INDEX

Sr.No 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Subject Introduction The Earlier Business Model Application Of IT in Insurance The Need for IT Technologies for Insurance Insurance and E-Commerce E-Insurance Information Technology and LIC IT Department in an insurance company Y2K Remediation What will IT be Like in the coming Years? Future Scenario Conclusion

PageN o 03-13 14-15 16-19 20-24 25-30 31-41 42-49 50-51 52 53 54 55

OBJECTIVES
Technology plays a vital role in effortlessly and transparently integrating the various arms of the company to deliver to the customer and organization the corporate envisioning. To improve their technical proficiency by upgrading their information support by developing strong research and development department in their respective organization. Further, in an era of high customer expectations constant efforts of increasing services through the use of technology become imperative (vital). IT has to be used effectively to tap (strike) the potential market.

INTODUCTION TO INSURANCE

What is Insurance?
The business of insurance is related to the protection of the economic value of assets. Every asset has a value. The asset would have been created through the efforts of the owner, in the expectation that, either through the income generated there or from some other output, some of his needs would be met. For Example: 1. In the case of a factory or a cow, the production is sold and income generated. 2. In the case of a Motorcar, it provides comfort and convenience in transportation. There is normally expected life time for the asset during which time it is excepted to perform. The owner, aware of this, can so manage his affairs that by the end of that life time, a substitute is made available to ensure that the value or income is not lost. However, if the asset gets lost earlier, being destroyed or made non-functional, through an accident or other unfortunate event, the owner and those deriving benefits therefore suffer. Insurance is a mechanism that helps to reduce such adverse consequences.

Definition of Insurance
it is a form of a contract or agreement under which one party agrees to pay in return of consideration an agreed amount of money to another party to make good loss, damage or injury due to some uncertain event in which the insured has interest.

Purpose & Need of Insurance

Assets are insured because they are likely to be destroyed or made non-functional, through an accidental occurrence. Such possible occurrences are called perils. Fire, floods, breakdowns, lightening, earthquakes, etc, are perils. The damage that the perils may cause the asset, is the risk that the asset is exposed to. The risk only means that there is a possibility of loss or damage. It may or may not happen. The mechanism of insurance is very simple. People who are exposed to the same risks come together and agree that, if any one of the members suffers a loss, the others will share the loss and make good to the person who lost. A human life is also an income generating asset. This asset also can be lost through unexpectedly early death or made non-functional through sickness and disabilities caused by accidents. Accidents may or may not happen. Death will happen, but the timing is uncertain. If it happens around the income will normally cease, the person concerned could have made some other arrangements to meet the continuing needs. But if it happens much earlier when the alternate arrangements are not in place, insurance is necessary to help those dependent on the income.

In the case of a human being, he may have made arrangement for his needs after his retirement. These would have been made on the basis of some expectations like he may live for another 15 years, or that his children will look after him. If any of these expectations do not become true, the original arrangement would become inadequate and there could be difficulties. Living too long can be as much a problem as dying too young. These are risks which need to be safeguarded against. Insurance takes care of it. Insurance does not protect the asset. It does not prevent its loss due to peril. The peril cannot be avoided through insurance. The peril can sometime be avoided, through better safety and damage control management. Insurance only tires to reduce the impact of the risk on the owner of the asset and those who depend on that asset. It compensates, may not be fully, the losses. Only economic or financial losses can be compensated. The concept of insurance has been extended beyond the coverage of tangible assets. Exporters run the risk of the importers in the country defaulting as well as losses due to sudden changes in currency exchange rates, economic policies or political disturbances. These risks are now insured. Doctors run the risk of being charged with negligence and subsequent liability for damages. The amounts in question can be fairly large, beyond the capacity of individuals to bear. These are insured. Thus, insurance is extended to intangibles. In some countries, the voice of a singer ort the legs of a dancer may be insured, even though the advantage of spread may not be available in these cases. There are certain basic principles which make it possible for insurance to remain popular which make it arrangement. The first is the fact that people are exposed to risks and that the consequences of such risks are difficult for any one individual to bear. It becomes bearable when the community shares the burden. The

second is that no one person should be in a position to make the risk happen. Ion other words, none in the group should set fire to his assets and ask others to share the costs of damage. This would be taking unfair advantage of an arrangement put into place to protect people from the risks they are exposed to. The occurrence has to be random, accidental, and not the deliberate creation of the insured person.

Function of Insurance
The function of insurance is divided into two parts: A. Primary Function B. Secondary Function A. Primary Function: i. Insurance provides certainty: Insurance provides certainty of payment at the uncertainty of loss. There is different types uncertainty of risk. The risk will occur or not, when will occur how much loss will be there? Insurance removes all these uncertainty and the assured is given certainty of payment of loss. The insurer charge premium for providing the said certainty. ii. Insurance provides protection: The main function of the insurance is to provide protection against the probable chances of loss. The insurance guarantees the payment of loss and thus protects the assured from sufferings. The insurance cannot check the happening of risk but can provide the losses at the happening of the risk.

iii.

Risk sharing: Life and property of person are subject to a number of uncertain

risks. Thus the loss that a few may suffer is spread over to a number of people who have insured against the same risk. The premium paid by a large number of persons are used to compensate the loss, that a few may suffer i.e. insurance company never takes the risks; it covers the risk and immediately spreads the risk among many insureds. Because the premiums for insurance are paid by large number of insureds whereas the loss is suffered by few insureds. Thus from the premiums collected the compensations are paid to the sufferers. B. Secondary Function: i. Prevention of Loss : The insurance join hands with those in situations which are engaged in preventing the losses of the society because the reduction in loss caused lesser payments to the assured and so more saving is possible which will assist in reducing the premium. Lesser premium is reduced to, which will stimulate more business and more protection to the masses. ii. It provides capital : The insurance provides capital to the society. The accumulated fund are invested in productive channel, the dearth (Lack) of capital of the society is minimized to a greater extent with the help of investment of insurance. iii. It improves efficiency: The insurance eliminates worries and miseries of losses at death and destruction of property. The carefree person can devote his body and soul together for better achievement. It improves its efficiency.

iv.

It helps economic Progress: The insurance by protecting the society from huge losses of damage, destruction and death, provides an initiative to work hard for the betterment of the masses. The next factor of economic progress, the capital, is also immensely provided by the masses.

