Knowledge in the Information Technology in Insurance Industry

The purpose of this paper is to examine the use of information technology and information systems within a specific industry as a means to support knowledge management. The industry in which this discussion will focus will be the insurance industry. The reason for choosing to discuss the insurance industry is that this is an industry that has previously been thought of as being slow to adopt information technology as a means of knowledge management as compared with companies in other areas of the banking and financial sectors. While it may be true that the insurance industry has been slow in the past to adopt information technology as a means to support knowledge management activities, this paper will demonstrate that insurance companies are now taking full advantage of a variety of systems and technologies in order to gather, store, and make decisions from the large amounts of data that are present to them. Even more, this paper will demonstrate that the insurance industry is not simply using information technology as a way to better connect with customers and collect information about their lifestyles. Instead, information technology is being used to collect data that can allow insurance companies to better manage their own risks.

Information Technology in the Insurance Industry

Insurance Technology. It seems appropriate to begin the discussion about the use of information technology as a tool for knowledge management in the insurance industry with the online systems that are in place. While it might seem almost basic to even think about online systems and databases to be a means of knowledge management, the reality is that the insurance industry is using these systems for more than just making completing transactions convenient for customers. Instead, many insurance products are directly connected with mortgages and large loans as a means for banks and individuals to protect themselves in the event of a death. However, the time to gather the information necessary to determine an appropriate insurance value may be as little as 24 hours.

The insurance industry has implemented database systems that allow them to connect directly with large banks and lending institutions so that information can be shared in real-time. From the standpoint of knowledge management, insurance companies have to rely less on guessing about the condition of properties or the financial conditions of the individuals or companies that are seeking insurance. Instead, they can rely on the ability to not only obtain information via the internet in real-time, but can also turn to the information stored in these databases from previous customers to determine an appropriate policy. The benefit for the insurance companies is that an important part of the work that they perform, which is the evaluation of information and data, becomes something that can be carried out in a more systematic manner. Rules do not have to be ignored or even made-up on the spot for fear of losing a potential customer because of the lack of immediate availability of information.

Even more, the lack of an exchange of paper documents means that information is both transmitted and stored in real-time so that other insurance agents and underwriters have immediate access to the data so that it can be used as a means of immediately evaluating risk on other policies. Other agents and underwriters can access the knowledge that is gained from writing a single insurance policy, such as the value of properties in a particular location or the financial conditions of companies in a specific industry in a specific city or state. Again, the advantage that is obtained is that there is more information that can be used to determine the risks and benefits associated with specific insurance applications.

Wide Area Networks (WAN). Companies in the insurance industry are also taking advantage of wide area network (WAN) technology as a way to link not only their regional offices to their main data centers, but also the offices of their individual insurance agents. Rather than adhering to the system that was used in previous decades in which agents were often given very little information except what was needed to write an insurance policy, companies are now providing agents with almost the same level of data that their underwriters and other home office personnel use. Local agents can access databases that include customer information, underwriting guidelines, and even directly communicate with underwriters in real-time. The reason for setting up client computers and servers on wide area networks is to attempt to increase the level of security that is used to send and receive information.

In terms of knowledge management, insurance companies are including local agents in the information technology infrastructure because they often have first-hand knowledge of the clients that are attempting to buy policies. An underwriter in a distant office is unable to talk directly to a customer and determine specific information beyond what is included on an insurance application. The agents, however, can collect information that might only be known through first-hand and local contact. The result is that knowledge is not only transmitted more easily to underwriters and other decision-makers, but that it is shared more frequently because of the ease with which technology allow.

The benefit that is obtained by the insurance companies once again is related to risk. By making local agents part of the internal system of collecting and managing knowledge and information about clients, better decisions can be made about how to rate certain clients with regards to their health so that appropriate premiums can be charged. At the same time, when customers might have been given premiums that they deemed too high in the past as a way for insurance companies to address a lack of information to determine the appropriate level of risk that was present, it is now possible for insurance companies to make better decisions that result in premiums that are deemed to be more appropriate so that customers are less likely to seek out policies from other companies.

It must be remembered that while insurance companies are in the business of trying to reduce risks and increase profits, they must also perform this activity within an industry that is highly competitive and in which there are many competitors that are offering what are essentially the same product. The benefit for the insurance companies in connecting local agents with home office personnel is indeed the ability to make more accurate decisions that reflect the risk associated with an insurance policy. Without a full range of information, insurance companies are tempted to charge higher premiums that can upset potential customers. Having more information and being able to access it in a timely manner can allow decisions to be made with more accuracy in a shorter amount of time. The outcome for insurance companies is happier customers and the ability to be more competitive in their operations.

