INSURANCE TECHNOLOGY TODAY AND TOMORROW

Best's Review-Property/Casualty Insurance Edition

An Interview with Nancy James

This month's technology section revolves around agents' investigation of the automated agency. In our lead article, Nancy James, an insurance broker and data processing consultant on insurance matters, raises some provocative issues in "A Critical Look at Agency/Company Interface. " Automation of insurance companies, she points out, has supported the way the industry does business with benefits of speed and economy, but has not done much to change the basic way in which the business functions.But automation of the agency, she proposes, will disrupt significantly the traditional ways of doing business as multiple aspects of the agent/company relationship are brought within the scope of the computer, streamlining operations but also placing additional responsibilities upon the agent. In this climate of change, Ms. James urges, agents must assess carefully the impact of such developments on their own operations and on their relationships with insurers.An accompanying article, "A Discussion of Agent Concerns, " reports on some of the issues discussed when Ms. James and John W. Folk, president of the Insurance Institute for Research (sponsor of a well publicized agency automation pilot project), both appeared as speakers before an audience of independent agents at on automation seminar sponsored by the Professional Insurance Agents of New England. Agents do have valid concerns about certain cost and responsibility factors, Mr. Folk agreed, but the competitive needs of the American Agency System for an industry wide network make it imperative that these issues be resolved without impeding the evolution of the automated agency and an interface system. Automation concerns per se, he cautioned, must not become intertwined with those of extraneous issues.Our final article reports the substance of a panel discussion, also part of PIA-NE's Agency Automation Fair. Eight agents, all owners of in-house computers, reported on their experiences as users. The agencies represented cover a broad spectrum of lines of business, premium volume, and computer sophistication. One agency, for instance, commissioned custom software in the mid-1970s, before today's turnkey systems were available; another took the first step with the purchase of an Apple II just a year ago. Some agencies are fully automated; others have not gotten much beyond an accounting system to replace an outside service, Each agency purchased its system for somewhat different reasons and uses it in somewhat different ways. Their combined reports provide an intriguing series of "snapshots" of the present state of agency automation and may encourage some agents who have not yet taken the plunge to explore the wide range of possibilities open to them.

A Critical Look at Agency/Company Interface

One does not need a long memory or deep understanding of data processing to realize that many early expectations for the computer have been proven unrealistic. With greater numbers of agents expressing an interest in automation, as indicated by a number of recent surveys, a critical look is needed at what part each of the industry players will provide in the decision-making process. This article will examine how data processing supports the insurance industry agency system, where computer systems have fallen short of stated objectives, and what business concessions have and will be made to accommodate computing needs.One must be cautious not to attribute independent capability to the "computer's contribution," for the computer is, after all, an inanimate object. First, let us summarize the position of the companies, which have longer experience with data processing support. Without oversimplification of the extent of development effort involved, it is evident that most insurance companies have been utilizing data processing support for a significant number of years. Routine functions were automated first, then repetitious tasks. The efficiency of data entry input defined the progression of systems development which, in part, alleviated rapidly expanding paper flows and the resultant staffing burdens. Large centralized systems were developed which at least approximated the existent central files.What is significant here is the mode and purpose of systems development; departures from business functioning which might have necessitated change in the basic product-underwriting-adjusting methods were not required. When such demands have been made upon the industry, they generally have not been attributed to data processing requirements. Business has gone on as usual according to the conditions of the time, but supported to an increasingly greater extent by computerized systems.

A Different Tack

This seems not to be so when automation addresses the agent. An entire harmonious order of business support is upended with the introduction of a turnkey minicomputer. No area is left untouched as gravitational forces swiftly pull all facets of agency operations into the computer's sphere. More important than the influence upon mere operational changes within the agency are the business decisions forced by the need to communicate electronic data from the agent to the company.It is this aspect which is subtly changing the traditional and fundamental business relationship between the company and the agent, and ultimately the consumer. There has always existed that delicate balance between the interests and perspectives of the company and of the agent. An amiable adversary relationship has evolved wherein the company profits and the agent profits under differing conditions, each jurisdictionally both dependent and autonomous by supporting the consumer's needs and the company's interests in low-risk business. While agents seek reliable markets for the client's needs, company underwriters set a satisfactory price offer for acceptable risks. Losses are adjusted by the best objective sources both have available.what appears ominously on the horizon of the agent's future are increasing demands upon him not only to find and sell the account, but to underwrite the risk, fairly and competitively, and then to adjust losses. Although this may appear, and has been advertised as, a greater faith in "select" agents, I maintain that the companies have been forced to grant excessive underwriting latitude to agents to circumvent their own data processing shortcomings.

The Weak Link

These shortcomings appear primarily in the area of agency/company communications, necessitating underwriting at the source of business. The network required to transmit an underwriting request for response within an acceptable time period is just not available, and attempts to construct workable networks during the last decade have not yet succeeded. The implications of these failures(beyond the obvious lack of technical capabilities) have not been addressed and, indeed, may have deliberately been disguised.Apologists for greater underwriting authority point to the example of large agency operations and posit the mistaken assumption that the small agent by virtue of success and profitability can assume the disproportionate autonomy required of large houses accustomed to underwriting and settling account claims. It poses, nonetheless, a conflict of interest when one agent (or office) Attempts to underwrite fairly in competitive conditions any particular key account, and can later be placed in the position of assessing a coinsurance requirement for loss adjustment.

Companies Relieved of Risk

Proponents argue that the system is self-policing, but implications of the consequences of such policing evoke pictures of expensively automated agencies with fully functional company interface programs being suddenly truncated for Poor underwriting averages and/ or higher than average loss payments. It is folly to wish additional risks of judgment on the "average" size agent while relieving the companies more and more of any risk. And that is precisely what will happen as more agents automate.The continued development of data processing equipment, particularly in the minicomputer line, and expectations of substantial price reductions in the near future are opening the computer market door to virtually any size agency. It appears probable that within this decade most insurance agencies will own their own systems, or will be fully process-supported by an extensive policy writing/accounting service. Critical business decisions which will be made in these intervening years will decide the ultimate success of agency-company relations under these new conditions. Assessing the merits of these decisions is up to us.