Implementation Of IT Applications In Insurance Sector Commerce Essay

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Todays conditions for doing business are changing rapidly. There are some aspects that are of great importance for the new situation that companies are facing.First of all the lifestyle of people are changing and consequently the patterns of consumption. Nowadays more women are working, the number of elderly people is increasing and often nuclear families are broken up, which implies more single homes. The changes in society has also led to that the needs of the customers are increasingly sophisticated. This is confirmed by Stone (2000) who states that customers desire to be served in a personal manner with direct communication.

Each customer would often like unique solutions where their individual needs are taken into account. Another change is due to the rapid development of technology. New technologies for distributing and collecting information have affected both companies and customers. Customers are continuously informed through different communication Medias.

Sometimes they are drowning in too much information from different companies but in the whole the customer knowledge is increased substantially. As the knowledge increases the customers discover new options, thus the customer fidelity is decreased. With new communication medias companies can change their way of marketing as well as the possibility of gathering customer data is improved.

Finally, the competition on the market is increasing domestically as well as globally. In order to reach success, companies must find new long-term competitive advantages The solutions must be tailored after the customers' specific needs and wants, with the purpose to increase the customers' experienced value of the product or service. All these changes imply that there is an increasing need for new ways of thinking within the area.This diverse and uncertain environment has forced companies to restructure themselves in order to increase their chances to survive and grow.

Developments in computer technology that have given insurance providers the ability to quickly access and process information have allowed them to custom-design policies to fit the needs of individual customers. But the increasing complexity of policies has also made some aspects of buying and selling insurance more difficult.

Though the Internet offers tremendous access to information about prices, it has done little to simplify the process of comparing the offerings of different insurance policies and services. Therefore, consumers have increasingly come to view insurance as a commodity, differing only in price from provider to provider. This attitude may lead people to buy insurance that does not give them the kind of coverage they need.


The fact that our world is rapidly changing and the competition for each customer is intense is one thing that is for certain. Competing with only minor advantages that are easily copied by the competitors is frustrating companies. Having a good relationship with the customers is an opportunity to rise above minor advantages by developing actual relationships with the customers. According to Bose companies that are most successful at delivering what each customer wants are the most likely to be the leaders of tomorrow

It is apparent that there is a need for IT to support the realization of the companies' success. Marketers and managers must be aware of that making inappropriate decision about the technological dimension may affect their ability to compete in the market. Achieving customer satisfaction is the primary goal for most service firms today. Increasing customer satisfaction and customer retention leads to improved profits, positive word-of-mouth, and lower marketing expenditures .Typically, service firms monitor customer satisfaction on an ongoing basis. For service managers the importance of determining the relationship between the drivers of customer satisfaction and the linkages, if any, between these drivers, customer satisfaction and future intentions is again related to improving the effectiveness of decision making.

When managers understand how customers evaluate their services and theconsequences of these evaluations on satisfactions and future intentions, they can better allocate resources to increase loyalty to the firm.

Based on the discussion above, the research problem will be:

"The effect of IT applications in cost reduction and customer satisfaction in Insurance sector all over the world"



2.1.1 Reasons for Insurance

In life, losses are sometimes unavoidable. People may become ill and lose income or savings to pay off medical bills. Individuals or their relatives may die of illness or accidents. People's homes or other property may suffer damage or theft. People also may accidentally cause injury to others or damage to the property of others. No one knows in advance when a loss will occur or how serious that loss will be. The uncertainty surrounding potential losses is known as risk. Insurance offers a way for people to replace risk with known costs-the costs of buying and maintaining insurance policies.

Insurance pools (combines) risks shared by many people, thereby reducing the risks faced by a group. People pay to buy insurance coverage (protection from risk). In exchange, all policyholders (people who own insurance policies) receive a promise that the group of policyholders-as represented by the insurance organization-will pay when any policyholder experiences a covered loss.

The reduction in risk brought by insurance relies on a mathematical concept called the law of large numbers. That law states that the ability to predict losses improves with larger groups. Using calculations based on statistics, experts known as actuaries can accurately predict the losses of a large population, even without knowing when or how any one individual will experience loss. (Nielson, Norma L., 2001).

Insurers distinguish between two types of risk: speculative risk and pure risk.

Speculative risk offers both the potential for gain and the potential for loss. People who invest in the stock of companies, for example, take speculative risk. An increase in stock prices produces a gain, while a decline in stock prices produces a loss. Pure risk, by contrast, creates the potential only for loss. Although pure risks do not necessarily result in losses, they never result in gains.

Historically, insurance dealt only with pure risks, and most people still buy

insurance to cover pure risks.