Kinds of Insurance
The insurance can be classified into three categories from business point of view: I. II. III. I. Life Insurance General Insurance Social Insurance Life Insurance Life Insurance is a contract or agreement by which Insurance Company agrees to pay in return premiums or lump sum premium, an agreed amount of money at the time of death or maturity of policy whichever is earlier. Life Insurance is the latest type of insurance and popular type of insurance. In India the business of Life Insurance is conducted by Life Insurance Corporation of India, which is an example of statutory Company. This life insurance is based on two principles i.e. utmost good faith and insurable interest. Life Insurance contract is not a contract of Indemnity. It is a contract for the payment of a specific amount, as the value of human life cannot be measured in terms of money.

II.

General Insurance: The General Insurance includes property insurance, liability

insurance and other forms of insurance. Fire and Marine insurance are property insurance. Motor, theft, fidelity and machine insurances include the extent of liability insurance to a certain extent. The strictest form of liability insurance is fidelity insurance, whereby the insurer compensates the loss to the insured when he is under the liability of payment to the third party. III. Social Insurance: The social insurance is to provide protection to the weaker section of the society who is unable to pay the premium adequate insurance. Pension plans, disability benefit, unemployment benefit, sickness insurance and industrial insurance are the various forms of social insurance. With the increase of socialistic ideas, the social insurance is the obligatory duty of the nation. The government of the country must provide social insurance to its masses.

INFORMATION TECHNOLOGY AND INSURANCE

Introduction: Now days Information Technology permeate virtually every aspect of modern business to the extent that its effective use can easily mean the difference between success and failure. The effective use of Information Technology is one of the biggest challenges facing most of the organization today. Understanding the role of information technology plays and how to make the best use of Information Technology systems is an essential requirement for any organization seeking competitive advantage.

What is IT?
IT stand for Information Technology and in its widest sense, refers to any technology controlled by a microprocessor (or a computer chip). For example: Microprocessor is used to control the delivery of essential services such as water, electricity and telecommunication. There is no organization that can afford to ignore the empowering technology of the modern world. Todays IT systems can help a business to be more responsive, efficient and flexible in the face of continuous and rapid change. Properly used Information Technology will allow every company to stream line its processes and

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focus on its core skills and abilities that differentiate if form its competitors in the market place failure to embrace the opportunities that are ace offered by Information Technology today is likely to result in business failure. The developments in Information Technology (IT) are working wonders in all fields of activity. It has become possible to send and receive information almost instantaneously. If circulars do not reach the agents does not have details of new plans announced in the press, the agent may face awkward situations with the prospects. These problems can be totally avoided with the use of IT. Insurers traditionally, have been quick to adapt latest advances in technology. This is happening in the areas of IT as well. The extent of IT application will vary between insurers. Using the power of modern Information Technology systems to the best advantage is a strategic skill that has become an essential requirement if an organization already of its competitors Information Technology fulfills many functions in an organization including automated process and systems management; but for manager the key role is as an enabling technology. Manager must select and use Information Technology systems to simplify business process and to acquire analyze and manage data on which their business depends. Information Technology is a business tool that can radically improve the way business is managed. If systems are to deliver real benefits, then they must be: 1. Transparent to the user: Users need not know how systems work; the requirement is simply that the systems perform as and when needed.

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2. Fast and Easy to use: Users should find the systems simple to use and must be able to complete the tasks without having to wait any significance time for the system to respond. 3. Flexible: Changing needs require systems that are capable of being adapted quickly. Changes with the technology sector of the insurance industry are occurring with unique speed, traveling beyond and impacting companies more fully than ever expected. Business drivers are leading insurers to look for technologies and business processes that are significantly different from anything they have used before. Driving forces such as market globalization, merger and acquisition activity, and the critical need to adopt market segmentation strategies are forcing companies to move to the information age at a unique speed. Those unwilling to make the move risk being left behind with unsatisfactory business levels, declining profits and ultimately, the inability to survive. On Account of various reasons, the insurance industry in India has not kept pace with the rapid development in technology. It is only in recent years that an attempt is being made to become technology-wise. The revolution in communications and Information Technology is promising to change the way business is done. These innovations are promising to make things transparent, quicker and accessible. From their controlling offices located thousands of miles away a company like M/s Hindustan Lever claims it knows the stock movement at remote depots a minute-to-minute basis.

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A patient undergoing tests in the U.S in the evening finds his reports processed and ready in the morning. A lawyer dictates his notes in his recorder late in the night. The next morning neatly typed out notes is available in his computer. The processing work has been done in a distant country like India. In Insurance also, Technology will play a vital role. Any player in the market will have to be technology know-how, to be competitive and to enable the organization to survive. It should be possible for a proposal in guwahati to be evaluated in Mumbai and acceptance confirmed immediately. All these new technologies promise to reduce operational costs significantly.

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The Earlier Business Model: In the pre-computer days, agencies, handled almost all customer service. Though manual, this system was efficient in the there was no duplication of processes by agencies and insurers. The insurers main role was to provide financial backing and keep statistical information. The advent of computers in the 1960s allowed insurers to change their business model. As mainframes became entrenched, more functions flowed back to home office. Agencies did less, and big bureaucracies in both home and branch offices became necessary to run the companys business. Built around centralized control and a large bureaucracy at the home office, the old business model customarily relies on a mainframe or other large computer system. This technology foundation offers centralized processing power and huge data storage capacity. However, under this model, customer support for billing, claims, and policy servicing are often split between the agent and the company, and the often handled by different company departments. Customers with multiple concerns are bounced from agents to company and from department to department, introducing many opportunities to commit errors. That often results in a dissatisfied customer and high service costs that are difficult to manage. In this environment, a cadre of highly trained and expensive programmers is needed to maintain the mainframe or large computer system. Users, such as marketing staff and underwriters, must make a written request to the information systems (IS) department, which then puts the request in its queue. The order may take weeks, months, or years to fulfill. The first attempt is often sent back for fine-tuning because of communication gaps between the business unit and the IS department and time lags need definition and programmed resolution. 14

Today, the mainframe or other large computer system is still an industry workhorse. But insurers are recognizing that it is a millstone because the environment is so inflexible. Changing business process is time-consuming and requires expensive programming and even then the results may not be optimal. The enormous cost and anxiety spurred by year 2000 compliance issues provides an extreme example. Thats why many insurers are no longer putting new lines of business on their mainframes, turning instead to client/server systems that offer a superior, user-friendly development environment centered on fulfillment at the point of sale.

