Insurance is a promise - and you need to be sure that there is a reliable record of it. But many of the insurance industry’s record keeping systems are breaking down, calling into question its ability to fulfil that promise.
The tragic events of 11 September have highlighted this problem. Numerous disputes have arisen between clients, their brokers and insurers as to exactly what is recoverable and the terms and trigger points that apply. Duplicate policies have turned up with conflicting language; documentation is missing or incomplete and, in some cases, the only paper records have been completely destroyed.
The problem is widespread. Risks are becoming more complex; transactions happen with greater speed and the financial stakes are increasing. Yet the insurance industry relies on a record keeping system that was built for another age. As the system erodes, clients face increasing uncertainty as to whether and what they will be paid in the event of loss.
The industry has spent large amounts of money equipping every employee with a computer full of powerful software. E-mail is now the favoured method of communication, and electronic spreadsheets, documents and presentations are widely used in every transaction. But while PCs are great for producing electronic documents, they are terrible at keeping track of them. PCs and the networks that link them are simply not designed to keep track of the copious interactions and numerous document versions typical of insurance. Therefore insurers and their clients continue to print out documents and place them in a paper folder.
The result is a divided record keeping system which is making it harder each day to keep track of interactions and to recreate records in the event of a loss. There may be a PC on every desk, but there is still paper filing in every corridor.
Commercial insurance contracts are formed by exchanging large numbers of documents, including submissions, claim runs and manuscript policies. To ensure that the insurance promise is fulfilled, you need to be able to say with certainty, months or years later, which versions of these documents were used in forming the contract.
A commercial insurance transaction may be framed by dozens of e-mails residing in the inboxes and outboxes of numerous people, by electronic documents and versions resting in the hard drives of several PCs or network servers, and by various paper files created at each of the locations touching the client. Reconstructing all of this to create a reliable record is impossible.
In essence, the insurance industry’s record keeping systems are hopelessly out of step with the way companies work. Filing systems do not support the extended team working that is the modern way of doing business.
“We see this as one of the key issues facing the industry,” says Jamie Crystal of Frank Crystal & Co, Inc, a leading independent New York broker. “Adopting a cutting-edge record keeping system enables all parties to ensure that relevant information is available at the time of loss and thereby avoid the potential for a lengthy dispute.
The reliance on paper records also inhibits the insurance industry’s own ability to recover from disaster. It is virtually impossible to maintain up-to-date replicas of paper files in a safe location. Insurance firms caught in a disaster are paralysed because their only records have been destroyed.
This is not an isolated problem. Less than 5% of the largest insurance companies and brokers have a document management system that systematically tracks document versions. Even fewer have failsafe procedures to drag and drop e-mail messages and electronic documents into applicable folders.
“We are greatly concerned with this issue,” says Herve Borel, risk manager of Alstom, a global leader in energy, power generation and transport. “We have vast assets and critical exposures and we rely upon our commercial insurance programme to respond flawlessly in the event of loss. The integrity of record keeping systems and ability to provide certainty are key criteria that we look for in the brokers and insurers we do business with.
The key to building a record keeping system that will support the needs of clients and restore certainty to commercial insurance transactions is to track and integrate four types of information.
New approach
Providing systems that can track and integrate these four types of information is an enormous undertaking. If it is to be affordable it will require a new approach to acquiring technology.
The insurance industry has traditionally acquired technology by building it proprietarily. There are at least ten multi-million dollar projects under way right now, attempting to achieve some of the benefits listed above. The problem is that the insurance industry is poorly equipped to develop software – understandably, as it is not its core business. Consequently, there is a massive failure rate in proprietary system development (some say more than 70%). Many participants are wasting huge sums.
Proprietary systems also take years to deploy. If an insurer or broker spends $10m building a system, they must deploy it to thousands of users right away to justify the cost – and this creates enormous deployment risks. Worse, proprietary systems are not interoperable. They defeat the promise of e-business, where counter-parties can seamlessly exchange information without re-keying.