Insurance Business Today

With largest number of life insurance policies in force in the world, Insurance happens to be a mega opportunity in India. It's a business growing at the rate of 15-20 per cent annually and presently is of the order of Rs 450 billion. Together with banking services, it adds about 7 per cent to the country's GDP. Gross premium collection is nearly 2 per cent of GDP and funds available with LIC for investments are 8 per cent of GDP.

Yet, nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards. And this part of the population is also subject to weak social security and pension systems with hardly any old age income security. This itself is an indicator that growth potential for the insurance sector is immense.

A well-developed and evolved insurance sector is needed for economic development as it provides long term funds for infrastructure development and at the same time strengthens the risk taking ability. It is estimated that over the next ten years India would require investments of the order of one trillion US dollar. The Insurance sector, to some extent, can enable investments in infrastructure development to sustain economic growth of the country.

Insurance is a federal subject in India. There are two legislations that govern the sector- The Insurance Act- 1938 and the IRDA Act- 1999. The insurance sector in India has come a full circle from being an open competitive market to nationalisation and back to a liberalised market again. Tracing the developments in the Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries.

Insurance Policies and Coverage

An insurance policy covers the insured party (known also as the insured or the policyholder) for a specified period of time, called a term. When choosing an insurance policy, a person must decide what type of coverage to buy. This means deciding at what dollar amount of loss the coverage will begin (known as the deductible) and at what amount coverage ends (known as the policy limit). Both influence the cost of a policy, which is expressed as the price of a regular, repeated payment (known as the premium).

Different types of insurance policies provide different amounts of coverage. They also provide coverage in different ways. Some policies, such as life insurance, determine an amount of coverage in advance. An insurance company pays the full amount of such a policy, called its face value, whenever a covered loss occurs. Most other types of insurance policies determine how much to pay according to what kinds of losses policyholders experience. Such policies specify a maximum amount they will pay. For example, a policy covering a home against fire for $100,000 would pay for damages up to $100,000, but no more.

Policy Term

Policy terms commonly range from six months to many years. At the end of that term, the seller and buyer may agree to renew the contract if they wish. Only permanent life insurance does not specify a finite term. These policies, also called ordinary life insurance or whole life insurance, commit the insurance company to provide coverage for the lifetime of the person insured


Insurance policies generally include an initial amount of expense that an insured person must pay when a loss occurs. This expense is known as the policy's deductible. The deductible is the amount of loss a policyholder agrees to pay without protection from an insurance company.


An insurance company sets a policy's premium by multiplying a rate for each unit of insurance coverage by the total amount of coverage being purchased. Assume, for example, that term life insurance for 35-year-old men has a rate of $1.10 for $1000 of coverage for one year. Based on this rate, a 35-year-old father who wants $500,000 of coverage to protect his family in the case of his death will pay a premium of $1.10

times 500, or $550 for one year of coverage. Most people pay insurance premiums

once or twice a year. Other people choose to make automatic monthly payments to

their insurance company from a bank account.

Claims, Benefits and Dividends

Insured individuals who have suffered losses and want to receive payments must notify their insurance company through a process called a claim. Insurance contracts always contain a condition that the insured must provide a proof of loss in order to be paid.

Buying Insurance

People face many choices when buying insurance policies. They commonly choose an insurance provider based on several criteria. Some of the most important of these include: (1) the financial stability of the insurance company, (2) the price of policies, and (3) details of coverage and service. Only a financially sound company can fulfill its promise to pay in all circumstances. Companies with proven records of stability can provide insurance security. Choice of a provider based solely on price, on the other hand, may result in poor service and coverage, even if the provider advertises comprehensive coverage and high quality service.

Policy prices vary significantly among companies, but competition usually forces most companies' prices into a narrow range. The greater cost of some policies may pay off in the long run through better protection. Thus, a detailed examination of coverage in policies provided by different, well-regarded companies can help consumers make the best choice based on the risks they face, their needs, and their finances.

People seeking to buy insurance often use the services of an insurance agent or broker to assist in their purchase. Precisely what services these intermediaries provide, and what they can charge, vary somewhat from country to country. But insurance agents and brokers typically help people choose among the hundreds of policies available and among the hundreds of companies that provide insurance

Types of Insurance

Most insurance falls into four main categories, according to what it covers: (1)property and casualty, (2) life, (3) health and disability, and (4) old-age and unemployment. Insurers commonly refer to insurance purchased by individuals as personal lines coverage and to insurance purchased by businesses as commercial coverage.

