Thakur College of Science & Commerce

Technology In Insurance1
INTRODUCTION
Insurance, in law and economics, is a form of risk management primarily used to hedge against
the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss,
from one entity to another, in exchange for a premium, and can be thought of as a guaranteed
small loss to prevent a large, possibly devastating loss. An insurer is a company selling the
insurance; an insured is the person or entity buying the insurance. The insurance rate is a factor
used to determine the amount to be charged for a certain amount of insurance coverage, called
the premium. Risk management, the practice of appraising and controlling risk, has evolved as a
discrete field of study and practice.
The developments in IT are the working wonders in all the fields of activity. It has become
possible to send and receive information almost instantaneously. If circulars do not reach the
agents on time or doubts are not cleared quickly, or the agent does not have details of the new
plans announced in the press, the agent may face awkward situation with the prospects.
These problems can be totally avoided with the use of IT. Insures traditionally have been quickly
to adapt latest advances in the technology. This is happening in the areas of IT as well.
The extent of IT application will vary between insures. The information technology has always
played a very important role in the operations of every life insurance company. In fact of all the
business organizations in the service sector, the life insurance companies were the first to adopt
‘MECHANIZATION’ as an inalienable part of their operation all over the world. This becomes
necessary because of two important reasons namely:
1. The nature of services to be rendered to the policyholders.
2. The need to evaluate the liabilities under the policies in vogue at the time of valuation.
Thakur College of Science & Commerce

Evolution of Policy Bond
The first service rendered by a life insurance company to the policyholder is the issue of policy
bond. In the olden days, every policyholder was ‘Narrative type’. All the policyholder documents
and conditions applicable had to be typed out separately. But the number of policy sold was
limited: it was possible to continue that method. But as the business grew, it became humanly
impossible to continue that method of preparation of policy bonds. Hence, the life insurance
companies switched over to ‘schedule type’ of the policy documents. Here the form of policy
bond was standardized and as most of the condition and privileges were similar, pre- printed
stationery was prepared. The only work left was to fill up the details of each individual policy,
viz. policy number, plan and period of assurance, sum assured, mode of payments of premiums,
installment premium, date of last payment of premium, date of maturity of the policy, age and
whether admitted or not, name address of the policyholder, name of the nominee, etc. In order
to complete the schedule of the policy bond with these particulars, addressograph machines
were introduced. Policy particulars were embossed on Zinc or Aluminum plates and these plates
were used to print the particulars in the schedule part of the pre- printed policy bonds. These
plates were then used to print advance premium and default notices, premium receipts with
counterfoils and final lapse intimations sent to the policyholders. The companies also had ‘Unit
Record Machines’ otherwise called ‘Power Samas Machines’ which were operated using punch
cards. These were parallel records in which policy particulars were punched in the prescribed
fields.

There were two types of cards, namely:
1. Premium Master Cards
Premium Master Cards were utilized to account for the premiums received and then for
generating lists of lapsed policies.
2. Valuation Cards
Valuation Cards were prepared to be utilized for the valuation of Liabilities under the policies.
There was one-on-one correspondence between the adrema plates and premium master cards.
With the advent of the micro processors, the addressograph machines along with the adrema
plates and the ‘ unit record machines’ along with the premium master cards became redundant
and went out of use. Both were replaced by a new kind of record called ‘Policy Master’ for each
policy, integrating both adrema plate and the premium master cards. Apart from the ease with
which servicing of the policies could be rendered through micro processor operations, the
speed with which the same can be undertaken. The speed was necessary because of the
tremendous increase in the volume of the new business and much larger increase in the
number of service operations.

For example, LIC of India has about 13 Crore of policies. Assuming that 20 % of these are:
Under salary savings scheme, i.e. about 2.4 crore, and another 20 % in paid up condition, there
remain approximately 8 crore policies under which premiums are received by yearly, half-yearly
or quarterly. Usually, 50% are under quarterly, about 20% under yearly and 30% under half-
yearly mode of payments, i.e. Rs 1.6 crore under yearly, 2.4 crore under half-yearly and Rs 4
crore under quarterly modes. The number of premiums accounting transactions during a year
will therefore be as under-
Duration Amount
Yearly 1.6 crore
Half-yearly (2.4 x 2) 4.8 crore
Quarterly (4.0 x 4) 16.0 crore
Total 22.4 crore
Thus, in one year , the number of transaction in respect of the premium payments alone for the
organization is Rs. 22.4 crore — a huge and stupendous task indeed without the fast operating
computers; it will impossible task to manage transactions such as magnitude. In addition, there
are many other transactions to be handled. Underwriting of proposals for the life insurance
became standardized because of universal adoption of ‘Numerical Rating Method’. Thus, “The
use of IT and especially knowledge-based systems in underwriting has developed through
generations of systems, which have progressively increased in complexity.”
• First Generation: Screening Systems

These were developed by larger companies in the 1970’s to decrease general expenses. They
allowed for the entry of the information from the application and screened out or accepted
clean non-medical cases which were previously handled by the manual jet screening units. The
remaining cases were referred to the underwriters.
• Second Generation: Information Display Systems
These appeared in mid 1980’s. They were design to save the underwriter’s time and thereby
improve the productivity. Information display systems allows the underwriter automated access
to various sources of information, such as underwriting manuals , medical terminology, lists of
medications and other underwriting guidelines. These systems replace the need for multiple
volumes of handbooks. They allow rapid success to the information that an underwriter needs.
•Third Generation: Initial Underwriting System.
These systems were developed to improve the service to the field by approving some cases
automatically and eliminating cases not needing review by an underwriter. Because they require
complex knowledge-based systems for their processing, they have only been available for the
past few years.
Initial underwriting system extend the capability of the first generation systems and go beyond
screening to identify underwriting problems, automatically underwrite some cases, and pre —
process other cases for underwriters by ordering information for cause’ such attending

physician statements. The advanced third generations systems can also do initial underwriting
with the requirements such as medical examinations, inspection reports and laboratory test
results. Some can even do discrepancy processing.
• Fourth Generation: knowledge Decision Assistance Tools
This is relatively a new system which provides underwriters with the knowledge — based
systems to underwrite complex impairments and to help them to manage their administrative
workload. They have been designed to enhance the risk selection process. Their use by the
underwriters can help them to manage the mortality expenses by applying consistency to the
underwriting process.
• Fifth Generation: Total Underwriting System
The fifth of underwriting system encompasses and surpasses the previous system. They
integrate all the components discussed above into single system: they also include a
management information system for the entire process. This is essence of the underwriter
work, which as discussed above, would be integrated into the entire administrative flow for its
greatest impact.
Components of a Total Underwriting System:

A total underwriting System needs to address the entire decision making process of
underwriting which starts at the times an application is completed and does not end until a
policy is issued. The system needs multiple components for each of the essential functions.
Initial Data Entry
This is where information from the application is entered into the system depending upon the
specification of the company and its field force; data may be entered from an agent’s laptop-
computer, at a regional marketing office or at the home office. Information from the agents
report, requirements ordered in the field and MIB [Medical Information Bureau] information
could also be entered for processing
Screening
The second component is screening. This involves taking applications and sorting them into two
groups; clean ones and those in need of further processing. This is fairly simple processing.
Screening checks that application need no future requirements , have all medical and non
medical questions answered properly, are within certain age and amount limits and have
acceptable finances and an appropriate beneficiary. Approved cases are sent directly to the
administration system
Initial Underwriting

Applications that are not approved by screening flow into the next component are called “initial
Underwriting”. This series of knowledge — based systems defines underwriting problems and
determines why the case required further processing. It checks for age and amount
requirement and examines the financial, non- medical and medical aspects of the case, as well
as the interaction among them. It decides if there is sufficient information to deal with the
problems, it has defined.
Requirement Processing
Since underwriting is an iterative process with information process with information from many
sources being reviewed at different times, a total underwriting system permits information to
be entered into the system directly from the provider or by home office personnel. Processing
requirements are similar to initial underwriting, expect that discrepancy processing is done by
comparing the details of the information from the application with those received late. In this
way, data from different sources is compared to uncover new problems. If there is significant
history or physical finding on the examination that was not admitted on the application, it noted
and the appropriate work-up is ordered. If no problem are discovered cases can automatically
approved without consulting an underwriter.
WORKFLOW TOOLS

Underwriters need certain tools to process their cases administratively. A total underwriting
system provides these. They include front- end tools, back-end tools, and status function. The
front end tools workflow tools keep track of cases, their requirement and underwriting
problems. The in- tray function accesses cases electronically assigned to underwriter. Rather
than getting a stack of file, the underwriter now deals with an electronic stack of case. For each
case their details underwriting problems and their actions. Other tools allow the underwriter to
manipulate, track and change the underwriting problems and requirement of case. There is also
an electronic notepad for the underwriter which can be integrated with an electronic mail
system for field communication. The back- end workflow tools assist in the final administrative
details of case: forms to be signed, post —issue requirement preparation, reporting of MIB
codes and the process of requesting reinsurance. The status function lets non- underwriter to
review the selected case information. An agent’s status reveals the data from the application, as
well as the requirement and whether they have been received.
Information Display
The information display component gives online access to underwriting guidelines with several
types of automated searches to improve the access of information. It also makes available other
underwriting references, such as medical and drug references.
Impairment Knowledge-Based Systems

The next component is the impairment underwriting knowledge-based systems. This program
deals with impairments such as high blood pressure, diabetes, cancer, respiratory disorders,
aviation and coronary heart disease. Their logic is patterned after the knowledge and thought
processes of expert MD’s and underwriters. Information is requested from the record and a
rating is suggested. If underwriters choose, these will guide them through the detailed decisions
needed to underwrite impaired cases.
Management Reporting
This component generates administrative and other reports on the decision made within the
system. The management from the database of information can create reports.
Benefits
Underwriting system has many benefits. For underwriting they limit the number of cases that
need to be reviewed, because the system is able to process them without intervention. In this
way the technology improves the work of underwriting by eliminating unnecessary routine
cases. Several companies have developed knowledge — based systems for this purpose and
have been very pleased with results. As an underwriting officer stated, “This gives the
underwriter to deal with more complex and time consuming cases.”

Furthermore, initial underwriting knowledge — based systems decrease the number of times a
case needs to be reviewed by an underwriter, because requirements are ordered and processed
by the system prior to the underwriter seeing the cases.
For the producer, service is greatly improved. This is possible because some application can be
approved by the system almost immediately, without having to be seen by an underwriter. One
company that has integrated this type of system with its field offices is able to electronically
approve applications in less than 15 minutes. Also, the sales process can be helped by
determining all requirements {both those required for age and amount and those necessary for
a specific cause} immediately so that producers do not have to contact an applicant a second or
third time for additional information.
Knowledge-based system can improve underwriter productivity in other ways with workflow
with workflow management tools. Although these system do not do any underwriting
themselves, they do manage these paperwork in the ordering and keeping track of
requirements. Such tools decrease the clerical work of underwriters and improve the workflow
in underwriting departments by eliminating unnecessary paperwork.
Apart from reducing underwriters work, knowledge-based systems can provide decision-
assistance tools in the risk classifications process. Impairment underwriting knowledge-based
system is sophisticated decision-support tools.

They assist in the determination of ratings by promoting the user for information and
correlating that information with underwriting guidelines and the programmed thought
processes of expert underwriters. They serve as an excellent training tool for the junior
underwriter and assist-experienced underwriter in very complex cases.
In addition to helping in the actual underwriting decisions making, knowledge — based system
can assist the underwriting manager with the overall underwriting process. Once information
has been entered into the knowledge based system, it becomes available for management
reporting and decision-making. This allows underwriting managers to follow the screening of
cases by the system, as well as the ordering of requirements and the rating of the impairments.
The decisions can be tracked according to agent, agency or underwriter so that underwriters
can interact better with the procedures with whom they work ; underwriting managers can also
more effectively manage the underwriters who report to them. Previously unavailable
management information tools are made ready available, is information on specific
underwriting decision making.

NEED FOR INFORMATION TECHNOLOGY IN THE INSURANCE SECTOR
The rapid innovation in the field of information and communication technology has posed
serious challenges for the insurance industry in India. The use and application of information
technology in wide variety of insurer’s 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
case 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 compartmentalisation
regarding the use of information technology in various departments of the insurance companies
including the major players since last 50 years. The most visible of these departments are
accounting, policy issue and servicing, claim processing, sales management etc. The innovations
in information technology can be effectively utilized for the following areas:
 Speedy and correct issuance of documents

