Evolving Industry, Evolving Technology Business Management Group When one looks at how far insurance-agency automation has come in the past 30 years, one needs to remember how we went from completing paper forms with an antiquated instrument called a pencil, to a real-time environment where data is passed seamlessly between systems thousands of miles apart over the Internet. To say: “We’ve come a long way” would be an understatement … to say: “We have a long way to go” would be accurate. In the past 30 years we have seen the completion of the first generation of agency automation systems. We are about to begin the second generation and if it is anything like the first, we need to be ready for change. Let’s take a quick look back, and a look forward. Using the system for service By the mid 1970s, several software vendors developed accounting systems for agencies and implemented them on a number of different minicomputer platforms. Word processing allowed for easier production of proposals and other insurance- related documents. By the end of the decade, most large agencies had their own AMS and were using it predominantly for billing and accounting purposes. The 1980s brought two major changes in agency automation. First, the use of personal computers finally made agency automation affordable to all agencies. Secondly, with the accounting functioning, vendors turned to enhancing the system for servicing purposes. Although early versions were cumbersome to use, most of the vendors eventually fine tuned their systems and added numerous servicing features. Agency automation had taken a tremendous leap forward in servicing functionality; and with the personal computer replacing the minicomputer as the main platform, agencies of any size could now afford an AMS. The end of the 1980s saw the start of something that would change the landscape of agency automation: vendor consolidation. The promise of SEMCI By the 1990s, many independent agencies already had their AMS installed for five-to-10 years. Most had mastered the accounting aspects of the system and they were using the system for servicing. Carriers were in the process of building systems that would download policy detail directly into the agency’s system. Many had perfected the downloading of personal-lines data and were starting to work on the more complex commercial policies. Carriers attempted to get the agency to load the data on their system and then download it to the agency system and called it “single entry.” The problem with this concept was agencies typically quoted business with several carriers. What they wanted was to load the data once into their AMS and then upload it to the specific carriers. The agencies called it “single entry multiple company interface,” or SEMCI. The concept seemed simple. All that needed to be done was to reverse the download to allow upload to the carrier systems. Evidently, this was more of a problem than anticipated. The AMS vendors and carriers worked on the solution for the balance of the 1990s, with limited success. The consolidation of AMS vendors also was a major occurrence for agencies. The market consolidated from about 15-to-20 vendors down to fewer than 10. As with any consolidation, merging systems and staffing took more of the vendors’ time and resources, causing significant support problems for many vendors. Along with consolidation, ownership and management, changes seemed to occur on a daily basis. There was general concern for the long-term viability of the resulting vendors, and as the year 2000 was approaching, many agencies wondered if their systems still would work come Jan. 1, 2000. Technology that changed everything For as much effort that went into it, Y2K was a non-issue. Most agencies replaced most noncompliant hardware, completed all the necessary software updates and other than some minor problems with date fields and reports, Jan. 1, 2000, came and went like any other day. However, looming ahead was a new challenge, one not planned for completely: The worldwide usage of the Internet. The Internet was the top game-changing technology innovation in the past 50 years. The way in which we access information and communicate was altered forever. The Internet overcame the biggest technology problem in the first decade of insurance automation: connectivity. The Internet provided connectivity to everyone, anywhere and anytime, and for an affordable price. Not only did this level the playing field in the industry between large and small agencies and carriers, it set off a series of technological enhancements that still are in the process of being implemented. E-mail exploded and became the primary source of communications. Web sites became the key source of information about the companies and their products. Overnight the Internet became the platform for conducting business. It also created a whole new technology challenge: security. Also at this time, several new vendors entered the agency-automation market and the existing vendors had to address the new automation environment. The term “legacy system,” made popular by Y2K, was used to describe many AMS. The new vendors were developing new systems based on the latest technologies. Existing vendors scrambled to retro-fit their existing system with newer technology to make them look and feel like they were based on the newer technology. One thing became apparent quickly: The older legacy system, although not as appealing as the newer system, provided significantly more functionality. Twenty-five years of development and fine tuning could not be replaced with a new system with only three-to-five years of development. Agencies wanting to move to the newer systems would have to take a major step