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Application of Information Technology (IT) in Insurance (The New Business Model): There has a revolution in the way insurance companies do business. The new emerging business model depends heavily on information technology. What is this new business model? Primarily, it is customeroriented. That is, all processes are designed to satisfy customer needs, rather than the companys needs. The new model is also decentralized; with more responsibility and power given to the people who are on the front lines with the customers-whether they are independent agents, brokers, captive agents, or company employees. Giving these people the automated tools they need to handle all customer requests, often in a single session, lets insurers satisfy customer needs faster and better. As result, the new business model is flexible, responsive and cost-efficient. Many established companies, especially those with a keen eye on the strategic advantages of leading- edged automation, having already adopted the new technology-driven business model either comprehensively or in specific niches, such as a specially line or a residual market. And forward- thinking start-ups are now running their entire company on the new business model and powering with a network of personal computers.

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Information Technology Applications in Functional Areas: Even though the information technology has wide application in all the spheres of the insurance, yet following are the most important ones in respective functional areas: Marketing: The scope for use of information Technology in marketing function is tremendous. It may start from the consumer accquitance to an insurance product to claims settlement or further selling of new products or developing consumers for the products. Information technology can be integrated with almost all the Ps of marketing. It may help in formulation and implementation of various marketing strategies including pricing, promotion and customization strategies. Some of these areas are discussed below. 1. Customer Awareness: The use of information technology may be path breaking for the insurance companies since conventionally the awareness of the insurance products in India is low. With the use of internet the information about the products and pricing policies can be made available to the public in few seconds and much transparency in operations can be established. There are numerous websites available which can help the prospective customers to compare the insurance products of various issuers and decide the product suited to his needs. Also, the information about the new products changes in the existing ones and of course, the information on various discounts and incentives can be provided at a much faster rate and lower cost.

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2. Customer Services: The insurance being a service needs high concerns in terms of services. Customer service requires maximum attention and should span the entir gamut of activities in the purchase of a product i.e. right from the dissemination of information, documentation to policy administration and claim settlement. The service quality standards of the new private insurance players have posed a threat to the then giants viz. the LIC and GIC. The investments in the personnel and knowledge systems have helped private players companies build significant domain expertise. The emerging areas of IT applications are: a) Market Research b) Consumers Targeting and Segmentation c) Customizations of Product d) Easy Procedures like premium payments, claims settlements, tracking of brokers and agents e) Complaints management/ grievance handling f) Intermediary analysis. 3. Finance: Information technology can be effectively used for internal management viz. Accounting, treasury management, financial performance reporting etc. and as well as in resource mobilisation, portfolio management, investment planning etc.

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4. Human Resource Management: Application of IT in human resource management is obvious. It can be effectively utilised in a) Recruitment and selection, b) Training, c) Performance appraisal, d) Promotions, transfers and dismissals, e) Valuations etc 5. Research and Development: R & D has been made an easy task with increasing use of IT. Surveys and research on market potential, analysis of markets, tracking with international norms and developments are the profound areas of It applications.

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The Need for Information Technology:

The rapid innovation in the field of information and communications technology has posed serious challenges for the insurance industry in India. The use and applications of Information Technology in wide variety of Insurers operations has now become strategic in the sense that it has direct impact on the productivity of resources, and a sweepening impact on reducing the cost of various activities. With the arrival of private insurance players, the competition has become more intense and an important role is being played by the insurance sector. Even though the use of information technology is not new to the insurance sector, yet we may find tight compartmentalization regarding the use of information technology in various departments of the insurance companies including the major players since last years. The most visible of these departments are accounting, policy issue and servicing, claim processing sales management etc. The innovation in information technology can be effectively utilized in the following areas

Speedy and correct issuance of documents. Expenditure disposal of claims Proper building of accounts and statistics

Quality Assurance & Efficiency

Therefore the imperative for all the insurers, especially LIC and GIC is to build up an efficient interface between the various departments and segments. This would reduce the

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paper work, improve efficiency of service delivery and provide competitive advantage to the insurance companies.

Features of Information Technology: -

Client / Server Technology: This is the technology balance that powers the new business model. It is engine of change that is breaking the strong hold of the mainframe model. Client / Server is a system n which most of the active computing, or processing , can be done on Clients inexpensive but powerful personal computer workstations. Meanwhile, the server stores a central database. Servers can be lined to clients by a local area network (LAN); a wide area network (WAN) using dedicated lines, or even ordinary dial-up lines. Ultimately, the link can be the internet or company intranets. Todays servers are powerful, fast, and reliable. Many have multiple processors and hard disks that allow scalability and automatic backups in the form of data redundancy. The clients and the server combine to become a virtual supercomputer with enormous processing power. A Client / Server system thus can support a sizable insurance companys processing environment. Computing power at the point of sale or service: To be effective, computerization must be available anywhere it is needed, with consistent results. Under the new business model, the service representative or agent can take care of all the customers requirements in one transaction. The client/server system puts processing power wheres its needed-on the company service 21

representatives or agents desktop, or even on a laptop the agent can take to a meeting at the clients home or place of business. (The internet will one day become an important point of sale and service as well.) An integrated client/ server system can provide the user With proper processing rules at the desktop, resulting in consistent enterprise-wide processing. This offers many advantages, including quotes that match the actual premium. Flexibility: In todays competitive environment, insurers dont have the luxury of time. They must respond quickly to take advantage of market opportunities. Software that new automation model is tool-based. Instead of having to rely on programming, the user/ analyst simply select a tool; to quickly change a rate, add a field, or modify an endorsement. In business terms, insurers get a much more cost-effective and timely way to address new or changing market conditions. Scalability: New style automation can be used anywhere because it is scalable. The full version of a processing system is used for company-wide functions. The same software can be scaled down to fit on a laptop. This means lower costs, flexibility; more focused access to information, and improved service across the insurers organization.

