The Role of Information Technology (IT) in Iran's Insurance Industry

Transcription

1 The Role of Information Technology (IT) in Iran's Insurance Industry Afshin Honarbari, & Abdollah Alidoost M A Student of Business Management, Science and Research Branch, Islamic Azad University, Rasht, Iran Abstract Information technology has played a significant and central role in global evolutions during recent years and this has accelerated performing different tasks. Expansion of the Internet changes business conditions and methods rapidly and frequently. Like other industries, insurance industry also has to be consistent with recent business relating global transformations. Those insurance companies which changed their business approach and strategies and benefit form information technology can grow significantly. The present paper aims to investigate electronic business in insurance industry and the effect of IT on sales of insurance companies besides presenting applications of IT in insurance and its development challenges. Keywords: information technology, insurance industry, business, E-insurance Introduction Growth and increasing development of information technology has transformed different aspects of human life and organizational performance. The technology alters performance and approaches of individuals, organizations and governments and leads to development of modern industries and new jobs. The rapid acceleration of environmental evolution is a main characteristic of the third millennia or "information era". This rapid movement will undoubtedly affect today's business world and transforms traditional business paradigms. It also obliges modern organizations to make essential changes in their structure and guidelines. In facet, modern organizations are moving toward being "network-oriented" or behave in the form of "small core big network". Information technology can be considered as one of the keys to success of insurance companies. Electronic business Electronic business means running a business using remote communications and its related tools. It is defined as "a new business method in which essential and vital business processes are performed with making extensive use of computer, communicative technologies, and computer data and network" (7). Advantages and disadvantages of E-business Advantages 1. Getting closer to communications, rapid data processing and fast data transfer 2. An increase in sales and profit rate, reduction in sales costs and investment costs to develop and expand agencies' network 3. Possibility of full-time working, remote cooperation, improvement in consumer relationship management, suppliers and employees. 4. Developing and increasing sales opportunities 61

2 5. Providing new facilities and equipments for customers and possibility of comparing products and prices in the shortest time period 6. Business development and expansion by removing geographical constraints and reduction of environmental pollution, traffic jam and population crowd 7. Achieving more consistency between products and services and customers' needs through innovation and diversity 8. Expansion of customer relationships and delivering high speed services such as simplicity in compensations 9. Simplicity of cooperation and knowledge transfer among beneficiaries, stakeholders, agencies and brokers (9). Disadvantages 1. High costs of required technologies and lack of standards in some communicative protocols. 2. Insufficiency of communicative bandwidth and software problems and deficiencies 3. Lack of integrity of digital and non-digital sales with production information 4. Troubles in integrating E-business infrastructures with current IT systems of the organization 5. Safety issues and customers' fear of presenting personal and secret data such as entering their user name and password 6. Obstacles relating to organizational culture and behavior and its current structure 7. Lack of sufficient supportive services such as banks, telecommunications, ISP, etc 8. Lack of employees skilled in applying E-business 9. Rapid changes in the market and its requirements (4). Information technology and insurance industry Insurance industry has experienced various transformations in recent sequential years the most important of which was deregulation in financial services section along with fundamental advances in information and communication technologies and these all led to an increase in competition in this market. In general, the followings are two main changes occurred: - Emergence of new capital markets, especially in reinsurance section - Significant growth of computer networks (such as the Internet) in marketing and sales of insurance products. Information technology plays the supportive role in insurance industry. The industry is currently facing following challenges in IT-based development: 1- Lack of information architecture and standardization of insurance data in order to provide for aggregating common information and make an intensive and systematic supervision (on different tasks) possible. 2- Absence of a center for intensive data in central insurance and insurance companies in order to gain statistical and information needs 3- Lack of mechanization in financial, administrative and insurance operations 62

3 4- Inefficiency of processes concerning customer-orientation to improve operations and services in insurance companies 5- Lack of expert human forces in the field of IT, problem in attracting such experts and effects of It on insurance industry (2) Applying IT in insurance industry in order to have rapid access to information is necessary for decision-making and planning. This necessity comes from factors such as cost reduction, increasing insurance culture level, increasing competitiveness, information, having up-todate data, recording insurance history, determining and calculating the premium based on realities not on classical or imported models and improving insurance services. Electronic insurance (E-insurance) What is E-insurance? In a general meaning, it is the application of Internet and IT in production and distribution of insurance services, but is a specific definition, it can be considered as providing an insurance cover through a policy which is demanded, proposed, negotiated and contracted online (5). Information Technology and virtual insurance IT is used as a distribution channel not only in insurance industry but in many others all around the world. Advantages of IT led a huge amount of policyholder investments toward this field. From policyholders' viewpoint, the traditional sales system must be replaced by IT to be used as a distribution channel along with other available ones (1). Efficiency of E-insurance 1. E-insurance reduces administrative and management costs through business automation and improves management information. 2. Reduces paid commissions to dealers and brokers through selling the policy directly to the customer (of course, a part the commission is paid on marketing). Cost reduction in a competitive market declines the premium(3). Advantages of insurance electronic sales 1) Nowadays it is difficult for insurance companies to compete on prices because of similarity among insurance products. Since insurances are distinguished through services they provide, electronic sales plays an important role in reducing costs and prices. Moreover, executive affairs and loss equity decline 9 12 percents based on insurance type (according to estimations). 2) A reduction in costs in a competitive market results in a decrease in price and an increase in insurance penetration. 3) E-insurance decreases obstacles of entering the market and increases competition. The internet allows insurance companies to avoid costly and long process of initiating the traditional sales network. 4) Insurance activity is important for E-commerce as a result of information-intensive nature of the task. 5) The Internet allows for rapid and massive distribution of information 63