backward in functionality. Today’s agency automation We have come a long way in the past 25 years or so. The minicomputer market that started the agency automation environment is extinct. Today, all the major AMS run on high-speed personal computer networks. Most are using browser-based technologies, although there still are a few client-server versions. Every major vendor has introduced a new version of their product in the past few years, although the functionality issue still is keeping many agencies on the older legacy systems. Connectivity is almost taken for granted and flow of information between agency and carrier systems is increasing daily. SEMCI has been recognized in some areas, but it still is far from being standard for doing business. Most carriers still require most agencies to enter the data into their Web-based applications and provide download in the back end after the policy is issued. Some carriers are working on Web-based front-end systems capable of handing upload from an AMS, but these implementations are not yet the norm. Security has become a time-consuming issue for the industry, along with controlling the explosion in junk e-mail and protecting systems from virus-infecting programs. Securing the agency’s data and keeping it safe is the first priority for most agency-automation personnel. Eliminating spam and protecting the agency from a major virus outbreak, comes in a close second. Given all the changes in the insurance industry, until recently, not much had changed in the basic AMS. Most systems are geared to the servicing and accounting aspects of the business. During the past 20 years, most vendors have spent most of their development effort making these areas more functional and efficient by adding capability to handle more complex processes in these key areas. However, we have seen some recent functionality being added. Sales-force automation and full-featured marketing-tracking modules are available in the newer systems, or are being added to the older systems. Support for the full-policy life cycle is the key area of development today. What the future holds The future of agency automation is difficult to predict. There could be new technology introduced tomorrow that would revolutionize completely how we do business. We believe major changes may occur in two areas: the vendor market; and the AMS application. In the past few years, new players have entered the agency-automation market providing much needed competition as well as fresh ideas. One vendor in particular is taking a different approach completely to the market. In addition to providing a fully functional AMS, it also is providing a tool kit for customizing your own system. This solution will not appeal to every agency, but will be a good alternative for those wanting the ability to make their own changes. The second major area of change will be in the AMS applications. Changes in the interface modules finally will provide the SEMCI environment promised 15 years ago. Agency automation will get to a point where information will be entered into one system and then uploaded or transferred to a number of other systems. The key will be the bi-directional data flow between carrier systems and agency systems (dynamic data exchange). This will eliminate the current issue of where the data is entered as the data will flow in either direction. AMS will be enhanced to handle nontraditional insurance products as easily as they handle existing products. The marketing modules of the system will see the biggest increase in functionality as these integrations become common place. Sales-force automation also will be expanded in the AMS allowing agencies the ability to track business from cradle to grave. With this enhancement, AMS finally will handle the entire client-relationship management function. Customer portals will become common place with clients and prospects becoming more actively involved in the insurance process. We’ve seen some successes in this area with larger clients and applications like certificates of insurance, but we believe there will be major increases in the use of portals as more applications are developed. Finally, the Internet has been the great enabler for most of the progress made in the last 10 years and it continues to spawn even greater changes for the foreseeable future. Many of the areas listed above are enhancements directly linked to the use of the Internet; however, we have barely scratched the surface of a whole new world of enterprise, collaboration and innovation. Written by Stephen Sentz, an agency automation consultant with Business Management Group Inc. (BMG). BMG is a full-service consulting firm for insurance agencies and brokerages and a wholly-owned subsidiary of The Hartford Financial Services Group, Inc. The information in these materials is provided for informational purposes only. Readers seeking resolution of specific business issues or concerns regarding this topic should consult their attorney or business advisors. BMG does not warrant that the implementation of any view or recommendation contained herein will (i) be an appropriate legal or business practice; or (ii) result in compliance with any local, state, or federal ordinance, regulation, statute or law. BMG assumes no responsibility for the legal compliance with respect to your business practices, and the views and recommendations contained herein shall not constitute our undertaking, on your behalf or for the benefit of others, to determine or warrant that your business practices are in compliance with any law, rule or regulation. © 2009 Business Management Group, Inc. All Rights Reserved. Previously Published in Professional Insurance Agents / January 2009