The industry needs modern technology to restore confidence in its record keeping systems, and it needs a new means of acquiring that technology. Fortunately, there is good news. A new class of e-business technology - collaborative commerce software - is ideally suited to solving record keeping problems. Many insurers have already installed this software and are increasing efficiency, reducing errors and restoring confidence. Several high profile clients have not even waited for their broker or insurer to act – they have deployed the software themselves.
Collaborative commerce software links the risk and insurance process to an electronic filing system that keeps track of every document version and interaction, automatically producing an exquisite record. ‘Virtual teams’ can be created from collaborators both inside and outside the enterprise.
This software does not present users with an additional or duplicate system. It is a skin that wraps around existing computers, enabling them to be used for the key interactions and transactions without the need to create a parallel paper record. George Worsley, executive director of worldwide broker Network, a global network of 46 independent broking firms that together forms the world’s sixth largest broker, says: “ WBN have adopted collaborative commerce software as the glue that links all our operations globally. It enables us to focus the skills and expertise of the entire organisation on any client need. Most importantly, it provides us with a detailed audit trail of every transaction and assignment.
Key functions
Collaborative commerce software provides certainty through seven key functions.
Standard folders A customer is able to designate a standard folder hierarchy that will be presented to any user in their organisation or the communities they create. If the firm decides that records will be organised by ‘client name – year – policy type’, then, when Janet logs on in Hong Kong or Pete logs on in Chicago they will always structure their records in the same consistent manner.
Team filing The software provides every member of a team with access to the exact folders they need to manage their tasks. The folder structure is rendered uniquely to each user, and contains only the documents and information they have created or have been granted access to. Thus an account executive in New York can create a virtual team from the people in ten offices around the world needed to manage his client. He can grant all of these people access to his files and can decide who gets which folders, sub-folders or documents. If anyone in this virtual team adds or changes something, everyone is notified and all the folders for the entire team are updated.
Collaborative document management Documents can be created by teams of collaborators within or outside the organisation. For example, a manuscript wording can be worked on simultaneously by the broker, the client, the client’s lawyer and the insurer. The software keeps track of every version, who has authored it and when. All previous versions are kept and can be recalled at any time.
Folder linked processes The software web enables key processes like placement, variation, certificates and claim reporting, and links these processes to the folder structure. It automatically creates an audit trail of every interaction and document version associated with any process. The system routinely posts these interactions and documents in the appropriate folder. The complete memory of any transaction can be recalled at the click of a mouse a month, a year or a decade later.
Collaborative messaging E-mail is used extensively in arranging insurance, but it has a major flaw. Take the case of an account executive responsible for everything that happens on his client’s programme. He has a team of Janet, Peter and Samantha working on the account. He sends an e-mail to Janet, she sends one to Peter, Peter sends one to the client, Samantha sends one to an insurer. The account executive gets only a glimpse of what is happening, only seeing the e-mails sent or copied to him. Collaborative messaging solves this problem. As the collaboration ‘owner’, the executive sees every interaction. These interactions build into a ‘message thread’, which enables him to see exactly what is happening on his account. Collaborative messaging is the equivalent of sucking all the relevant messages out of the inboxes and outboxes of every team member and their collaborators and storing them in the client file.
Registered mail The software provides a time-stamped confirmation of when a collaborator has accessed and opened a message or document.
True version The software provides a true version of the document versions and interactions that have been used in contract formation. This record is locked down once the contract is bound. The record is available in perpetuity to either party but it cannot be changed or tampered with.
The story does not end there. Collaborative commerce software is fully compatible with the internet, so it can be made available under a centrally hosted model that has enormous advantages over proprietary development. Central hosting can take several forms. Many companies can share a single hosting, or a very large organisation can use its own private host. Central hosting solves the drawbacks of proprietary systems. It eliminates development cost and risk, can be deployed immediately without delay, and costs vastly less than the cost of building equivalent proprietary systems.
Collaborative commerce software presents the risk and insurance industry with a way of restoring confidence in its record keeping. Beyond that, it releases massive economic value by increasing efficiency, eliminating duplication and supporting teamwork. It provides the modern service that large corporations expect of their brokers and insurers, promoting desperately needed interoperability.
Howard Green is president of Riskclick, a specialist in developing collaborative commerce software for risk management and insurance, www.riskclick.com
MODERNISING RISK
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