Changing Information Technology (Part 1)
November 2002
In the first of two articles, Martin McGavin
examines new risk management information technology and illustrates its advantages.
by Martin
McGavin
The insurance industry is experiencing rapid changes in technology that are
significantly impacting the way insurance companies conduct business. This article,
the first of a two-part series, will provide a general overview of the technological
changes that are driving businesses.
Yesterday’s Technology: A Brief Scenario
The year is 1989. Ed, the risk manager, receives a call from Mary, the operations
manager, questioning her division’s allocation for product liability insurance.
She asks to see claim history to justify the allocation.
Fortunately for Ed, his department has access to a Risk Management Information
System (RMIS), the state-of-the-art tool for managing insurance information.
Ed summons his data coordinator and explains the information needed. Ed cannot
order a report himself because users of the RMIS must have a unique “ID” and
Ed has not purchased one. Ed did not want to spend the money or learn to navigate
through the system and write the complex code needed to generate reports.
Ed’s data coordinator writes the report and puts it in the queue for overnight
processing. Mary is anxious to see the data, but like everyone else, she knows
it takes time to get data from a computer.
The next day Ed’s data coordinator brings in the report. When Ed reviews
the report he sees that there are many more claims in the prior year than he
remembers and the cost is much higher. Ed knows he cannot give the data to Mary
like this because she will ask what happened in the prior fiscal year and he
cannot give her an answer. Ed summons his data coordinator to develop a follow-up
report. If his coordinator fully understands his request, and writes the correct
code to deliver what is needed, Ed will be one step closer to meeting Mary’s
information needs by the following day.
The Same Scenario Today
Consider the same situation today. Mary receives her budget package with
the liability insurance allocation. Surprised by the amount, she turns to her
PC where her online analytical processing tool is still on the screen. She has
just used it to check inventory levels and monthly sales figures. She connects
to the “insurance” database and chooses to see her liability claim summary.
She instantly sees a problem in fiscal 2001. She clicks to have information
displayed by product and sees that there are a large number of claims from the
discontinued widget line. She remembers that quality problems lead to several
injuries during the year and realizes that the cost of those claims is being
reflected in her liability allocation. She has her answer and Ed, the risk manager,
never knew she had a question.
The scenario above from 1988 is a pretty accurate picture of how information
was managed then and how many companies probably still manage it today. The
scenario from today may not accurately depict how any single company is managing
its information, but what it does depict is how a company could manage its information
if it took full advantage of existing technology. Few companies do because few
can change business practices fast enough to keep pace with the breathtaking
changes in technology.
How Technology is Changing the Way Information is Managed
The insurance business is perhaps as dependent on information as any other
business. Information about prior history is used to set prices, evaluate profitability,
and to shape future management strategies. It follows that changes in information
technology will have a major impact on the insurance business. To predict how
the insurance industry might change requires an understanding of what has changed
in information technology.
Essentially, there are six technological advancements that are driving changes
in business practices. They are listed in Exhibit 1 and described in detail
below.
| Rapid advancements in information
technology and the development of the World Wide Web have revolutionized
many business practices. The major technological changes to date include
the following. |
| Hardware Development—The processing
power of hardware along with the ability to store data is increasing
exponentially at the same time the cost of hardware is dropping. |
| Data Portability—The Internet has
made it easy to move data and to access it anywhere in the world. |
| Virtually Unlimited Access—Internet
processing makes it possible for applications to have thousands of users
without significantly deteriorating performance. |
| Flexible Security—Security functions
in Web applications allow users with many diverse roles and needs to
use the same application if they need access to the same data. |
| Design and Maintenance Advantages—Web
authoring tools are making Web design more efficient and maintenance
simpler and less expensive. |
| Intuitive Software—Web applications
use plain language eliminating the need to train users on application-specific
codes and navigation keys. |
| Advanced Reporting Tools—Web applications
provide reporting tools that allow for much quicker analysis of information
and report development. |
Hardware Development. The Internet is often
credited with being the driver of the recent information revolution, but hardware
development has been as much a part of the revolution if not more. The cost
of computer hardware has been dropping continuously for several years even as
computing power and the ability to store data has improved significantly. Today,
a business can manage data on a $6,000 server that required a six-figure mainframe
computer just a few years ago.