Geographic Information Systems (GIS). Thus far, the focus of this discussion has been about information technology and information systems that have been more directed toward knowledge management activities related to life insurance. However, the sell of property insurance is a major part of the revenues that are generated in the insurance industry. Writing property insurance can present its own challenges, particularly when large structures and commercial buildings are being protected. In recent years, and particularly since the terrorist attacks of September 11, 2001 that brought down the Twin Towers of the World Trade Center, insurance companies have turned to the use of geographic information systems as a way to evaluate the risk of insuring structures.

GIS systems are being used by insurance companies to collect and store measurements related to engineering data about soil densities, population patterns, and the occurrence of disasters and other events in specific areas. For example, insurance companies that write policies on homes located in hurricane or tornado-prone areas are using GIS systems to determine the frequency and likelihood of a destructive event taking place. The overall goal is to be able to predict future patterns of destruction so that insurance companies can determine the amount of risk that is associated with writing a policy on a particular type of structure in a particular location. Rather than simply relying on visual information or recent reports of storms and other disasters, information over an extended period of time can be collected and analyzed to determine the appropriate premiums to be charged, and even if taking on the risk of insuring a specific type of structure in a particular location is too great.

Even more, the collection and management of such information over a period of time can help an insurance company to determine its own specific risks and benefits in writing policies for structures in specific locations. What is meant by this is that while the industry has a whole may experience a large amount of loss because of writing policies on homes in hurricane-prone areas, an individual company may actually have less risk because of only writing policies on homes that are off the ground by a certain height or that have steel frames as opposed to wood frames. It is the systematic collection of data and the information systems that allow for its processing and analysis that can allow for decisions to be made that result in higher revenues and profits with lower levels of risk for insurance companies.

Data Mining Tools. As has already been mentioned, insurance companies are businesses that must compete in a highly competitive industry. These companies are not only concerned about actually dealing with the people that are attempting to gain insurance or who need to have their existing policies updated, but they are instead trying to gain new customers in order to increase revenues. Insurance companies have implemented various types of knowledge management systems in the past few years that allow them to collect data from childbirths at local hospitals to the names of people that are first-time homeowners. These systems allow for large amounts of personal data to be mined so that local agents can have a better means by which to approach potential customers and offer them specialized policies to meet the needs of the events in their lives.

For example, some of the knowledge management systems that insurance companies have in place are actually meant to sort public records on such things as births, deaths, and home sales in local areas as a way to determine whom might be acceptable potential clients for local agents to approach. In addition, these applications sort through information on bankruptcies and other events that are recorded in public records. Then, the data can be sorted and analyzed to determine which types of events are likely to trigger the desire to purchase some type of life insurance product. Rather than having insurance agents chasing people who may have no interest at all in any type of insurance product, insurance companies can mine the large amounts of data contained in public records as a way to gain a competitive advantage by targeting people who may have a need for insurance.

In addition, the other types of information technology and information system tools and applications that have been discussed assist in the data mining process because names of potential clients can be quickly and efficiently sent to agents over a computer system. In addition, agents that have local knowledge of a person that might have won the lottery or recently acquired a particular type of job can contact the home office of the insurance company to send out special promotional materials to attempt to gain the business of that person. The knowledge management systems that are used also allow for this information to be stored so that people can be contacted at specific intervals, such as on their birthdays or anniversaries, in order to remind them of the need to purchase life insurance or additional life insurance as they become older or as they have more children.

The benefit in all of this is that rather than relying on agents or other employees to manually sort through large lists of names trying to determine who should receive promotional materials on a constant basis, the knowledge management applications can perform these tasks automatically. In fact, the systems can also automate the process of combining names with specific letters or other promotional materials and printing the materials so that they can be transmitted to potential customers. It is simply a matter of having the systems in place and allowing employees to easily communicate with each other and share data so that the entire organization benefits from the information and knowledge that are present.

CONCLUSIONS

The purpose of this paper has been to examine the use of information technology and information systems to support knowledge management within the insurance industry. The discussion that has been provided has shown that the insurance industry has embraced a wide range of information technology and information systems to allow for the data that are available to be turned into actual knowledge that can be used for decision-making. Rather than relying on situations in which underwriters and local agents must make decisions without the full range of knowledge that might exist within a company, as well as in other sources, these systems and technologies allow insurance personnel to truly take advantage of what is available to make decisions that are in the best interest of their companies.

By embracing information technology and information systems, the overall result for the insurance industry has been that companies have been able to better manage their risk and even reduce their risk in relation to the policies that their write. While writing insurance is always about risk, the industry has discovered that there are ways to manage the risk that is inherent in the industry. Companies have also discovered that the investment in information technology and information system can also lead to higher revenues and higher profits.

References

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