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

Application of IT
As awareness of quality service began growing among policyholders in India also, LIC of India
had to think of many applications of information technology. Up gradation of technology was
undertaken on a huge scale. All the 2050 branch offices, which were serving centers, were
equipped with computer systems. Training of employees also was organized on a large scale.
Several software packages for different servicing operations were introduced. A cash module
was introduced, operating with, the cashier, while sitting at his desk, is enable to print and issue
official receipts on the spot to the policyholders when they tender money towards premium,
the entire operation take a few minutes. A new business module was introduced which enable
even underwriting operations to be computerized. It brought a complete integration of all
activities connected with the processing of policy documents Similarly, loans and surrender
value module, policy revival module, claims module were also introduced. Now revival
quotations, a policy quotations or maturity claims intimation letters are generated on the
Computer. All these gave tremendous boost to the efficiency in rendering service to the
policyholders
Up gradation of technology also helped in another direction. Several reports which could be
used as MIS get generated for use by managers at all levels. This helps management to review
performance against prescribed indices and to take appropriate corrective actions where
necessary.
To bring out the revolutionary changes in communication to policyholders, several steps were
taken. Inter-Voice Response Systems have been introduced which policyholders ascertain
several types of information about their policy like policy status, premium position, loan
amount, maturity / next survival benefit due , accumulation of bonus , etc. over telephones
language in language of his choice. The policyholder can also get the information on fax. MAN is
installed in several cities, which enables policyholders to pay premiums or get their status
reports, revival, loan, surrender quotations in any of branches offices convenient to them in the
cities. Now, many of the cities with MAN are connected by WAN, which enables policyholders to
pay premium anywhere in the country. E-mail connections have been established in many of the

offices and internet connections has been given to all the divisional offices, all department in all
the zonal offices and central offices. A website {www.licinda.com} was set up to give
information on the Internet about the organization, products, service. The web pages has been
made interactive with the features like online Premium Calculation”, “On-line — Bonus
Calculation”, “On-line Forms” etc. The site includes features on ‘Frequently Asked Questions by
Non Resident Indians’. The corporation has also set up interactive touch screen based
multimedia Kiosks in prime location in the metros and major cities for dissemination of
information on the product and services.
The corporation has plans to redesign these kiosks to provide policy details and accept premium
payments. All these applications have definitely brought a great amount of satisfaction to
policyholders. The steps taken by LIC of India during the past 5 to 6 years are an indication of
the importance role that information technology can play in ensuring a very high quality in the
serving operations of a life insurance company.
Several private life insurance companies are also utilizing the latest technology available
including creating their own web sites. A few private web sites like ‘Bima online ‘also have been
established
Technology is the most important tool in another very important area of life insurance
functions. It is valuation. The process by which the values of various polices of insurance existing
at a point of time are obtained is called valuation’ of liabilities of an insurer was small, policy
values used to be calculated for individuals policies. But when the number of policies runs into
several lakh or crore, as a present it is extremely inconvenient to calculate the value of each
contract separately. Methods have, therefore, been devised to collect data for each plan of
insurance in a form suitable for valuation in groups having some common characteristic like age,
duration or term to run to maturity and like. Grouping is done only if there is sufficient number
of policies to make the group of a reasonable size. For a sufficient large life insurance
organization, this work is possible only through application of technology. It is a legal
requirement today in our country for a life insurance company to conduct an actuarial valuation
every year. This adds to importance of IT application.

With increasing complexity of products both life insurance and pension entering the market, the
field force, especially the agents needs a large support from the company represent. While
discussing life insurance program with potential customers, agents need sophisticated
information including benefits, comparisons, , needs and matching products , rates and impact
on the customer’s budget , returns, etc,. Like in Japan, life insurance companies in India may
also supply ‘Palm — Tops to their sales force.
This will be possible only through extension of concepts of information technology. Market
research is another area where information technology has a great role to play. Today’s, the
customer has become the center around the entire market revolves. The world is fast moving
towards market driven economy. Organizations, which were merely based on ‘sales concept’,
are eagerly aiming to convert themselves into marketing organizations’. Life insurance
companies which primarily deal with the financial needs of the people cannot ignore these
realities. The life insurance has become very dynamic. The needs, aspirations, attitudes, buying
behaviors, standards and quality of life are changing. The perceptions of what constitutes
standards and quality of life are changing. The perceptions of what constitutes standard of life is
also undergoing a metamorphosis. Different types of product are the need hour. The demand is
more for ‘flexible’ rather than ‘packaged’ products especially in the service market. To certain its
share and to improve it, there is no alternative for any life insurance company than to have a
continuous market research. The company should know the demographic changes taking place
in the society. They should know what is selling and where. They should know the pace of sales
on the day to day basis.

They should not only know the emerging customer profile but also the size of the market. All
these need a scientific market survey and research either done in house or outsourced. A typical
market survey report is appended which shows the enormity of the job. Without the support of
technology, this will be an impossible task for the company.

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 insurance markets are being revolutionised
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 for the conventional insurance
industry. To find more clients, insurer needs to consider many factors, including cash value,
medium and competition. But the need to record and study the characteristics of persistency-
the length of time we retain policies, customers and agents is most important in 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
prohibitively expensive in the past. But clear advantages of new PC (Personal computer) and
RISC (Reduced Instruction Set Computing) technology gives companies power to keep tens of
millions of policies on a device with thousands of bytes of data per policy/client/agent.
Analyisng a 1O-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. 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 Systems
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. Such decision support systems will
provide the insurance managers with a tool for customised products and services that are more
in line with what customers want.
Group Linking Software
Group-linking software enables sharing of information arid partieular1v suits document heavy
insurance business. Tracking of policy application shows how information that is input and
accessed from a number of locations can increase efficiency.
Imaging and Workflow 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.
Mapping
Insurers to meet different needs, such as identifying loss prone areas or geographic claim
analysis, can use Mapping technology. It helps the insurer to analyse the extent of its network
i.e. the insurer can determine whether it has too many or too few agency force in a particular
area.

Call Centre Technology
Good customer service is a crucial element for gaining, maintaining and retaining profitable
customers. Call centre concept based on interactive voice response services (IVRS) is gaining
importance in this aspect.
Video Linking
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 brokers at other unit to discuss risk
inherent in a proposal face to face.
Cat Models
Catastrophic models use data from the recent 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 insurer’s
exposures are tested. Finally an underwriting policy that limits the company’s exposure to
catastrophic losses is implemented.
Intranet is the network connecting different offices of the same business to permit the internal
data within the business. 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 computer networks. 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 utilised by everyone worldwide.
Insurers can browse through many useful sites on the Internet.