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Advantages of Information Technology: -

First, costs are lower. In part, this stems from lower hardware costs; For example, disk storage on a personal computer (PC) is about one-twentieth the cost of the same amount of mainframe storage. A powerful PC client now costs the same the same as a dumb terminal once did. More importantly, hardware savings are ultimately dwarfed by personnel savings and increased business opportunities. Since users are empowered, programmers and system analysts can be freed from maintenance and development and redirected toward providing more immediate business services to the consumers and the company. Extendibility is another key advantage of the new environment. Creating a new product or revising an existing one is not as monumental a task as it is with the old automation model. Insurers can easily adjust both their business tactics and strategies. They can test new market- places quickly and inexpensively. If a specific plan doesnt work out, they havent lost months of time and lakhs of rupees in programming and management expenses. The internet along with the company or industry specific intranets will ultimately put significant insurance information directly in the hands of the consumer at a reasonable cost. Customers will be able to inquire about their policies and coverages, make changes and get quotes all from the convenience of their home computer.

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Better access to critical information is another benefit of the new automation model. Integrated new-model systems put information about losses, expenses, market penetration, and agencies at managements fingertips instantaneously. With vastly superior data, company executives can take steps to lower operating costs with more confidence and craft better short and long term strategies. Finally, the new IT driven model also insurers give better, more focused service to the insureds and its agents. With an integrated system, service Representative can answer almost any question posed by a policyholder or agent. They can readily go into the system and prepare a quote, find the cost of a policy change, or check the status of a claim payment. Since processing is more efficient and more work can be done with fewer employees, progressive companies have begun to feel the positive impact of the new business and automation models. One-and- done may be a catchy phrase, but it does underscore an important message. It means that one employee can take care of most requests from start to finish in one transaction. One-and-done also reiterates a key concept expressed earlier in this chapter; by virtue of being customer-centered, the combination of a new business model and new automation provides much greater scope to increase business, lower costs and offer better service. For decades, the insurance industrys old model of automation has been both a hindrance and a help in enabling companies to achieve business goals. With a new model of automation supporting todays revolutionary insurance distribution condition, technology has again become the industrys servant, instead of its master.

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Technologies for Insurance:

There has never been a time when the effective use of Information technology has been more crucial to the success of the insurance industry. The industry markets are being revolutionized by technology at a high speed pace. IT and software solutions, allowing cross-border trade to become electronic and paperless, are increasingly on offer to importers, exporters, shipping companies and financial institutions. Following technological advancements can really enhance the performance of insurance companies. Database Management Systems: The principles of tracking and measuring responses can pay off the conventional insurance industry. To find more clients, insurers needs to consider many factors, including lapsation, cash value, premium and competition. But the need to record and study the characteristics of persistency the length of tie we retain policies, customers and agents is most important for insurance companies. In order to find out profitable combinations of households or clients, products and agents, a database with five to ten years history is of immense importance. Such historical retention was profitability expensive in the past. But clear advantages of new PC (Personal Computer) and RISC (Reduced Instruction Set Computing) technology give s companies power to keep tens of millions of policies on a device with thousands of bytes of data per policy/client/agent. Analyzing a year database is cost effective. Reviewing the database provides information on how many clients have actually migrated not just how many policies have lapsed or surrendered.

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Using database technology companies can get a comprehensive, Performance, loyalty and lost opportunity.

Data Warehouse: Data warehousing technology is based on integrating a number of information systems into a one stop shopping database to achieve vision of making company national in scope, but regional in focus. Traditionally, the sale of policies and the claim settlement are two separate areas for the insurance companies. Data warehousing allows managing by profit levels with an integrated approach rather than by limiting losses. Data mining can be used as a means to control costs and increase revenue resulting in enormous earning for effective users. Decision Support System: The path of business applications of computers, computer based information systems (CBIS), encompasses many stages including the very early applications like transactions processing systems (TPS) followed by the management Information systems (MIS). The computer applications like decision support systems (DSS), expert systems (ES) and executive information systems (EIS) are still awaited in insurance business. Office automation (OAS) happens to be a continuously ongoing, dynamic process for any business. Companies need to utilize decision support systems by implementing data warehouses that pull information form existing legacy systems into a customer information database. Such decision support system will equip the insurance managers with ability to allow for customised products and services that are more in line with what customers want. Group Linking Software: -

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Group-linking software enables sharing of information and particularly suits documents heavy insurance business. Tracking of policy application

shows how information that is input and accessed from a number of locations can increase efficiency. An application for coverage is entered into the groupware system from a forms generation package. Key fields in the form are already linked to this software allowing a user to click on a field and view information regarding that area e.g. cost of average for similar risks. The user clicks again and taps into research information regarding such risks, underwriting guidelines or other documentation. If underwriting guidelines have been updated the changes are highlighted in red and marked with a start. The basic promise behind the groupware is to allow an unlimited number of users to collaborate on a project at any time, in real time, and to track the location and progress of the project. The ability to replicate (reproduce) information and to synchronize (match) databases or applications no matter where you are in the world is what made group linking software a breakthrough technology. Some of the group linking software is lotus notes, exchange, and first class. Imaging and Work-flow Technologies: The proposal forms may be scanned into an imaging system, data may be extracted for update to computer and for automated underwriting workflow may be implemented. it is estimated that imaging and workflow enabled underwriting could reduce the time taken to issue a policy as much as 60%. Under the imaging system, every document-be it correspondence, forms, photocopies of cheques, faxes etc. are all maintained in a shareable electronic folder-neatly indexed, updated, and available simultaneously to all concerned.

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For example: The recent report of MetLife insurance indicated the performance improvement attributed to imaging and workflow technology to the extent of 50,000 claims document-clearance in 8 hours in case of dental claims of health insurance services.

