Insurance Web 2.0
November 2007
The term "Web 2.0" has been used to describe
a new generation of Internet technologies which emerged after the bursting of
the Internet bubble in 2001. Some argue that the term is no more than a marketing
phrase as the technologies remain the same. Others point to a whole new generation
of businesses markedly different from those seen during the bubble itself.
by Andrew
Berry
Newport Risk
Services
In this article, I examine what the Web 2.0 phenomenon means for the insurance
industry.
What Is Web 2.0?
Tim O'Reilly, the founder of O'Reilly Media, is widely credited with developing
the term Web 2.0. He has defined Web 2.0 as "the business revolution in the
computer industry caused by the move to the Internet as platform, and an attempt
to understand the rules for success on that new platform." He identified seven
different characteristics of Web 2.0 in his article "What
is Web 2.0?"
- The Web as platform: Web 2.0 technologies exist purely on the Web and
use the network as part of the service offering.
- Harnessing collective intelligence: A key feature of Web 2.0 is the
participatory nature of many of the technologies. Users have been given
the power to upload information as well as download.
- Data is the next Intel inside: There is an even greater focus on data
with the ownership of unique databases being a competitive advantage for
Web 2.0 companies.
- The end of the software release cycle: The ability to easily deploy
upgrades in software via the Internet removes the need for periodic releases
of new software versions. Enhancements are added continually with the software
in a perpetual beta.
- Lightweight programming models: Applications are using syndicated content
and data rather than building it all within the application. This creates
more focused and lightweight software development.
- Software above the level of a single device: Increasingly the same software
is being used on multiple devices: PCs, phones, iPods, etc.
- Rich user experiences: Advances in user interface technology is leading
to Web-based applications with the same usability and features as PC applications.
The Insurance Industry
The insurance industry has generally been seen as being slow to adopt technology.
While it saw its fair share of Web-based companies during the Internet bubble,
including online distribution solutions and information services such as Advisen
and Captive.com, many of those Internet companies did not launch until the late
1990s. They were relatively immature when the Internet bubble burst, leading
many of the companies to fail with the technologies not fully embraced by the
industry. This period also saw a hardening of the insurance market, creating
an environment which was not conducive to the adoption of new technologies.
Those that have survived have had to change their business models. As Web 2.0
takes hold, where does the insurance industry stand and what can we expect?
I see four main Web 2.0 technology trends affecting the insurance industry:
software as a service, Web services, collaboration and participation technologies,
and the importance of data.
Software as a Service
The Web is changing the way that applications are being deployed. We are
moving away from the client-server model to using the Internet as the means
to access technology. Increasingly we are seeing the concept of software as
a service. Instead of buying the product upfront, we are paying for it as we
use it in the same way we would with a service. It is similar to leasing versus
buying a car, except software as a service provides the user with the latest
model all the time, not just every 2–3 years. Application service provider models
are a simple example, although Web 2.0 business models extend this further by
using the Web as the sole platform for the software. Remove the Web and the
software does not stand on its own. Software as a service ensures users are
working with the latest versions, simplifies maintenance of the application,
and allows for faster deployment of incremental upgrades to the software.
In the insurance industry, we are seeing some change in the delivery of technology,
with a slow but steady move towards software as a service. This is most prevalent
for smaller companies or specialty applications where "renting" software as
a service is vastly more cost effective than buying it under a client server
license model. There are financial advantages to both buyer and seller in creating
a regular even cost for technology rather than the one-off cost of a client-server
license. A major obstacle to wider adoption of software as a service is the
industry's reliance on legacy systems. Moving core applications from legacy
systems to a software as a service model is a major change involving a significant
write-off of technology assets. It's not likely to happen any time soon.
Web Services
There have been considerable advances in the ability to connect different
applications across the Web. The growth in Web services and service-oriented
architectures allows for more flexible and more easily deployed technology solutions.
Web 2.0 solutions are becoming more specialized, relying on third-party data
and content to create a rich user experience around the core application.
Web services are gaining strength in the insurance industry. This is creating
slightly more flexible technology platforms in the industry. Companies can focus
on their core applications in-house and pull third-party data and content to
wrap around it. This is allowing insurers to extend the life of their legacy
systems. Web services also holds tremendous promise in streamlining the flow
of data in the insurance industry. However, broader adoption will require everyone
to buy in to the benefits of greater portability of data, a movement that has
been resisted in the past. Notwithstanding this resistance, I expect Web services
to play an increasing role in the future, although it will be largely hidden
from the user.