Technology & Cyber Insurance in India
The opening up of the Insurance industry in India would boost competition, facilitate
technology transfer and lead to new products, better customer service, deeper and wider
insurance coverage and many more opportunities for employment. As new private sector
entrants enter into India, opportunities in the insurance industry are up for grabs. One
important aspect of the insurance industry, which is gaining prominence tile world over, is the
development of technology and cyber-insurance strategies. Cyberspace is a risky place.
Companies conducting business over the internet are exposed to a variety of new,
unpredictable and serious exposures such as servers crashing, computer viruses, destruction of
data, e-mails disappearing and attack from hackers for which there are few precedents in terms
of risk management and even less actual insurance coverage. Cyberspace presents unique
challenges to risk managers for several reasons; the foremost being that there is no Standard
risk profile.
The wide variety of internet-related businesses, such as ISP’s, content aggregators, certification
authorities, online merchants and software developers, all contribute to the difficulty of
developing a single risk profile. Enacting appropriate insurance policies for ensuring cover for
security issues and intellectual property rights issues is vital.
For safe business transaction, what is needed is a secure legal environment and while legislation
in India is providing this environment with the enacting of laws dealing with the Internet,
Insurance companies in India should provide comprehensive protection policies for a business
against web-related risks, such as hackers and viruses, credit card and employee fraud, business
interruption losses, and legal action. Essentially, the policy can fill the gaps in coverage that have
opened up between standard insurance policies due to the fact the way business is done has
changed.
Intellectual property infringements: content providers who use content of others without
permission can trigger these risks.

Errors and Omissions liability: these risks are typically triggered by the programmers, web hosts
& web-designers, who, through negligence in their work cause injury/damage to a third party.
Personal injury & advertising Liability: As e-commerce grows, these risks can be triggered by
worldwide web sites, and trade publishers who publish illegal content or content which may be
constructed as libel.
Director’s liability: Directors and officers often face the risk of litigation due to numbers of
factors, such as consumer protection laws, securities related laws, and certain provisions in the
corporate laws that place additional responsibilities on directors.
Employee liability: These risks would arise from the breach of confidentiality and rights of
privacy arising out of confidential client information stored on a particular system or website. In
addition, employee can initiate sexual harassment charges from an employee due to disturbing
e-mail content. Legal fees: Fees incurred for litigation arising out of various claims, such as
intellectual property. Many businesses on the internet mistakenly think their internet- related
exposures are covered by their existing policies.

IT APPLICATIONS IN FUNCTIONAL AREAS
Even though the information technology has wide application in all the spheres of the insurance
business, 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 acquaintance 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 P’s of marketing. It may help in
formulation and implementation of various marketing strategies including pricing, promotion
and customisation strategies. Some of these areas are discussed below:
Consumer 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.
Customer Services
The insurance being a service needs high concerns in terms of services. Customer service
requires maximum attention and should span the entire 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 GJC.

The investments in the personnel and knowledge systems have helped private player’s
companies build significant domain expertise. The emerging areas of IT applications are:
(1) Market Research
(2) Consumers targeting and segmentation
(3) Customisations of products
(4) Easy procedures like premium payments, claims settlements, tracking of brokers and agents
(5) Complaints management! grievance handling
(6) Intermediary analysis
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.
Human Resource Management
Application of IT in Human Resource Management is obvious. It can be effectively utilised in: (1)
recruitment and selection, (2) training, (3) performance appraisal, (4) promotions, transfers and
dismissals, (5) valuations etc.
Research and Development
R&D has been made an easy task with the 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.

Impact of Technology on Insurers
Any new adoption needs time to get acquainted with the users until they gain enough
confidence & knowledge in that system. Recent studies reveal that consumers lack passion for
insurance because of its complexity, but despite these push backs, a growing number of insurers
are intrigued by the significant cost saving & customer-retention benefits to be gained through
online self-service. Although carriers think that by encouraging insurers to do transactions by
online services, which would reduce operational costs vastly, they are very cynical of investing in
web technology with dot-corn collapse.
The trick lies in educating insurers about the concept and benefits of eservices in this sector.
Driving client to initial online self-service experience into something more interactive by call
services that would involve human interactions will certainly have a greater impact. This
balanced approach is how most insurers are enabling online self-service that not only make
sense for policyholders, but also provides support for intermediaries and agents. The main
challenge for any health company’s website would be bringing all sections of people to view
their site.
They should show some positive incentives to bring customers to their websites. Online services
have own advantages like accessibility of information 24/7, visualization of information,
providing interactive plan finder tools, adding useful links to the websites, live chat technologies
etc. An online activity helps to give necessary knowledge to consumers, which is very positive,
because it implies that when people learn more they establish a deeper relationship and a
broader dialogue with the carrier. Agents and brokers also enjoy the efficiencies that come with
writing new businesses and servicing their customers on websites. About 55% to 60% of
customers take booklets electronically. In order to enable efficient online self-service functions,
companies typically have to update their legacy systems.
Despite the current limits to online self-service, as the Internet continues to gain acceptance,
customers probably will become more open for using it as a conduit for insurance services. In

the past year, the portion of insurers offering customers service websites has been growing
dramatically.

INTRDUCTION
Losses due to insurance fraud and abuse affect every business and every risk manager. The
stakes are high: according to the Insurance Information Institute, 10% of claims payments are
fraudulent, resulting in $24 billion dollars in losses each year. Worker’s compensation claims
alone are responsible for about $5 billion in losses each year. Unfortunately, most of this fraud is
never detected, or it is discovered after claims are paid when recovery of these lost dollars is
both expensive to do and unlikely to happen.
Insurance fraud detection has taken a giant step forward with the introduction of the same
sophisticated technology already used by most banks and credit card companies to stop fraud,
saving companies in these sectors billions of dollars each year and reducing fraud by as much as
50 %. However, as with any new technology, considerable confusion exits as to which types of
systems are effective for which purposes. Focusing on claimant fraud in insurance, this paper
will identify types of technology utilized in fraud detection, their scope and limitations, to help
risk managers choose appropriate technology for their needs. Fraud Detection And Technology
it reality, no one technology delivers a complete solution for fraud detection. A complete
solution is the result of the intelligent combination of several technologies, most of which are
not particularly effective if used alone.
The challenges of addressing the fraud and abuse problem- and the different technologies that
can be used for this purpose- can perhaps best be understood through a framework of
detection and review. While detection is the process of identifying and prioritizing suspects
from the available data, review entails confirmation of fraudulent/abusive activity and the
process of taking corrective actions such as blocking of payments, recoupment of paid dollars
and prosecution.

The variety of technologies that can be employed can perhaps be best understood by assessing
their contribution in improving either or both of these two processes. To date, primary
emphasis has been on review side, with a focus on techniques for surveillance, investigation and
prosecution. Many technological tools, such as those for ad- hoc querying or viewing of activity,
have been designed to aid in the review of potentially fraudulent claims. However, the
challenging task of detection — effectively identifying suspects in the first place- has received
less attention and currently offers the greatest opportunity for benefit if addressed in a
comprehensive fashion.