Mapping: Mapping technology can be used by Insurers to meet different needs, such as identifying loss prone areas or geographic claim analysis. It helps the insurer to analyze the extent of its network i.e. the insurer can determine whether it has too many or to few agency force in particular area. Mapping is a very convenient way to layer (cover) disparate (different) information from various databases to create pictures. Maps can illustrate how many building are located in a flood plain, or whether two buildings covered by the same insurers fire policies are close by each other and thus present a potential double loss if fire breaks out in one of them Call Centre Technology: Good customer service is a crucial element in gaining, maintaining and retaining profitable customer. Call centre concept based on Interactive Voice Response Services (IVRS) are gaining importance in this aspect. Employees based the primitive concept of call centre on an enquiry system providing information services to customers through telephone lines answers. The totally automated computerized exchange but lacks in flexibility i.e. only predefined queries are serviced. The insurance companies world-wide are accepting the auto manual Call Centres as one of the important strategies for Customer Relationship Management. Video Linking: -

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A video Linking facility between two remote units of an insurance company or between an insurer and a broker allows underwriters at one place and broken at other unit to discuss risk inherent in a proposal face to face. The video link helps maintain the personal relationships between underwriters and brokers which is very

valued for insurance business and in turn would help to draw business it would not have seen if people use telephone or fax alone for contacting. Cat Models: Catastrophic models use data from the recent spate of natural disasters that helps develop more predictions of insurers property exposures in future disasters. Using this data curious what-if scenarios of Probable Maximum Loss (PML) using the best estimate available at an insurers exposures are tested. Finally an underwriting policy that limits the companys exposure to catastrophic losses is implemented. Other information such as where the faults are, construction specifications, soil type, amount of ground motion likely to occur at a given site is also used in the models. This new technology is helping insurance companies to better understand their exposure to Mother Natures perils with more accurate computer models providing precise information on catastrophic (disastrous) exposures. This helps insurers and reinsures to better access their catastrophic exposures and be in a position to better price and spread the risk. This could mean that fewer insurance companies would be seriously hurt or driven out of the market by a single catastrophic event and the buyer will benefit from a stronger insurance industry. The technology may show insurers that a given type of property or a specific area is so susceptible to catastrophic that they will refuse to underwrite such risks at all.

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Intranet, Extranet and Internet: Intranet is the network connecting different offices of the same business to permit the internal data within the business. The policyholder will not be able

to access the data in the intranet. Circulars meant for internal circulation can be posted on the intranet, and everybody will have immediate access to it, however far away he may be located. In the intranet also, it is possible to restrict some information to certain categories of persons, who will be identified though passwords. Extranet is a network allowing the business to communicate with business partners like suppliers, vendors, banners, regulations etc. on the electronic channel. Internet is a global network of many global networks of many computer networks. Internet presence has to be qualitatively different and updated. Any user, who would like to exchange some information with other user at a remote location, can log into the computer of internet provider via modem or an Internet access CPU (IAC). The internet and online service providers are providing opportunities to create new forums that can be utilized by everyone worldwide at no cost, unless the access is protected and made available only to specified individuals. Such individuals will be identified by password.. Insurers can browse through many useful sites on the internet.

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INSURANCE AND ELECTRONIC COMMERCE- E-INSURANCE

On a global basis, there is mad rush of companies willing to enable their business. E- Insurance ispo-facto, not aloof, is one of the growth areas in India. Enormous opportunities are being created by the Internets new connectivity such as improving customers service, reducing cycle time, becoming more cost effective, and selling goods, services or information to an expanded global customer base. As entire industries are being reshaped and rules for competition are changing, enterprises need to rethink the strategic fundamentals of their business in order to be successful. Globally, insurance on the net has lagged behind other financial service products such as banking and brokerage. Of the total online users only 5% used insurance service online. This lag was due to lack of relevant and adequate content. Traditional insurers, while leveraging on new information technologies, have been slow to utilize the internet as an alternative distribution channel. Generally the largest insurers have been focused on static marketing presence online, encompassing product information, FAQs and quotes. Only a few insurers have added the ability to submit applications online. This lack of participation in the e-business revolution is seen across lines. The insurance companies attribute two factors for the slow take off. First and foremost, insurance is a product that is sold and not bought. The internet is perceived to be a buyers medium, with online customers able to search quickly and for the most competitive prices and variety of products. Insurance is one product that cannot be easily

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commoditized. The more personal the selling. Insurance is one product, which involves personalized selling. The process of insurance sales requires a series of face-to face interactions.

International Trends: The convergence effect of IT is being felt by the insurance industry as well in developed countries. In the US, personal savings are almost evenly distributed between banking, insurance, mutual fund and other financial institutions. The insurance industry is expected to lose market share to banking and other financial institutions. Customers today expect enhance levels of service due to increased competition. This customer demand is likely to result in non-traditional access to specific information. The global online insurance market is expected to achieve and exponential growth in the near future. In the life insurance segment alone, the total online business will grow to $21 billion by 2003. Premium income from the non-life policies will go up to $18 billion in the next three years. The Gartner Group in a study conducted by them says that in a year 25% of all customer contacts and enquiries for enterprises will come via the internet, e-mail and online forms. Bancassurance customer service, which has been almost exclusively done via the telephone (96% of all transactions), will become increasingly e-mail based in the next four years; decreasing telephone related service by 28%. In response to these trends in customer preference, insurers are mobilizing their online sales and customer account management capabilities. This move towards building Internet based business solutions benefits the insured by providing greater flexibility, greater customization of information and improved customer service for the insurance company, this drastically reduces the costs involved. Similarly, by essentially outsourcing administrative and cost intensive processes such as policy

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administration to customers, the cost of administration and servicing the insurance policy also decreases sharply.

E-Insurance in India: The intriguing question before all associated with the insurance industry is that will it be possible for private companies or even public sector monoliths to sell the insurance online in India in the near future? Insurance companies will probably have to wait for internet penetration to increase and the still ambiguous E-commerce rules to take concrete form. However, what is not debatable is that new private entrants will change the rules of the game for the Indian insurance business, both in the life and the non- life segment, unfolding opportunities for software engineers and professional agents. To peep into the possibilities and opportunities emerging out of the integration of insurance and information technology, various organizations have organized seminars and conferences in the recent past to explore the possibilities of selling insurance on the Net and gauge the opportunities for the growing Indian software industry. According to T. Ramanan of Assocham, life insurers were among the first to go online with informative content and features like actuarial calculators. However, according to him, they have been relatively slow to embrace online commerce, which currently makes up about 1% of the total term life market. Only 12% of insurers companies globally sell policies online. Experts expect the percentage of term life sold over the internet to increase from 1% to 15% by 2003, which in monetary terms works

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out to $21 billion. Although traditionally term life insurance has been sold through independent agents, the big shift will become manifest sooner than later. And more importantly Indians cannot watch from the sidelines as this paradigm shift in the insurance sector takes place. In the non-life sector, automobile policies are popular aver

the internet. Premium income, points out the paper, is expected to rise to $ 18 billion form about $1 billion currently. The growth of global online insurance business augurs well for the Indian IT sector. The exponential growth in the online insurance business will unfold significant business opportunities for software companies / consultants. The opportunities that rise out of this will be both global and local, because new entrants will have to either fine tune or prepare customized packages for the Indian market. Online insurance will also companies reduce costs and keep premiums low, a pre-requisite in a price sensitive market like India. The government, however, will have to address problems relating to bandwidth on an urgent basis to make online insurance a reality in India. Other major challenges to face Indian insurers will be to design and develop strategies for delivering services to well segmented customers. The third challenge lies in developing the right combination of customer segments and applicable distribution channel strategies. Most web sites offer contact numbers of their branch officers where we can get further details of the products on offer. The agent locator feature, available on maxnewyorklife.com, iciciprulife.com and on bimaonline.com help one locate an insurance agent most accessible to you based on a search facility. One would expect downloadable proposal forms on insurance websites, but these are missing in most cases. Only licindia.com seems to offer downloadable proposal and claim forms for a few of the schemes.