Comparative study

2.3.1 Introduction

In sector comparison, insurance and pension funding is among the top ICT and e-business-using sectors.Enterprises representing 74% of the insurance employees state that e-business is of significant or some importance for them. This is the largest share of all sectors. This finding is partly due to the fact that employment in the insurance sector is concentrated in large enterprises with high ICT investment power. One also has to bear in mind that although the quantitative figures are high, the quality of the applications does not necessarily need to be high as well. Computers (97%), Internet access (99%), e-mail use (93%), and World-Wide Web (WWW) use (94%) are prevalent in almost all insurance companies; Local Area Networks (LAN) (87%),

intranets (79%) and Wide Area Networks (WAN) (64%) are frequently used. Extranets (41%) are found in a large minority of companies. Within the next twelve months, enterprises report that the technologies most intended to be introduced are extranets (15%) and intranets (9%). The focus on extranets may show that many insurers expand their links to external brokers and field personnel.

In e-commercepractice, the insurance sector is above average in sector comparison. 93% of the

enterprises have a website and 2% plan to introduce one within one year. Almost all of those that have a website present their products and services on the site (95%). Selling online is quite widespread with 46% of enterprises doing so already. Online procurement is similarly common: 46% of insurance enterprises pursue this practice.

Specific e-business solutions are used only by a minority of insurance and pension funding enterprises. 39% make use of Application Service Providers (ASPs) which is the single highest share in sector comparison, and 31% of a Customer Relationship Management (CRM) solution, which is the fourth largest value of all sectors. CRM is the application most often planned to be introduced, by 12% of the enterprises. Knowledge management solutions (12%), Enterprise Resource Planning (ERP) (12%) and Supply Chain Management (SCM) (5%) are not so common. The relatively low level of ERP in sector comparison may be due to the fact that the utility

of such systems is larger in manufacturing sectors.

Below 4 large Insurance companies in the world are introduced:

Allianz (Germany)

In January 1890, Carl Thieme and Wilhelm Finck founded the primary insurer Allianz, with personal accident, fire and transport insurance as its core lines of business. Today Allianz is the largest insurance company in Germany, the market leader in Europe and one of the leading insurers in the world.

Allianz has a leading position in all of the main business areas. Allianz has, for example, a market share of 18 percent in Germany for property and casualty insurance. In the international industry insurance business, its clientele includes nearly half of all Fortune 500 companies. Allianz is also the largest foreign insurance company in the emerging markets of Central and Eastern Europe. In the life and health insurance business, Allianz is the market leader in many Western European

countries. Furthermore, Allianz has strengthened its position considerably in Asia and the United States in recent years. The core purpose of its business is the financial security of their customers. In the property and casualty insurance sector, Allianz has developed a comprehensive range of products. It spans from car, casualty, personal liability, household and travel insurance for private customers to insurance packages optimized for business customers. In the area of provision, Allianz has consolidated its life and health insurance activities. As health plans and company pensions grow in importance to all its customer groups, Allianz has responded by expanding its services in these areas.

AXA (France)

AXA originated from several French regional mutual insurance companies, known collectively as "les Mutuelles Unies".

In 1982, les Mutuelles Unies took control of Groupe Drouot and following this transaction the new Group began operating under the name of AXA.

In 1986, AXA acquired Groupe Présence.

In 1988, AXA transferred its insurance businesses to Compagnie du Midi and operated under the name of AXA Midi, which subsequently reverted back to the AXA name. Two years later, the French insurance operations were reorganized to operate by

distribution channel.

In 1992, AXA took control of Equitable Companies Incorporated following the demutualization of Equitable Life.

In 1995, AXA acquired a majority ownership interest in National Mutual Holdings

following its demutualization. National Mutual Holdings changed its name to AXA Asia Pacific Holdings Ltd.

In 1997, AXA merged with Compagnie UAP. This transaction enabled AXA to significantly increase its size and reinforce its strategic positions, especially in Europe.

In 1998, AXA purchased the minority interests of AXA Royale Belge and, in 1999,acquired Guardian Royal Exchange in Great Britain through its subsidiary Sun Life & Provincial Holdings ("SLPH"). The Guardian Royal Exchange acquisition allowed AXA to further establish its positions in both the United Kingdom and Germany.

In 1999, Equitable Companies Incorporated changed its name to AXA Financial, Inc.("AXA Financial").

In 2000, AXA acquired a majority ownership interest in "Nippon DantaïLife Insurance Company", resulting in a new company called "AXA Nichidan" (which became in 2001 "AXA Life Insurance Co."). In addition, in July 2000, AXA increased its interest in SLPH from 56.3% to 100%. In August 2000, AXA sold its interest in Donaldson Lufkin & Jenrette to Credit Suisse Group, which was completed in November 2000. In October 2000, Alliance Capital, a subsidiary of AXA Financial, acquired the U.S. asset management company Sanford C.Bernstein. In December 2000, AXA acquired the remaining minority interests in AXA Financial, which is

now a 100% owned subsidiary of AXA.