DETECTION & REVIEW
The mission is to find insurance fraud and abuse; once we do that, we can take a variety of
actions to recover payments already made and prevent future in appropriate payments. Our
starting point is the mountain of historical transaction data (i.e. claims master-file information,
payment transactions, medical/payment detail, policy information, etc).
Detection
Detection is the first step and is complicated by a host of technical challenges. Review is the
second step and requires giving human experts the information they need to confirm fraud and
abuse. Detection is a statistical game with the goal of improving the odds of finding the target.
The process is analogous to fishing for a rare fish in the ocean. Without the right tools, we are
left to fish the endless sea of legitimate claims for our rare fraudulent catch. Not surprisingly, a
tremendous amount of time and effort can be spent to identify a single case of fraud.
The job of a detection system is to filter the Entire Ocean and scoop out a small pond containing
a significant fraction of the total fraud so that the ratio of fraud to non-fraud is much more in
our favor than it was in the “ocean”. Fishing in a well-stocked pond translates into substantial
savings because we can use the system to focus expensive human expertise on reviewing those
claims that are most likely to pay off (in settlements, averted future fraud and abuse or
successful prosecution). We stop wasting effort reviewing false leads, and we prioritize effort to
inspect the most important cases first.
The effectiveness of a detection system can be quantified using the following two metrics:
• Detection-Rate (the percentage of total fraud isolated in the pool of suspects)
• False-Positive-Rate (the ratio of legitimate to fraudulent entities in the pool of suspects)

Review
The review process gathers the evidence that human experts need to confirm fraud and abuse.
Because of the complexity of detecting provider fraud and abuse, no system can be 100%
accurate in selecting fraudulent claims. Once the detection system has generated a pool of
suspects, expert claims adjuster or fraud investigator are needed to review suspects, conduct
the appropriate investigation and bring the case to closure. The experts may use technology to
help them navigate through, visualize or analyze the detailed data behind a case. Detection can
be linked to the “front end” of the fraud-fighting process, while review is analogous to the “back
end”.
Many tools offered to assist in the fight against fraud and abuse, such as those allowing for the
review process. Other technologies, such as those involving link-analysis (looking at the activity
of individuals coming in contact with a particular individual) are also most useful after a suspect
has been identified. While these techniques can be important, for example investigating rings to
which given suspect initially come from? Further, more the reality is that most fraud and abuse
is opportunistic and does not involve elaborate rings. A detection system is necessary to
uncover suspicious activity in the first place.
Most approaches to employ a manual process dependent on human intervention-a claims

adjuster spotting unusual activity in a claim or a whistle-blower (e.g. a co-worker disgruntled ex-
spouse) calling 1800 fraud line. In some cases, simple red-flag rules are used to assist in the
identification of potentially abusive activity or simple statistical tools that profile peer groups
and use standard deviations to identify outliners.
These are good first steps, but there is much room for improvement. There is a great potential
for insurance organizations to identify more fraud and abuse and identify it closer to its onset.
Because detection has received far less attention than review, this paper will focus on the
application of technology to the detection problem.

APPROACHES TO DETECTION
Two fundamental approaches to detection are ruled-based and model-based. The nature of
fraud and a comparison of these two approaches can be better understood by using the analogy
of the amoeba.
Using Rules to detect fraud and abuse
Rules (or red-flags) are often developed to identify “suspect” claims. For example, neck injuries
are more likely to be fraudulent than head injuries. Hence, a “rule” may identify neck injury
claims as suspect. However, even though neck claims have a higher risk of fraud than head
claims, it is still the case that far more neck claims are valid than are fraudulent, so the rule may
be refined to future restrict the claims identified as suspect (e.g. an employee on the job for less
than one year).
In terms of the amoeba analogy, the boundaries of the regions defined by rules(shown as
squares in the diagram below) are very simple compared to the boundaries of the amoeba.
Usually, a rule has some overlap with the amoeba but also has some area outside the amoeba.
A tremendous number of rules are required to cover the amoeba and fill its multi-dimensional
space.
In actuality, rules-based systems are most beneficial to find evidence, not detect suspicious
claims. This means rule-based technology is effective as a tool for review, but not effective
enough for pure detection to summarize rule-based technology.


NEURAL NETWORK TECHNOLOGY
Within supervised or unsupervised models, a variety of technologies are available. Amongst the
most powerful are neural networks. Humans cannot simultaneously consider more than a
handful of variables. Neural networks provide an effective tool for shifting through large
amounts of data to identify those patterns- comprised of interactions involving multiple
variables- most indicative of fraud. In a supervised model can consider hundreds of variables in
developing a score through a learning process of looking at known historical examples of “good”
claims and “bad” claims.
The result is a model that can recognize the highly complex and subtle differences between
“good” and “bad” patterns of behavior.
In an unsupervised setting, a neural network can characterize complex behavior patterns to

identify those claims that are most similar to each other, as well as claims that are most
unusual.
Traditionally statistical methods (for example, regression) can in theory, produce models that
are just as accurate as those produced using neural network technology. However, because such
methods rely upon human experts (typically statisticians) to explicitly determine the complex
data relationships, it is nearly impossible for such systems to match the predictive power of a
neural network model. Furthermore, maintenance of traditional statistical models is costly.

TECHNICAL CHALLENGES
A host of tech accompanies the task of insurance fraud and abuse detection. An abusive
solution to the problem requires a comprehensive approach enabled by a variety of
technologies that addresses these technical challenges head-on. Some of these design issues
include;
• Ongoing reassessment of fraud risk
Because fraud may not exist at the time the claim is submitted, or because evidence of abuse
may not yet be apparent, a system must each claim over and over on an ongoing basis.
• Understanding raw data
The starting point is the “raw mountain of data”. A thorough understanding of this data requires
careful analysis and domain expertise. Furthermore regardless of what technologies are
employed, careful engineering is required to address issues of data being messy. missing or
standardized
• Behavior from ongoing transactional data
Characterizing claim activity involves the summarization of all transactional data (e.g. payments
or medical service details). This summarization must not lose key aspects of activity.
• Complex pattern in data
Identifying which claims are most suspicious requires a comprehensive analysis of many
different features characterizing the claim and its activity. A detection system must be able
recognize those patterns of behavior most indicative of fraud.
• Limited examples of confirmed fraudulent claims
In many cases, only a small number of known examples of fraud may exist in the historical data.
One must be able to handle such situations when developing the detection system.

• Prioritization of suspects
In order to match work level to staffing constraints, which may be different for different
customers and may vary over time, a detection system must allow for prioritization of suspects.
Scoring models provide a rank ordering of all suspects so that attention can be focused on those
deemed most suspicious.
• Effective use of detection results
In order to effectively use the detection system’s results, explanations for what makes a claim
look suspicious should be provided, strategies for effective workflow assignment should be
determined (e.g., match resources with suspects that are most beneficial to review) and tools to
review the results should be available (these may already exist).
• System Maintenance
The system performance must not deteriorate due to changing patterns of activity overtime.
Because neural network models are built from data and automatically learn complex patterns
within the data, they can be efficiently redeveloped. Indeed, as more examples of abuse
become known, model performance can be expected to improve over time.