Collaboration and Participation Technologies
The most visible characteristic of Web 2.0 services is collaboration and
social networking. The key feature of the collaboration is that it is truly
participatory. Control is given to the user who generates the content. The growth
of blogs and wikis and services such as YouTube and MySpace are testimony to
the strength of this social networking phenomenon.
In the insurance industry, the main development we have seen in this area
is the use of portals to disseminate information and share information with
clients. Zywave has developed a strong position in the provision of portals
to brokers and agents. The company reports that 560 brokers are currently using
its MyWave product. Others are increasingly using SharePoint technology, a standard
Web-based collaboration application provided by Microsoft. The primary use of
these technologies has been one-way communication from service providers or
insurers to their clients ("download" only). Few are using these applications
for two-way communication, although the software is designed for this purpose
including collaboration around documents and in many cases the exchange of structured
data online.
A more participatory technology is Wiki software. This allows the creation
of Web content by multiple users and is often provided as an open forum. A leading
example is Wikipedia. To date there has been little use of this technology in
the insurance industry and no major initiatives to create an open forum community.
Two recent initiatives include the RiskWiki (www.rims.org/riskwiki),
an online glossary of risk management terms created by RIMS, and the
Riskipedia,
created by Risk Management Reports.
Another participatory Web 2.0 phenomena is blogging. This is a simple technology
which allows anyone with access to the Internet to become an online commentator
providing opinion on any issue he or she wishes. The use of RSS feeds allows
blog comments to be easily shared with interested parties. There are few insurance
industry or risk management blogs. However, the general blogging activity on
insurance is surprisingly high. The BlogPulse chart provided in Figure 1 shows
the blogging activity on the insurance industry compared with both the banking
and real estate industries from mid-July to mid-September.
Figure 1: BlogPulse Chart
The insurance industry shows consistently higher levels of blogging activity.
People are blogging more about insurance than both banking and real estate.
And this was during a period which included the fallout from the problems in
the subprime mortgage market and the period leading up to the Federal Reserve
cutting the interest rate.
The Importance of Data
As technology solutions have become more flexible and the exchange of data
simplified, the importance of the data itself has increased. Ownership of the
database becomes the competitive advantage. The more unique and difficult to
recreate the database, the stronger the advantage. In the participatory world
of Web 2.0, users add to the database creating additional advantages for the
owner of the database and higher barriers to entry for competitors.
Ownership of data has long been an issue in the insurance industry. Access
to a greater depth of risk data is seen as a pricing differentiator for insurers
and anyone who can supply it. This leads to reluctance in sharing data and conflicts
over who actually owns it. The industry has spawned a few information organizations,
such as Insurance Services Office, Inc. (ISO), and National Council on Compensation
Insurance (NCCI), which act as data repositories and sources for the industry.
One new Internet-based information company is Advisen, which has modeled itself
as the Bloomberg of the insurance industry. A characteristic of the Web 2.0
data models is a structure that automatically builds the database through usage
of the application. None of the current information-based companies in the insurance
industry have been able to achieve this yet. Expect this to change with more
Web-based software applications offered at a low cost as a means to capture
data.
Conclusion
We are still at the early stages of Web 2.0 in the insurance industry. The
signs are that we are just beginning to see adoption of some of the technologies.
The softening market may help fuel interest as insurers and brokers look to
improve efficiency and competition increases. However, expect adoption to be
slow. The insurance industry is very entrenched and in some sectors quite heavily
concentrated. This makes new ways of doing business, particularly those that
embrace participation and transparency, difficult. The reliance on legacy systems
will act as a barrier to the adoption of some Web 2.0 concepts, such as software
as a service. Conversely, it might benefit others, such as Web services. For
Web 2.0 technologies to really take hold, the industry must want to embrace
them. The industry is still wary of the Internet and the potential disruption
it could create for parts of the distribution channel. While Web 2.0 technologies
appear less disruptive than earlier Internet business models, the industry is
likely to approach the new generation of Internet technologies with caution.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
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