4 6) The Internet can be used as a marketing tool or loss equity for those insurances having higher complexity and transactional value such as pension, medical insurance and many business insurances needing consultancy. Disadvantages of insurance electronic sales 1) The electronic sales lacks enough pressure to attract potential customers since insurance must be sold not purchased. 2) It is not appropriate to apply E-insurance for those complicated insurance types having high transactional value (10). 3) Application of electronic sales requires expansion of insurance culture and its publicity. 4) Deficiency in proper electronic and telecommunication infrastructures for premium and compensations in developing countries blocks development of electronic sales. 5) Deficient data transfer may affect validity and efficiency of an insurance contract and generate serious problems. 6) Concern on unrevealing personal information is another obstacle of electronic sales expansion. 7) E-insurance accelerates transaction steps creates many fraud opportunities. 8) Since electronic signature is not legal, it is hard to sell insurance online. The effect of IT on insurance agencies By emergence of changes coming from E-business insurance agencies face big challenges, opportunities and threats. The structure of many agencies and role of intermediates will gradually change. Since the main function of these agencies is to provide customers with sufficient information and insurance, E-business made it simpler and has reduces many of their costs. Most ordinary insurance products are distributed online, including car and fire insurances. But those complicated insurances such as liability insurance which have complicated pricing processes are mostly distributed by conventional insurance companies. E-business has also resulted in a decline in using independent agency system compared to exclusive agencies and direct distribution system (growing since 1970). On the other hand, the role of agencies in guiding and advising customers, on how to optimize their purchased insurances and on other cases such as providing customers with expensive side services to custom, is improving. It can be anticipated that those agencies and brokers achieve success in the future who can adapt to these conditions and present novel methods to provide insurance services. Agents can play a dominant role in policyholders' web strategies (8). Most websites lead customers to agencies through navigations introducing the nearest agency to customers. If customers want to receive a price list or purchase insurance most websites lead them toward agencies. Only a small number of websites of insurance companies present online price lists and some of them have direst sales for customers. In fact, companies having direct sales websites are still emphasizing on the role of agencies through promoting a multi-channel strategy or on using the web as a complementary strategy of the current technology. 64

5 Indeed, as websites lead customers toward agencies to gain more information and purchase a policy agencies' role improve. It was once believed that the Internet omits agencies but leading more transactions toward them increases their role. Moreover, insurance websites become more efficient by relating agencies to conventional and computer systems of the company (6). Conclusion Onset of information and communication technologies in Iran made many organizations use various tools to equip themselves. Meanwhile, they received new rules and disciplinary principles. In these circumstances companies grew well and benefited from IT that changed their business approach and strategies. However, diversity of products or, in other words, services in insurance industry, wide range of customers and market's geographical expansion created certain conditions in which making correct use of IT can solve many problems. Main challenges faced by insurance industry for IT-based development can be summarized as follows: - Most of recent actions were not coordinated. These inconsistencies and challenges are direct results of management approaches dominant in the industry. Hence, insurance industry has not been successful in developing IT compared to other fields, despite its economic dynamicity. - Software development respecting local characteristics and ability to provide integrated services - Developing hardware infrastructure in sales agencies and central offices to generate a common framework - Expanding communication infrastructures based on geographical expansion and sales network in the industry - Public education and human resource in IT development lead insurance companies from product-orientation toward customer-orientation - As policyholders have less searching costs, more clarity is observed in pricing, quality and insurance services. This reinforces the discipline of competitive market. - Another important aspect of IT in insurance industry is an increase in its clarity, - especially for policyholders. Not only the policyholder is able to compare different - fees and make the best choice but also can compare insurance companies based on their financial capacities. One of the traditional justifications of legislating for policies and their fees was that policyholders always face problems in making proper insurance use, comparing different fees and quality of various insurance companies. Making use of insurance in conventional manner may cause policyholders purchase insurance solely based on rate differences and do not notice that (1) policies of different companies may not be compared directly and (2) those companies offering cheap fees have lower-quality services and are prone to bankruptcy while online insurance provides customers with the opportunity to compare and choose costs and qualities with better understanding and more information. 65

6 References Emrahimi, A.( 2004). "Information technology, E-commerce and E-insurance". Danesh Publisher.Tehran. Kazemnejad, M., Hasanzadeh, A. "The role of information technology in insurance business". Samt publisher.tehran. Haghighi, M.& Seihoon, A.( 2008). "Presenting an electronic maturity model for service providing processes".tadbir, Isfahan. Abedi, K., Eyvaz zadeh, Sh. (2008). "Anticipating Iran's insurance evolution".resalat Publisher, Shiraz. Alikhani, A., Bahrami, A.( 2007). "Examining and identifying obstacles of implementing E- insurance in ". Samt, Tehran. Kazemi, M., Fayyazi, M. (2008). "Investigating obstacles of making optimal use of IT in insurance industry". Kameli, A.(2004). "Insurance marketing and sales in E-commerce". Takhassos-e-Asia quarterly. Karimi, A.(2004). "The role of It in insurance industry". Takhassos-e-Asia quarterly. ISSUE 30. Ramadani, A. "What is E-insurance?"Islamic Azad university Publisher, Yazd. Habibi, A. Aftab, "What is E-insurance?", Danesh Publisher.Tehran. 66