INTERNET & INTRANET
The Internet is a worldwide system, accessible through computers. Information travels through
the internet at incredible speeds. It cuts across national & international boundaries. While the
internet allows access for anybody from anywhere, the internet is an in-house network, working
on the same principle. The difference is similar to the difference between a national newspaper
& in-house newsmagazine, which is for private circulation.
If an insurer has an intranet system, the information in the intranet will be available only to its
offices & personal. The policyholders will not be able to access the data in the intranet. Circulars
meant for internal circulation can be posted on the intranet & 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 through passwords.
Both internet & intranet enables users to do the following at any time (24 hours, 365 days)
 Send & receive letters, which are called e-mail. Every person will have an “e-mail id”,
which is his address in the net.
 Search, read & retrieve data, files, and pictures.
 Buy & sell of policy Benefits to Agents
If the insurer has an intranet, the agent can, sitting at his place of work, be attending the
insurer’s office, making enquiries about status of proposals or claims or discussing with any
other agent, for clarification or advice, whenever he wants to do it. The physical distance
between the agent & the office will not be of any consequences at all. The benefits to agents
will be:
He can receive all circulars & 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 in transit etc., are avoided.

Any doubts with regard to proposal, benefit, premium, taxation, medical examination,
insurability etc., can be discussed & got clarified directly from the person concerned.
Communications to & from the office will be immediate through e-mail & at a low cost.
Benefits to PolicyholderslProspects:
Prospects can get benefit through the internet in the following ways- 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.
• Premium can be paid without having to go to the office of the insurer, by direct debit to the
policyholder credit card or bank account
The LIC has included in its websites, for the benefit of the prospectus and the policyholder,
information to health issues

KISOKS
Kiosks are unmanned information centers, placed strategically at public places. They are called
Interactive Touch screen kiosks. A kiosk is a self- contained hardware & software to blend all
current media including graphics, video, text & quality sound. It consists of a touch sensor& a
monitor on which the sensor can be fitted. The user is expected to touch the relevant sensors,
according to the choices offered by the kiosks visually on the monitor. The kiosks then takes him
the required information or to transact the required business.
The LIC has installed kiosks in more than 100 locations covering its divisional headquarters. The
kiosks provide information on policy status, product information about all products including
group insurance products. These can he used by persons, who do not have their own computers
and cannot access the internet. They can be operated 24 hours a day and do not require any
supervision like the ATMs of banks.
The touch-screen kiosks were installed in some of the branch, divisional and zonal offices of LIC.
By this facility the customers can obtain information about LIC, its performance, schemes and
statuses of policies by the touch of the screen.
The kiosks are interactive and user-friendly. Such kiosks are also to be installed in bus and
railway stations and in busy thoroughfares of major towns and cities. In due course, payment of
premium will also be made by dropping cheques and DDs in drop-in boxes.

DATA COMPROMISE COVERAGE
The breach of personal data stored in business files and computers is a serious risk for any
company that controls the information. Customers and employees may become the victims of
identity theft and fraud. With so many incidents of data loss being reported, companies are
looking for solutions that include new insurance protection.
All companies are responsible for personal information. Even a small business may have data on
a large number of customers, clients and vendors. That information can be lost, stolen, or
inadvertently disclosed. But the result is the same—anxious victims, unexpected business costs
and damage to a company’s brand and reputation.
Laptop Thefts Increase Risks
The breach of personal information is a serious problem in the US. In the past two years alonc,
data breaches have affected approximately 100 million Americans, a consumer watch group
reports. Some people may have been affected more than once and not all of them were victims
of identity fraud, of course, but the growing number of data losses points out the continuing
exposure to consumers and businesses.
Personal data may be stolen from physical records, or obtained by fraud such as the sale of
information to a sham company It might be hacked from computers, mistakenly released or
published, even posted to a website. A key factor in many of the recent high profile data
breaches has been the theft or loss of laptop computers. ln fact, about a quarter of all reported
data breaches may involve missing laptops.
It’s not surprising since laptops are a target of thieves. Cyber Angel Security Solutions, a national
security technology firm, reports that 10% of all laptops are stolen in the first 12 months and
90% of those computers are never recovered. Half of the companies in the US had their laptops
stolen in the last year and almost 90% of all corporate crimes are linked to stolen laptops.
Data Breaches Spur New Laws

To fight identity theft, 32 states have passed laws that require businesses to respond to the
breach of personal information under their control. Federal legislation is pending. Most of the
laws require businesses to warn victims about potential ID theft and fraud. In many cases, the
warning must he issued within days and include the news media. Businesses may have to pay to
monitor personal credit.
Even without a legal requirement, consumer sentiment is pressuring businesses to take

responsibility to safeguard personal information. They want victims to be notified and informed
about the scope of the damage. They also demand the company provide personal assistance
including identity restoration case management when a data breach occurs.
A data breach can seriously harm tie brand and a; eta business. Although it can be expensive to
notify and assist victims of a data breach, the risk of notifying people affected can be far worse.
In today’s environment, a business that experience data breach must protect itself from both
the risk to its reputation and the cost of providing services to those exposed to identity theft
and fraud.
Data Compromise Coverage Offers Protection
A new insurance product --- data compromise coverage --- us starting to appear in the market.
This commercial lines coverage addresses the issue of data breaches by helping a business or
institution respond. This is important since ID Analytics National Data Breach Analysis found
that early notification of breached personal information may significantly lower the rate of
misuse. The findings suggest that breach notification could serve as a deterrent to ID fraud.
Several Forms Now Available