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Benefits of Electronic Insurance: E- Insurance provides multiple benefits to the insurer and the existing and prospective insureds: Information collected is better and cheaper. Speed of response Issuance of policy and settlement of claims is faster Provides new ways of doing business in competitive market. Flexible pricing and customized services. Global accessibility i.e. lapse of physical boundaries Increased sales without additional sales force Immediate premium collection and funds transfer Reduced cost per transaction. 24*7 availability i.e. round the clock availability of information Real time knowledge base building. Improved service.

Life Insurers on the web: Insurers Website

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LIC of India Om Kotak Mahindra Max New York Life Birla Sun Life ING Vysya Life HDFC Standard Life ICICI Prudential Life Portals on Life Insurance

www.licindia.com www.omkotakmahindra.com www.msxnewyorklife.com www.birlasunlife.com www.ingysyalife.com www.hdfcinsurance.com www.iciciprulife.com www.bimaonline.com www.bimaguru.com

The features offered by most of the Indian insurers websites are: Basic details of the various products classified by type- endowment, whole life, money back policies etc... A primer on insurance basics explaining the need for insurance, glossary of insurance terms, FAQs etc... Downloadable forms (not offered by all), online customers help lines, tax and premiums and bonus calculators. Sections on the various tax benefits of insurance products on offer. A contact mechanism whereby you can get in touch with their nearest branch office or marketing personnel. Customers can also compute the premium for various policies in a matter of seconds, using premium calculators These sites also serve as a virtual community for insurance professionals with features such as the latest insurance news, career opportunities, insurance education, message board for discussions and events in insurance sector.

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Major factors Affecting E- Insurance:

Growth of net: It is estimated that India would have about 150 million net users by2010. These figures represent a huge buying potential. Competition Pressures : Insurance companies because of competitive pressure would be driven into internet rather than a clear ROI justification. Customers: The availability of net-based services will be a huge factor for customer retention. Cross sells: When linked with other financial products, a portfolio approach to investment, savings and risk coverage will increase cross sells and customer loyalty and retention. 37

 Costs : In the beginning E- insurance will be a cost factor rather than a profit drive, but in the long run it will be a cost reducing factor.

E-Insurance Business Challenges

Electronic insurance will not only provide many benefits but will also pose business and technological changes. Business Challenges The following points have been detailed in a study on insurance and E-commerce done by Grace,Klien and Straub of the centre for risk Management and Insurance Research, Georgia State University. i. Disintermediation Increases business : Study has shown that the cost of distribution decreases with the increased value of connection. Products with relatively high fixed costs and low value such as travel, credit or burial insurance are relatively expensive to produce. Customers pay a high price per dollar of coverage for these products. The internet

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allows the disintermediation of this relatively high overhead for these low face value products. This means that prices can be lowered and more insurance can be sold by reducing the transaction costs of the exchange. ii. Reorganization of companies-virtual companies : Many insurers will be prompted by the opportunities presented by E-commerce to restructure the packaging of insurance services. Insurance companies using E-commerce may re-engineer, outsource, and/or streamline their management functions, or marketing and distribution arms. To more efficiently deliver these services, some insurers will be able to reduce their significant investments in physical facilities and certain personnel. E-commerce will enable

independent agency insurers to more easily adapt their distribution mechanism to market competition and expedite their transactions with intermediaries. iii. Insurance customers what do they want? Customers could get better and different service through the internet. It is possible to obtain quotes from a number of companies. In some cases, the internet provides rating agencies evaluation of insurers. The internet and outsourcing can provide additional cost savings to the consumer. Technology can bring the customer closer to the insurance contract, by removing layers of inefficiencies. Consumers will also obtain price comparisons for relatively generic contracts, such as life insurance and rates for a standard set of auto insurance coverage for given vehicle and driver characteristics. Consumers also could have access to internal records to see where their claims are in terms of payment, when their next annuity payment is due, and how their mutual fund is performing. This

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can be done without calling a burdensome voicemail system, being put on hold, or finding a person who can give them the desired information efficiently. iv. The Death of Insurance Agent? One of the reasons why insurers have been slow to use electronic commerce could be the fear of swallowing up the agents business. The internet does not necessarily imply the death of the agent. Many insurers are examining their agents role in the process and are also developing direct contacts with the insured through their web presence. Agents could enhance their advisory role to consumers as their paper and money processing functions diminish.

Technological challenges One of the most prominent challenges of E-commerce is security. It is very evidence that many users are reluctant to do business on the internet due to security reasons. Issues of transmission security, host server security confidentiality, authenticity and ways to counter these challenges are covered in the following topics. Security: a. Database Security: The business database security is utmost important. This has to be monitored by security of the web server and web access. b. Web Server Security :

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Security policies should be defined like who is allowed access, nature of the access and who authorities such access? Who is responsible for security? What kinds of material are allowed on server pages? c. Password sniffing : Protection against password sniffing is to avoid using plain text usernames and reusable passwords. d. Network Scanning Programmes: Automated tools should be used to scan your network. These tools check for well-known security related bugs in network programs such as send mail and FTPD. Computers are certainly being scanned by crackers interested breaking into the systems; therefore network scanning program should be regularly run.

e. Physical Security: One can ensure physical security by having an alarm system that calls the police, having a key-lock on the computer power supply. There should be adequate protection against fire smoke, explosions, humidity and dust. f. Web access Security: Host based restrictions can be implemented using a firewall to block incoming HTTP connections to a particular web server. g. Transmission Security :

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Encryption is a key technology to ensure transaction security. h. Privacy : Privacy is likely to be growing concern as internet- based communications and commerce increase. Designers and operators of web sites who disregard the privacy of users do so at their own peril.

