Why Business Foxes Like Their Own Information Systems Henhouses

Jeff O'Connor — Thu, 17 Nov 2005 16:08:00 GMT

I read Insurance & Technology, both in its print form and online.

(Yeah, I know. Sad.)

One of my all-time favorite articles is Anthony O'Donnell's Health Insurance Transformation, from August of 2004. It's not the first article ever to be published on the need for IS groups to align themselves with business process management organizations within companies, but it's the first one specific to the insurance industry that I was made aware of. Moreover, it is still one of the few articles I have come across that takes the health insurance industry as a whole to task for not being able to standardize basic processes at the core of its business model.

But it will take more than superficial changes for carriers to succeed in the new, customer-centric health insurance world. And internal changes alone will not suffice. Inefficiencies plague health insurance, owing largely to the absence of standardized processes across the industry. As WellPoint's Ron Ponder comments (page 28), the health insurance industry needs to follow the example of the banking industry to make the transition from one insurance carrier to another as easy for a doctor as going from one ATM to another is for a banking customer. To achieve this, industry leaders need to establish standards and invest in initiatives to help their healthcare provider partners transition to the next generation of healthcare technology.

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I've often wondered what it is that's prevented the healthcare insurance industry from being able to establish these norms. State and Federal regulation of the industry is exceeded only by media scrutiny and judicial reivew; any other market would have gotten its collective act together decades ago under that sort of pressure, so why not health insurance?

In the absence of an external actor forcing the industry as a whole to adopt basic operational and procedural standards (HIPAA doesn't count - not by a long shot), I believe piecemeal standardization within individual health insurance organizations and between commerically-aligned organizations is a source of competitive advantage that promotes a general state of chaos. In other words, the more screwed-up the market is as a whole, the more opportunity there is for organizations to make a profit by bringing order to their little corner of it.

In last month's Rising to the Challenge, Insurance & Technology writer Johannah Rodgers profiled Annaclair Kiger, senior vice president, customer service and information technology, for Columbia, S.C.-based Colonial Life & Accident Insurance Company.

(I realize that Colonial Life isn't a healthcare insusrer, but given the lack of procedural and information standards across the insurance industry generally I feel they're an appropriate case-study for making my point).

Kiger warranted a whole article because of her relatively rare pedigree: an IT VP with no formal technical education and a resume composed primarily of "pure play" business experiences. The punchline isn't that at least one insurance company "gets it" when it comes to aligning processes and technology. Rather, the point of the piece (and the proof of my argument) can be found in the sixth and eigth paragraphs of the article:

Her approach to capitalizing on the opportunities in the supplemental insurance market, while at the same time navigating its unique challenges, has been to maintain a stable, robust suite of administrative applications and build new technology projects around these. "Having one stable platform over the last 25 years and a customer-centric operation have both been crucial to our success," Kiger relates. And Colonial's success has been significant, including $278.5 million in new premium sales in 2004 and customer service ratings that have outpaced rigorous internal goals...

Colonial's expanding use of Internet tools also includes initiatives targeted at producers, brokers and plan administrators. Kiger says she plans to create "the ability to offer a wide range of transactional capabilities through a suite of electronic services that will enable data exchange with key business partners." For example, ProducerNet, a virtual electronic office, gives sales agents access to a number of different types of data and tools, including state-specific product and underwriting information, leads generation and account-specific updates via a password-protected extranet Web site. Plan administrators, policyholders and brokers can update policy information online and check the status of policies and claims through separate ColonialConnect secure Web sites, Kiger notes (emphasis mine).

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Clearly, Kiger and Colonial Life & Accident Insurance Co. both "get it" when it comes to standardizing on processes, technology, and the relationship between the two. They also appear to "get it" that the extent to which they can do this better and - to keep that distinction for as long as possible - differently than their competitors, the happier their financial stakeholders will be (excluding, of course, their subscribers).

Then and Now

Why Business Foxes Like Their Own Information Systems Henhouses