At this time, there are a few data compromise coverage forms being offered. At least one
monoline form appears aimed at large accounts, and at least one packaged firm is designed for
middle marker and Main Street accounts. One of these combines first and third party coverage
and the other is first party only. With corporate managers citing data breaches as their No. 1
concern in a recent poll, data compromise should he an area of further development and
innovation, in the coming months.
Smaller Companies Can Be Vulnerable
Small businesses can find it most difficult to respond to the breach of personal information. Yet
it is particularly challenging to offer broad and affordable coverage for smaller businesses.
Unlike larger companies, they may not have the knowledge, staff and resources to inform and
protect potential victims. Smaller businesses might not recover as easily from the extra expense
and had publicity. They should look for data compromise coverage that will arrange and pay for:
• The cost of notifying individuals;
• Legal reviews and forensic information technology exercises;
• Personal services for eligible insured such as a helpline, credit checks and case managers for
the victims of ID fraud.
Treating Claim Data Carefully
Data compromise coverage raises sensitive issues for insurance professionals as well. One is the
extreme sensitivity of claim data. How will a claim be adjusted? How much information do you
need? The personal information of potential identity theft victims can’t simply be faxed and
dropped inside an inbox. It requires special handling and careful security procedures so that
insurers are part of the solution, and not the problem.
Another issue is for the insurance industry to take action so that we are not fooled ourselves. It
can and does happen that insurance companies issue policies to people who are not who they
claim to be. Worse yet, insurers may claim payments to imposters. Identity verification is not

always easy, but our industry must take steps to protect personal information and prevent
claim-related identity fraud.
Insurance Professionals Can Help
It is difficult enough to keep up with developments. As technology continues to advance,

personal information becomes increasingly exposed and new coverage options for data
breaches are evolving. The pain of being an identity theft victim is driving public reaction to data
breach incidents. The insurance industry can help by taking good care of the data in its own
control, offering high quality services to ID theft victims and developing new insurance
programs for data breach exposures.
INSURANCE AND ELECTRONIC COMMERCE - E-INSURANCE

On a global basis, there is mad rush of companies willing to enable their business. E-insurance is
one of the growth areas in India. Enormous opportunities are being created by the Internet’s
new connectivity such as improving customer’s 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 utilise the Internet as an alternative
distribution channel. All the largest insurers have been focused on static marketing presence
online, encompassing product information, FAQ’s 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
buyer’s 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 commoditized.
The more personal the selling process, the greater the difficulty in using the net as a medium for
selling. Insurance is one product, which involves personalised 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. 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 an exponential growth in
the near future.

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 mobilising their online sales
and customer account management capabilities. This move towards building Internet based
business solutions benefits the insured by providing greater flexibility, greater customisation 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 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 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 organisations have organised 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 per cent
of the total term life market. Only 12 per cent of insurance companies globally sell policies
online. Experts expect the percentage of term life sold over the Internet to increase from I per
cent to 15 per cent by 2003, which in monetary terms works 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 over the Internet. Premium income, points out the paper, is
expected to rise to $18 billion from 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 help companies reduce costs and keep premiums low, a prerequisite
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
web sites, but these are missing in most cases. Only Iicindia.com seems to offer downloadable
proposal and claim forms for a few of the schemes.
Benefits of Electronic Insurance

E-insurance provides multiple benefits to the insurer and the existing and prospective insured:
• 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 customised 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
• 24x7 availability i.e. round the clock availability of information
• Real time knowledge base building
Major Factors Affecting E-insurance
• Growth of net: it is estimated that India would have about 150 million net users by 2010.
These figures represent a huge buying potential.
• Competition pressures: insurance companies because of competitive pressures would be

driven into Internet rather than a clear ROT justification.
• Customer: 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.
• Costs: in the beginning c-insurance will be a cost factor rather than a profit driver, 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

• 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 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.
• Reorganisation 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 c-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.
• 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 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.
• 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 agent’s business. The Internet does
not necessarily imply the death of the agent. Many insurers are examining their agent’s role in

the process and arc 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 evident that many
users are reluctant to do business on the Internet due to security reasons:
Database Security: The business database security is utmost important. This has to be
monitored by security of the web server and web access.
Web Server Security: Security policies should be defined as who is allowed access, nature of the
access and who authorises such access, etc.
Password sniffing: Protection against password sniffing is to avoid using plain text user names
and reusable passwords.
Network Scanning Programs: 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.
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.
Web Access Security: Host based restrictions can be implemented using a firewall to block
incoming HTTP connections to a particular web server.
Transmission Security: Encryption is a key technology to ensure transaction security.

Privacy: Privacy is likely to be a 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 TECHNOLOGY AND LIC
LIC has been one of the pioneering organisations in India who introduced the leverage of
Information Technology in servicing and in their business. Data pertaining to almost 10 crone
policies is being held on computers in LIC. The computers were introduced in 1964 in LIC. Unit
Record Machines introduced in late 1950’s were phased out in 1980’s and replaced by
Microprocessors based computers in Branch and Divisional Offices for Back Office
Computerisation. Standardisation of Hardware and Software commenced in 1990’s. Standard
Computer Packages were developed and implemented for Ordinary and Salary Savings Scheme
(SSS) Policies.
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
2148 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 computerisation.
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 was commissioned in

November, 1997, enabling policyholders in Mumbai to pay their Premium or get their Status
Report. Surrender Value Quotation, Loan Quotation etc. from any branch in the city. The System
has been working successfully. More than 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 VLN centres are connected through a Wide Area Network WAN).
This enables the customer to view his policy data and pay premium from cur branch of an MAN

city. As at May 2002, there were 91 centres in India with more than 1200 branches networked
under WAN.
Interactive Voice Response Systems (WRS)
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
LIC’s 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 dissemination information to general public on various products and
services offered. These KIOSKS, enable the users to provide policy details and accept premium
payments.
Info Centres
It has also set up call centres to provide information about our Products, Policy Services, Branch
addresses and other organisational information.
INSURANCE APPLICATIONS WITH ADOBE
Break free of paper-based processes

Insurance companies tell us that they are hindered by slow, paper-based processes. Agents
waste time and money shuffling forms, instead of closing business and prospecting for new
customers. Back-office burdens, such as re-keying data and handling huge volumes of mail,
further increase costs. As a result, customers are put off by frequent poor service, causing them
to look for other alternatives or abandon the process altogether.
The challenge is to find a way to streamline the application process—driving down costs while
helping to drive additional revenues and profits—but it hasn’t been easy.
Restricted by system silos and patchwork processes
If your company is like most carriers, you have legacy system silos and patchwork processes for
various product lines. This lack of integration creates islands of information, which necessitates
extensive manual handling and staff paperwork.
The resulting inefficiencies dramatically impact your organization’s ability to put the customer
first and efficiently meet the needs of policyholders and agents.
• Applications for new insurance take an hour or more to complete.

• Customers have to supply the same information repeatedly
• A seemingly endless stream of paper flows from desk to desk and department to
department, often back stepping more than once.
• Frequent data errors and broken process steps require time—time that costs you money.
Studies have shown that paper-based processes are expensive—up to an estimated $150 to
print, scan, fax, copy mail, and process each insurance application. In addition, growing
regulatory requirements add to the burdens that your headquarters faces, forcing you to update
systems and disclosures to remain in compliance. All this leads to slower service, unhappy
customers, and dissatisfied agents and brokers—who just may decide to take their business
elsewhere.
Adobe can help remedy the situation. The Adobe solution for insurance application helps you
improve service while reducing costs, meeting policyholder needs, and increasing agent loyalty
—so you can dose more business.