Perhaps the greatest significance of recent hardware improvements is that
equipment cost is no longer a major barrier to application development and hosting.
For example, a few years ago there were few organizations with the ability to
host a claim database. They included insurance companies, third-party claims
administrators, and a few specialized RMIS vendors. Today, most organizations
have the hardware needed to operate a claim database and could elect to develop
one if they were dissatisfied with the price or utility of systems offered by
the traditional vendors.
Data Portability. It is no secret that the
Internet has made it easy to move large amounts of data quickly and inexpensively.
It has also made it possible for computer systems to communicate with one another
more easily. The differences this leads to are significant. First, it is now
possible for users to “fetch” data from a remote system when they need it rather
than to rely on the host system to “push” the data to the user on a fixed schedule.
It is also much easier to transmit “data” rather than reports. In other words,
a user may receive a spreadsheet with data rather than a paper copy of a report
by fax or mail.
Another advancement is that systems can now draw information directly from
other systems rather than relying on a user to draw data from one system and
reenter it into another. For instance, to report a workers compensation claim,
an insured might need to draw information about the injured employee from its
own human resource system and then relay the information to an insurance company
operator who would enter the data onto the insurer’s computer system. Today
it is possible to eliminate the middle steps by having the insurer’s system
contact the employer’s computer and draw the information directly. Not only
is it possible, but it is already an established practice for some employers
and their insurers.
Virtually Unlimited Access. Web applications
also offer virtually unlimited access. Before the Web, the only way to access
a remote system was through a dial-up connection. The system provider had to
install phone lines and hardware to support the maximum number of anticipated
concurrent users. The cost of this had to be amortized over the total number
of users.
Web applications offer a “stateless connection.” Each user is only “connected”
for a fraction of a second as commands pass through a Web server. This means
that large numbers of users can have concurrent sessions on a Web application
without the need for one phone line or one Internet connection for each user.
The significance of this is that there is little marginal cost to add a new
user. This is another factor that is changing the economics of the information
business.
Flexible Security. The processing speed of
today’s computer hardware allows Web applications to include very complex security
commands. Web applications work fast enough that every request submitted by
a user can be compared to a security table to determine if the user is authorized
to perform a command or to see the information being requested. This means that
a single Web application can be designed to meet the needs of a very diverse
group of users. For example, an application designer might anticipate that both
an accountant and an occupational health nurse would need to view data managed
by an application. The accountant may need to see the status of premium bills
or the total cost of claims falling within a self-insured retention. The occupational
health nurse would need to see adjuster diary notes on the diagnosis and treatment
recommendations for an injured worker. The problem is the accountant has no
need to see file notes on medical issues and the occupational health nurse has
no need to see financial data. And, more importantly, each may not be allowed
to see the data the other needs to see.
Even though the accountant and the nurse do not need to see the same data,
the data they both need likely resides on the same system. For instance, the
claim reserves the accountant is interested in seeing are contained in the claim
files that hold the notes the nurse needs to see.
A Web application can readily manage a complicated user access situation
such as this. The designer would simply create a “role” for both types of users.
The role of every user would be defined in the user access or security table.
Each page of the application would contain logic that determined which types
of users could see the page—or even parts of the page—and execute commands.
For instance, the accountant could call up the “Claim Summary Page” and see
a link to “Financial Data,” but no link to “Adjuster Diary.” The nurse could
call up the same page and see the “Adjuster Diary” link, but not the “Financial
Data” link.
The alternative to building an application with flexible security would be
to build a separate application for every class of users. This would be much
more expensive and would probably results in the needs of some users not being
met.
Design and Maintenance Advantages. New Web
authoring software is also making development faster and easier, which leads
to lower cost. New authoring tools will provide prebuilt utilities for common
functions that can be incorporated into applications rather than built from
the ground up. A good example of this is the simple Web counter that registers
the number of visitors that access a Web page. The first person to use a Web
needed to build one. Today, server operating systems provide detailed Web usage
reports and a programmer does not need to build a customized counter to obtain
reports on site usage.
