SOUND INTERNET SOLUTIONS
Industry online utilities represent lots
of opportunity for positive change
By John Ashenhurst
Traditional areas of industry cooperation and standardization are well understood if not universally embraced. Bureaus such as ISO and NCCI collect, analyze, and report on statistics and create standard policy forms. ACORD creates and promulgates forms and interface standards. IVANS serves, to some extent at least, as an industry-wide, value-added network and interface facilitator.
Until recently the focus of industry cooperation has been on improving the interaction between carriers and agencies. The ubiquity of the Internet and rising interest in self-service among consumers makes it possible and advisable for the industry to consider cooperative ventures that can directly serve the insurance customer as well as agencies and carriers. One emerging idea for cooperation is the creation of industry-wide online utilities--in which all parties involved in certain families of insurance transactions can share. In order to understand the promise and potential problems of online insurance utilities, I talked recently with Rick Morgan, executive vice president of ConfirmNet, an online certificates utility.
J.A.: Rick, help me understand the concept of an online insurance industry utility. What is it? Why should agents and carriers be interested?
R.M.: A utility is a resource that everyone can plug into and use--like telephone service. An online utility is one that's available through the Internet. Google, the search engine, is an example of a generic online utility. An insurance utility is something that supports some part of the insurance process. ConfirmNet, for instance, provides online certificate services to holders, insureds, agents, and carriers--everybody involved in the process. And finally, an industry utility is one that the entire industry cooperates in using. Industry-wide utilities are particularly interesting because they display emergent properties that smaller footprint utilities lack. That is, by being universally used, they provide significant new value to all involved.
As an example, imagine what it would be like to have multiple, parallel telephone systems. If you wanted to call Joe, you would use your white phone. To call Jane, you'd have to use your blue phone, and so on. Each telephone system would be useful on its own; but by making every telephone accessible from every other telephone on the planet, as we've all cooperated to do, we're all much better off than with multiple parallel utilities.
J.A.: Can you offer some candidates for insurance industry online utilities? What insurance activity could best be supported by industry-wide, Internet-based services?
R.M.: One obvious candidate is the storage of policy information. If the whole industry shared one common database--agents, carriers, consumers, and so on--a great deal of inefficiency could be wrung out of the distribution system. We wouldn't need interface or SEMCI. Everything would just be there for people to use. Of course, I don't expect the industry to suddenly wake up to the fact that by sharing one big file cabinet everyone would be better off and the whole process would be a lot less expensive.
But there are a bunch of possibilities that make practical sense and wouldn't take changing the world to create. For instance, why shouldn't the industry provide one online source for auto ID cards--or more accurately, a service to confirm auto insurance coverage? Paper cards get lost and may be out of date with a cancellation. Doesn't it make more sense for everyone who needs coverage confirmation to just go to a shared industry online service? Claims are another area where the industry could probably benefit from an industry-wide solution And, of course, certificates of insurance are an obvious candidate as well--at least that's what we think at ConfirmNet.
J.A.: I can understand the value of online certificate services. The last time I looked, five different freestanding services were available--and that doesn't include the management system vendors that now include online certificate services as extensions of their systems.
R.M.: Well, of course the current situation with multiple online certificate sources isn't bad for agents--but it really doesn't work for carriers and certificate holders. Let me explain why. When agents think about certificates, they think of the work they need to do to get the paper forms out the door. They don't think about what happens to the certificates once they get to the holders or the problems carriers face with certificates. Some large contractors have to deal with literally hundreds of thousands of certificates from a variety of sources. It's their responsibility to validate incoming certificates against their stated requirements, manage the non-compliance process, and track all activity up to and including renewals.
Some contractors have to hire a lot of staff to deal with certificates--or outsource the certificate management process to a third party. It's a mess. And most carriers can't even deal with certificates because they can't afford to spend the time it would take to analyze or use the information available on millions of certificates. Agents forget that holders need to track and confirm and that carriers need to monitor certificates. Doing it with paper is a nightmare, and having to deal with a variety of different electronic certificate sources isn't much better. The utility model allows for the sharing and leveraging of certificate information, thus making it possible for many of the needs and processes of carriers and holders to be performed automatically.
J.A.: I suspect that ConfirmNet would like to become the industry-wide online certificate service, but I'm not convinced yet that the industry would be better off with one, rather than several, competing suppliers.
R.M.: We do have more than a casual interest in ConfirmNet being the industry-wide online certificate utility, and we hope to get there by competing effectively one customer at a time to become the industry service of choice. Though we expect to get there, the process will take time and in the interim, agents may be satisfied with the situation. But carriers and, especially, holders just won't realize the benefits they could. Since an industry-wide service has such obvious benefits--everyone wins--it makes sense for the industry to make a conscious choice to embrace a single solution.
ConfirmNet has had a lot of success with the largest agencies, and we are now beginning to bring carriers and holders into the process. We're the first service--as far as I know--that's actually created the end-to-end solution that serves the interests not just of agents but certificate holders--with tracking services, and carriers--with monitoring services.
J.A.: Eliminating competition may foster efficiency in some ways but discourage it in others. If the industry did choose to have a single, industry-wide online certificate utility, how could the industry be confident the process would really work well?
R.M.: Industry-wide utilities, the kind of thing I think ConfirmNet should be, need to be accountable in several different ways. First, the revenue streams realized by the utilities should be shared among the parties that make it possible. ConfirmNet sees itself as a facilitator that manages a platform and software--and partners with other industry entities that initiate, carry, or sometimes deliver certificate transactions. A consortium of a sort, not just ConfirmNet, would share revenue. That larger group, with a great deal of self-interest in the success of the effort, would play a role in advising ConfirmNet and holding it accountable.
Second, it would make sense to have an advisory board that represents the constituencies we'd serve--that is agents, holders, and carriers. By providing financial incentive for involvement on the one hand, and enlightened advisors on the other, I think an industry-wide online insurance utility can work in everyone's favor.
J.A.: It seems to me that there are alternatives to solving the certificate problem through an industry utility. For instance, you said or at least implied that holders would have a hard time tracking even electronic certificates if they came from a variety of sources--some from agency systems, some from one certificate service, some from another. But from my point of view, electronic certificates should have two elements: a populated familiar ACORD certificate form--that can be printed out or archived; and XML tagged-data that can be extracted and fed into a local database. Then, holders could track certificates without needing to do any key entry--a big problem that they have today.
Something similar could work for the carriers. Agents would send them electronic copies, and the carrier could unpack and store them and then do analysis at their leisure. If electronic forms are done the right way, it's not obvious that we need a central database or utility.
R.M.: Theoretically the kind of distributed environment you describe might work, but it would be awfully complicated and lots of systems would have to be modified. It would be much simpler for all concerned to use a centralized database--as ConfirmNet does now.
J.A.: I do have some sympathy for the idea of shared industry utilities--though I do have concerns as well. CSIO in Canada will go live with their agency portal shortly, and ChoicePoint wants to create something similar in the United States. I'm reminded of John Nash--of A Beautiful Mind--who won a Nobel prize for showing that Adam Smith's pure competitive marketplace doesn't deliver as much value as the conscious combining of cooperation and competition. Surely this industry can find ways to use that insight. *
The author
John Ashenhurst is editor of Sounding Line, a monthly newsletter covering insurance and the Internet. His company, Sound Internet Strategy, provides consulting, Web site evaluation, and seminar services to independent agents and their trading partners. He can be reached at johnashenhurst@soundingline.com or (360) 376-1090.