Get faster, more accurate processing
The Adobe Intelligent Document Platform accommodates both paper forms and electronic
documents, simplifying the collection and sharing of information, and minimizing time-cons
tuning back-office tasks.
• Agents, customers, and call center representatives need to enter data only once.
• Renewal forms and other documents can be automatically populated, dramatically
reducing time-consuming and error-prone re-keying.
• Adobe Document Services simplify underwriting and risk appraisal by allowing ratings
and not to be made right on the form for review by all parties—without altering the
original document.
• Electronic distribution eliminates postal delays and costs, and improves response times
by eliminating back-office handling.
• Agents and brokers can present intelligent forms to clients—in an offline mode—by
using the free Adobe Reader.
• When wet signatures are required, you can print forms out and then easily revert back
to an intelligent, automated process while maintaining full integrity of the original form
data.
Build data validation and calculations into all application processes. Support for eXtensible
Markup Language (XML) and ACORD XML standards helps efficiently integrate this information
into your enterprise applications. Adobe Document Services also offer a flexible front end, so
you can adapt easily to the latest regulatory policies, to minimize the business disruption and
expense of compliance.
Beyond the wide range of benefits delivered by the solution, Adobe also partners with industry
leaders such as IBM and Documentum, so that you can extend Adobe supported insurance
solutions throughout your enterprise.

Adobe PDF: Key to streamlining the insurance application process
Adobe Portable Document Format (PDF) provides a secure, reliable way to distribute and
exchange documents and information. PDF files look like the original documents, offering
customers and agents the look of paper with the added efficiency of fillable forms. This
familiarity helps to increase the acceptance of your self-service channel and maintains better
consistency between online and offline processes. Multiple policyholder documents can be
dynamically converted and combined into a single Adobe PDF file, decreasing document

preparation time and expense, while ensuring higher quality packages. And since Adobe PDF
files are searchable, they are ideal for archiving and retrieval.
With free Adobe Reader software, your internal staff as well as independent brokers and agents
can access documents and forms as needed. Reviewers can easily add comments without
altering the original, and agents as well as customers can see and respond to these comments,
avoiding redundancy and saving cycles. Password protection and other built-in security features
can be added to control access and ensure data integrity at every step. This efficient workflow
translates into to faster reviews and underwriting, and improved service.
The Adobe solution for insurance application improves the quality of your service to agents,
brokers, and customers—making it easier for agents to sell more policies, decreasing
abandonment rates, and enhancing your profitability.
• The application process is simplified and back-office tasks are automated, improving
cycle time and reducing the costs of acquiring and servicing customers.
• Revenues increase because you and your agents and brokers can efficiently handle more
business.
• Your headquarters gains better control over costly, disruptive compliance issues.
• Personal information gathered from policyholders is safeguarded, ensuring privacy and
maintaining transaction integrity with customers and partners.
• To streamline the insurance application process and improve back-office efficiency, turn
to Adobe.
MICROSOFT AND THE INSURANCE INDUSTRY
For many drivers, the seemingly endless round of phone message and paper work that follow
traffic accident can make the job of resolving on insurance claim feel as damaging as the
accident itself. For insurance carriers auto claims processing which involves handling estimates
adjustments repairs billing, and more is no less time-consuming, expensive, and frustrating.
Today, innovative technologies from Microsoft are transforming from the way auto insurance
claims are processed. Based on the power of the Microsoft.NET framework these technologies
open the door of integrated IT system that link programs and applications built of any platform

and written in any language. Streamlining the flow of data and bringing new levels of efficiency
to the business of claim processing.
Process claims is a leading software provider to the insurance industry, offering a broad range of
property and casualty solution that span heavy equipment, commercial, personal and specialty
lines. A Microsoft certified partner, process claims deliver solutions that automate solution that
automate communication and information flow, and yield rapid return on investment. By
harnessing the power of Microsoft .NET framework and its own data transformation technology
and industry expertise, process claim solutions provide data transformation an d mining,
business intelligence, work flow management, assignment automation, appraisal management
and trading partner integration.
Last year, process claims facilitated settlement of $4 billion in claims. The issue of data
integration is critical for all parties involved in resolving auto insurance claims. In addition to
insurance companies there are companies that depend on data to provide rental car services,
supply parts, facilitate salvage processing, determine vehicle valuation, and more.
Process claims’ end to end material damage management systems provide the vital link
between all of these parties. Utilizing Microsoft visual studio, .NET, XML and web service
programmable application components that can be accessed over the internet with standard
web protocols-process claims enables its client to conduct business with greater speed and
efficiency. Typically, when a driver reports an accident, the carrier assigns an adjuster or refers
the driver to an authorized body shop. Because process claims uses XML it can take information
from any claim system and instantly route the assignment to the most appropriate appraiser.
After receiving the claim the appraiser downloads is it to an estimating application, writes the
estimates, adds digital photos, and sends the package back to the carrier through the process
claims browser-based application suite.

The ability to utilize XML and web services has established process claims as a market place
leader. Not only does the solution streamline claims processes. It also extent and enhances the
value of existing legacy system functionality through seamless integration with outside services.
And because legacy system can access this new functionality transparently, Training and support
costs are minimal. Process claims’ claims port system focus on areas of material damage to
reduce loss-adjustment expenses, increases efficiencies, and improve customer satisfaction, and
they are configured to meet the specific business requirements of individual insures. Today,
innovators are taking advantage of technologies like this to automate business processes and
transform insurance claim processing.
CONCLUSION
The technology in insurance has grown through their performance, restructuring policy and
their efficiency in providing the large amount of insurance services with the help of technology
as their technology as their tool.
The supporting technology require will be real 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.
Today’s consumers do not like to wait. Insurance companies that are enabling to react to their
customer’s demands will lose market share to their competitors that can. The question now

facing insurance companies is no longer if they should take advantage of the internet, but now
should they do it. Should you adapt your existing products or create internet specific insurance
products and brands? Do you focus your efforts on distribution or service?
Thus the insurance services without technology will be like tea without sugar. Therefore both
need to be integrated in order to provide quality service & also to tap the insurance market.
BIBLIOGRAPHY
 Books:
 Insurance & Risk Management – Dr. P.K. Gupta

 Technology & Insurance – ICFAI
 Magazines:
 The Windows Magazine

 Insurance Journal

 Websites:
 Insurance & Technology – http://www.insurancetech.com

 Network Magazine India – http://www.networkmagazineindia.com
 Microsoft Corporation – http://www.mircosoft.com
 Adobe Systems Incorporated – http://www.adobe.com
 Wikipedia – http://www.wikipedia.com
 How Stuff Works – http://www.howstuffworks.com

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Technology In Insurance1

1. The nature of services to be rendered to the policyholders.