INFORMATION TECHNOLGY AND LIC

LIC has been one of the pioneering organizations in India who introduced the leverage of Information Technology in serving and in their business. Data pertaining to almost crone policies is being held on computers in LIC. The computers were introduced in 1964 in LIC. Unit record Machines introduced in late 1950s were phased out in 1980s and replaced by Microprocessors based computers in Branch and Divisional Offices for Back Office Computerisation. Standardisation of Hardware and Software commenced in 1990s. Standard Computer Packages were developed and implemented for ordinary and salary Savings Scheme (SSS) Policies.

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Front End Operations: With a view to enhancing customer responsiveness and services, in July 1995, LIC started a drive of On-Line Service to policyholders and agents through computers which enables policyholders to receive immediate policy status report, prompt acceptance of their premium and get revival quotation, loan quotation on demand. Incorporating change of address can be done on line. Quicker completion of proposals and dispatch of policy documents have become a reality. All 2048 branches across the country have been covered under front-end operations. So LIC claims that all its 100 divisional offices have achieved the distinction of 100% branch computerization. New payment related Modules pertaining to both ordinary and SSS policies have been added to the Front End Package catering to Loan, claims and Development Officers Appraisal to reduce time lag and ensure accuracy.

Metro Area Network: A metropolitan Area Network, connecting 74 branches in Mumbai to pay their Premium or get their Status Report, Surrender Value Quotation, Loan Quotation etc. from and branch in the city. The system has been working successfully. More then 10,000 transactions are carried out over this Network on any given working day. Such Networks have been implemented in other cities also. Wide Area Network: All 7 zonal offices and all the MAN centres are connected through a Wide Area Network (WAN). This enables the customer to view his policy data and pay

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premium from any branch of any MAN city. As at May 2002, there were 91 centres in India with more than 1200 branches networked under WAN. Interactive Voice Response Systems (IVRS): IVRS, functional in 58 centres all over the country, enables customers to ring up LIC and receive information (e.g. next premium due, status, Loan Amount, Maturity payment Due, Accumulated Bonus etc) about their policies on the telephone. This information could also be faxed on demand to the customer. Website: LICs website, www.licindia.com, displays information about LIC and its subsidiaries- LIC (International) E.C., LIC (Nepal) Ltd., LIC Mutual Fund, LIC Housing Finance and their Products. The addresses/E-mail IDs of its Zonal

Offices, Zonal Training Centres, Management Development Centre, Overseas Branches, Divisional Offices and also all branch offices are also provided. LIC has given its policyholders a unique facility to pay premiums through Internet absolutely free and view their policy details on Internet premium payments. Information Kiosks: LIC has set up Interactive Touch screen based Multimedia KIOSKS In Prime locations in metros and some major cities for spreading information to general public on various products and services offered. These KIOSKS enable the users to provide policy details and accept premium payments.

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Info Centres: It has also set up call centres to provide information about our products, policy services, branches addresses and other organizational information.

Information Technology in LIC for Service to Policyholders:

Twenty to twenty five years ago a few of us had heard of information technology. On 5th August there was thunderous applaud and the horizon reverberated and every body heard that LIC has been bestowed upon the Nasscom Award. LIC has itself on the fast track of technology up-gradation right from the year 198. As such it has taken about 20-25 year, with enormous number of programmers working for 10 to 12 hours a day. They have toiled hard to develop, test and put the systems in place. It may be recalled that in the year 1980 various vendors while selling the microprocessors had strongly advocated the need to induct trained and technically qualified programmers from open market, to man the microprocessors. It was the

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corporate office which expressed abundant faith in the ability of its staff for writing programs and also to handle the machines. Technology is a strange creature. It gives us twin-engine commuter planes to fly. Then it introduces faults in those planes, throwing in the possibility of human error. today this strange creature makes us smile and cry all at once. Smiles when a problem is resolved or new facility provided and cry when a new discrepancy creeps in. Life Insurance Corporation of India is a pioneer financial institution in leveraging Information Technology as its frontline tool to better its overall efficiency in all areas of its activities. Today it is one of the largest users of Information Technology. LIC has the largest dedicated network among all organizations in the country and has connected about 1500 branches all over India for better and prompt customer servicing.

LIC has multi-channel approach of using Information Technology by taking the optimum benefits of the latest technological advances. Front End Applications Programs: All 2048 branches of LIC are fully computerized covering all policy servicing aspects to give prompt computerized services from new policy introduction, acceptance of renewal premium, revivals, loans etc to final claims settlement. Green Channel:

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This is for on the spot policy completion. The processing time foe a new policy is brought down from days to minutes by cutting down the various processes in acceptance, scrutiny and underwriting of proposals.

Single Window System: -

The Single Window provides all policy servicing at one single point. Management information system has been developed for faster and better decision making and offering in an instant, the latest information at all levels. The advantage of the single window system is that the policyholder gets the required services across one country without having to go to different departments in the branch.

Networking: LICs Wide area Network covers 100 Divisional Offices connecting about 1500 Branches through network. It is expected to cover all the remaining Branches by the end of this year. This helps the customer to pay his LIC premium in any of the Branches connected to the network. A Policyholder gets status report of his policies in these branches as well as quotations for revival, loans surrender etc Online Premium Payment: -

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LIC has tied up with some Banks and service Providers to offer online premium collection facility to customers in selected cities. It is intended to extend this facility to all cities covered under our network. Kiosks: LIC have installed information Kiosks at selected 150 locations which give policy status report, other details about life insurance plans and servicing aspects. The idea behind Kiosks is to expand the service levels by making if free from the limitations of time and space and also to avoid the dependence on human intervention to get information. Our Kiosks not only provide information about our products but also enable the policyholders to know their policyholders to know their policy status. IVRS: LIC have Interactive Voice Response Systems in 59 urban centres. This is a menu driven service. Customers can get selected information regarding their

policies by calling the prescribed telephone numbers. These numbers are advertised frequently and are also available on the website www.licindia.com. Info Centre: LIC have commissioned our first policy service Info Centre at Mumbai in March, 2002. This centre is equipped with state of art technology and manned by trained persons. People desiring any information regarding their life insurance needs and about their policies can get the same by calling the Info Centre telephone number. Such centres have also been installed at Delhi, Kolkata, Hyderabad, Chennai, Bangalore, Ahmedabad and Pune.

