto their database.
Effects of IT/IS on the Insurance Industry
* A Growing Market: Figures for the use of Internet shows an ever increasing boom of users. There are currently over 200million Internet users today. A third of UK's population have access to the internet. This rise in users can only mean more potential for the Insurance industry to capitalize on this to grow their market.
* Low Operating Costs: Generally transactions over the internet for both personal and commercial business are often a fraction of more traditional business methods. For example, the cost of a typical insurance policy in the United Kingdom when comparing traditional methods and internet is about 5 times lower.
* Improved Customer Service: The convenience offered by Internet Insurance has seen to create better relationships between clients and customers. Our survey reports shows that 85% of customers that engage in Internet Insurance do have a better relationship with their clients.
* Flexibility: Since websites now act as insurance agents, a wider variety of policy options are being made available to more people at the same time. Internet Insurance can also provide 24 by 7 value services.
* Customer Reservations: The larger percentages of people are still uneasy over the security of the Internet with respect to fraud and security of financial transactions. The fact being that the rate of insurance fraud has risen in the past years with Internet accounting for over 35%. 60% of people questioned don't currently buy insurance policies and do not have any plans in near future to get involved.
* Threat of New Entrants: Electronic commerce has made it possible for companies to exist and thrive without having a physical location. This poses a serious threat to industries in general and the insurance industry in particular.
Elephant.co.uk, a wholly based Internet car insurance company is an example of such a threat created by Information technology.
On November 02, 2000, the pension calculator was launched by a unique partnership between the Association of British Insurers (ABI) and the Financial Services Authority.
The calculator available at www.pensioncalculator.org.uk would enable future pensioners plan for retirement, helping them work out key factors like the age they will start saving, how much they should contribute and their retirement age.
This feat was necessitated as research had showed that people valued a personalised pension plan and the "calculator" was the perfect answer to this problem.
Fraudulent claims have always been on a rise in the insurance industry with figures reaching an average approaching the billion pound mark annually. However the increasing use of anti-fraud databases has lead to a fall in claims.
According to the results of the Association of British Insurers annual fraud survey released on 1st December 1999, the number of fraudulent claims fell from by 5% from 1998 to 1999.
Welcoming this fall, the Deputy Director General of the ABI said
"the overall fall in the number of fraudulent claims shows that industry initiatives such as the anti-fraud databases, and the cheatline service are having the right effect".