System maintenance is less expensive because users of Web-based systems typically
need no software other than a Web browser. Web browsers are free and virtually
everybody who has a computer already has one and knows how to use it. Because
there is no software on user machines, there is no cost to install it or to
issue upgrades when products are updated. If new generations of the application
are released, the owner of the Web application merely updates the software on
its system and the new product is instantly available to all users anywhere
in the world.
Finally, if Web development has a cost disadvantage it is that technology
is advancing so fast that Web application development is continuous. In the
past, a periodic system overhaul may have been adequate, but Web applications
must be continuously improved and upgraded or risk becoming obsolete. This means
that a system owner must make continuous investments in its systems.
Intuitive Software. The “intuitive” nature
of Web software is another advantage because it reduces training and support
cost. Intuitive means that instructions are in plain English and commands are
given by pointing and clicking. Users do not write code and do not use function
keys to navigate through the application.
Advanced Reporting Tools. Presumably, one of
the greatest opportunities that arises from storing large amounts of exposure
data in one place is the ability to analyze it for trends so that future loss
prevention efforts can be shaped by analyzing loss history. Analysis is usually
done by writing reports that find, sort, and display selected data.
Perhaps the greatest differentiation between traditional mainframe RIMIS
systems and Web-based systems is the speed and flexibility of report writing.
This was illustrated in the opening paragraphs of this article.
There are two types of report writers that are commonly used with Web applications.
One is an “ad hoc” reporting tool that allows a user to build custom reports
by selecting the data fields to be displayed and the format in which they are
to be displayed. The other type of tool is an online analytical processor (OLAP).
An OLAP is used to perform analysis at the summary level. It simplifies the
production of summary reporting but does not provide the same flexibility of
an ad hoc report writer.
To illustrate the difference, an ad hoc report writer would be used to generate
a list of all auto claims in litigation where the insured’s driver was at fault
and the expected cost is more than $5,000. An OLAP tool would be best to analyze
year-to-year workers compensation performance and to identify the major causes
of loss.
OLAP tools are very simple to use whereas ad hoc report writers may require
a strong knowledge of the software and of the underlying databases. Because
OLAP tools are more “user-friendly,” they may eventually become a standard tool
on the typical business desktop. (See Exhibit 2 which describes OLAP tools and
the future of these tools.)
As an alternative to a report writer, an application designer could try to
anticipate the types of reports users might need and build them into the business
logic of the application. Then users could generate the reports whenever they
were required. This is generally a poor solution for report writing needs because
it is expensive to write reports in this fashion and it limits the user’s ability
to analyze data.
| Many insurance professionals probably
do not know what an online analytical processor (OLAP) is today, but
in the next few years OLAPs may become as common as spreadsheet and
word processing software. OLAPs are powerful analytical tools that are
used to analyze summary data that is stored in one or more databases.
OLAPs can instantly sort data, “drill down” through data to more detailed
levels, and can convert summary data to charts and graphs. Unlike
many simple Web pages, OLAPs may require some training, but once the
user is familiar with the tool, he or she can create reports instantly
that previously required overnight processing on mainframe applications.
For instance, an operations manager using an OLAP could generate
a summary of all workers compensation claims. Seeing a surprising number
of claims, the manager could “drill down” to the department level to
see where most claims were being generated. The manger could switch
views to show the cost of claims rather than the number, sort the cost
of claims.
Even though an OLAP adds tremendous power to an application, it can
actually reduce development cost. Buying an existing OLAP tool is much
less expensive than developing an application-specific reporting tool.
Setting up an OLAP to work with a Web application is probably less expensive
than developing even a short series of static reports that users can
generate on demand.
It is easy to imagine that OLAPs will be increasingly deployed as
“enterprise” tools that can be used to report on any information an
organization stores in a database. And virtually all information of
consequence is now stored in a database. The operations manager that
uses the OLAP to look at workers compensation data may use the same
tool to review human resource, accounting, manufacturing, sales, and
all other data that is important to him or her.
The technology exists today to use OLAP tools in this fashion. It
is probably only a matter of time until they are fully deployed.
|
Click here to continue with Part 2 of this article.
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