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Intranet : LIC has an Intranet, Jeevan Sanchar which interconnects our offices and is used to make files available to employees, send or receive e-mail, host online discussions or publish information within the organization. The departments of the central office have an intranet presence of their own through which they provide information about the latest circulars and these help the offices in speedy decision making.

Benefits to Policyholders / Prospects: They can get details of the various policies, the benefits there under, the premiums payable, etc Prospects can get advice on the suitable insurance plan for themselves.

Policyholders can get information with regard to the status of the policy, the premiums due, the bonuses attached, the surrender values or loans available, revival possibilities, nearest office for any further transactions. Details can also be had about housing loans or other benefits available to policyholders Premiums can be paid without having to go to the office of the insurer, by direct debit to the policyholders credit card or bank account. Benefits to agents:

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If the insurer has an intranet, the agent can, sitting at his place of work, be attending the insurers office, making enquiries about status of proposals or claims or discussing with any officer or other agent, for clarification or advice, whenever he wants to do it. The physical distance between the agent and the office will not be of any consequence at all. The benefits to the agents will be He can receive all circulars and instructions issued by any office. All delays on account of postal transmission, being forwarded from one level to another, dispatch department, absence of peons, wrong addresses, misplaced through oversight, lost on transit, etc., are avoided. Any doubts with regard to proposal, benefits, premium, taxation, medical examination, insurability, etc, can be discussed and got clarified directly from the person concerned. Communications to and from the office will be immediate through e-mail and at low cost.

IT Department in an Insurance Company:

Functions: The IT department in an insurance company performs the following functions: Provision of hardware and software resources. Adoption of latest technologies for competitive advantage.

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Training of employees at operating, head and controlling offices on offices automation and networks.

Advise the top management on Business Process Re-engineering (BPR). Develop, maintain and implement insurance related applications. Maintenance of networks.

Set up: Generally the insurance organization has three-tier set-up Operating Office (BO/ DO), Controlling Offices (RO/DO) and central office (HO). The organization and responsibility of the IT department and its sub-departments is more or less in the hierarchical order of the various offices. The IT department at HO is responsible to the chairman/ CEO of the organization for implementing of IT plan. The department is responsible for procuring new technologies, conducting training and preparing the broad IT policy framework. The RO and BO are respectively responsible to the CO the head of the IT departments may have the following Functional Managers with their respective tasks:

Evaluation and Acquisition of new technologies in Technology Manager hardware, software, networking and packaged solutions. Recruitment and supervision of system and network engineers Conducting of various training programmes Systems analysis and design

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Systems Manager

Functional Specifications Development of application and user manuals Assignment of work to project leaders, System analysts and programmers Evaluation of studies Network Administration ( Including WAN) User administration, systems security, e-mail etc.

Network Manager

Operations Manager

Controlling and supervision of network administrators Maintenance of hardware Job scheduling, backups and file control Assigning work to operators and DEOs training of users Controlling of data flow

Y2K Remediation
Much of 1999 went in Y2K remediation. This took up lots of time and money, but at least ensured that a lot of very old computers were replaced. LIC and subsidiaries also took up plenty of time and energy in formulating a strategy for the exclusion of Y2K related claims. Road shows were conducted repeatedly in major cities to educate the branch managers and key customers about the Y2K exclusions. Y2K audit

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also took up considerable effort, as these were monitored at the level of a national Y2K task force consisting of all leading ministries.

What will IT be Like in the Coming Years?

The Malhotra Committee had recommended that Information Technology should be used as the enabler to give the insurance industry its cutting edge over competition. It would help in reducing administrative costs and these savings could be used to build on its customer service and brand building. This can be done most effectively through the use of efficient IT infrastructure. It can be argued that much of the internet related technologies developed only in the last four years, and were not fully 53

available to the nationalized insurance companies. It is also true that with all the problems of working in a public sector environment, several quality projects networking, implementation of investment management software and like the

implementation of the integrated software for underwriting and claims management brought the IT preparedness of the industry to a fairly decent level. Rugged use of IT in the year 2001 will tell whether at all the nationalized insurance companies will give competition a run for their money.

Future Scenario
Some of the IT solutions that are essential for the working of a modern insurance company are given below. This will help build brand, strengthen loyalty from customers and business partners (agents mostly), and ensure a lean and mean company. 1. A Good web site through which customers can actually transact business. 54

2. A good back office infrastructure which can deliver insurance products and documents. This would be connected with a rugged computer network. 3. A study call centre fully integrated with all operations which interact with the customer for all his requirements. The objective would be to ensure that all channels of business art fully integrated. 4. A rugged (rough) data warehouse which 5. would provide the backbone for customer Relationship Management (CRM), Data Mining, and Channel integration. 6. Excellent storage management with failsafe disaster recovery infrastructure. Global best practices are best possible only when the IT infrastructure uses best-of-class components. This will enable the company to work efficiently with the bare minimum staff strength and devote all its energies to customer care. The customer today is very demanding and will not do business if feels that he is not getting excellent service. It is essential to provide him service levels even beyond his expectations if his loyalty to the Insurance company.

Conclusion
The supporting Technology requirements will be are all time, rather than batch; longitudinal rather than episodic, will require connectivity rather than be self contained; will be interactive; will rely on large relational databases. Todays consumers dont like to wait. Insurance companies that are unable to react to their customers demands will lose market share to their competitors that can.

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There have been a lot of changes in the insurance industry in the country with the opening up of insurance sector for competition and with the establishment of IRDA.

Suggestions:
As the pace of change is going to be faster than what was witnessed in the last decade, there is a need for a system of continuous research, better understanding the change process and its Implications on insurance. The suggestion is that we must institutionalize insurance research, say by way of having an institute of insurance research to meet the above challenges. Modalities are to be worked out in this direction. Similarly, each bank should have asset- up where

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insurance specific research takes place in terms of emerging areas and their possible solution.

BIBILOGRAPHY:
1. Insurance and Risk Management - Dr. P.K. Gupta 2. IC-33 - Life Insurance 3. www.irdaindia.org 4. www.insure.com

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