In 2001 and 2002, AXA acquired two financial advisory networks in Australia, Sterling Grace and Ipac Securities, as well as a banking platform in France, Banque Directe. AXA also continued to streamline its portfolio of businesses, selling its health business in Australia and insurance operations in Austria and Hungary, and reorganizing its reinsurance business. In 2002, the Group sold its bank reinsurance Business in Chile.

In 2003, AXA sold all its activities in Argentina and Brazil. In September 2003, the Group announced the acquisition of the American group Mony. This operation was subjected to the approval of the shareholders of Mony and to the obtaining of various lawful authorizations.

In 2004, AXA purchased the American group Mony; this operation allowed AXA to reinforce for a total amount of approximately 25% the capacity of distribution of AXA Life activities in the United States. In addition, AXA sold its insurance activities in Uruguay (AXA Seguros Uruguay) thus finalizing its disengagement from South America; it also disposed of its broking activities (Unirobe) and its activity of health insurance in the Netherlands, and finally its activity of loan on real property in Germany (AXA Bausparkasse AG). Implementing sound corporate governance principles has been a priority at AXA for many years. Because its stock is publicly traded on the New York Stock Exchange, AXA is subject to the Sarbanes-Oxley Act, which was adopted in the

United States in 2002. Accordingly, AXA has made various adjustments necessary to bring the Company into compliance with the Act. AXA has also reviewed its rules of corporate governance in light of the recommendations contained in the Bouton Report and the relevant sections of the French Financial Security Act (Loi de Sécurité Financière) of August 1, 2003.

"AXA has chosen a demanding business. If we do it right, then we enable our clients to be life confident because they feel reassured, protected and supported as they undertake important projects at various stages in their lives. Our vision of the business is what guides our daily work. It reflects the social and human aspects of Financial Protection, whose value to people has never been greater." (Henri de Castries - Chairman of the AXA Management Board).

In 2004, the AXA Group had 112,118 employees, of which 89,927 salaried staff (52% women and 48% men) with an average of 40 and an average length of service of 12.5 years, plus 22,191 exclusive sales associates.

Alico (U.S)

American Life Insurance Company (ALICO), originally named Asia Life Insurance Company, was formed in 1921 and originally based in Shanghai, China, by Mr. C. V. Starr, the founder of what would later become American International Group, Inc. (AIG). Within ten years, Starr had opened offices across China, Hong Kong and elsewhere throughout Southeast Asia. At the outbreak of World War II, insurance operations in the region were brought to a halt, but even as hostilities wound down, the company turned its sights towards Europe, the Middle East, Africa,

the Americas, and the Caribbean, offering life and accident and health insurance to the local nationals. In 1951, Asia Life changed its name to American Life Insurance Company (ALICO).

Today, ALICO conducts business in over 50 countries and territories around the world, operating exclusively outside the United States. In recent years, ALICO has expanded its presence in Central Europe, by reestablishing new life insurance operations in Romania and Bulgaria. This augments ALICO's presence in the region which includes life insurance operations previously established in Poland, Hungary, and the Czech and Slovak Republics. ALICO has also been active in Latin America, where the company established operations in Argentina, Brazil, Peru and Uruguay during the 1990s. The Middle East Region has been another area of growth for the

company, with new operations established in Pakistan and Egypt in recent years. International diversification is a principal source of ALICO's financial and business strength. It is the foundation of a strategy designed to develop a highly diversified revenue and earnings base. In many of the countries where ALICO operates, it leads the market. ALICO has cultivated the ability to respond quickly to changing customer needs and marketplace conditions. ALICO is primarily staffed with local personnel who pursue a strategy of customizing products and distribution channels to the specific requirements of their country. This long-standing approach is

the foundation of their leadership, allowing ALICO to understand local market needs and conditions. Local awareness typifies ALICO's 80-year history and continues to this day.

ALICO's fundamental business philosophy of decentralization depends upon staffing its operations with individuals who embrace its entrepreneurial spirit, who are comfortable with decision-making and accept personal accountability. ALICO's worldwide success is based upon its proven ability to recruit, hire, train, and support those individuals who share these characteristics.

Meji Yasuda Life Insurance Co. (Japan)

Meiji Yasuda Life Insurance Company (Meiji Yasuda Life) was inaugurated on January 1, 2004, in an historic merger between two of Japan's major life insurers, Meiji Life Insurance Company and The Yasuda Mutual Life Insurance Company. These two companies, both established in the 1880s and having over 120 years of history and tradition to uphold, integrated their "pioneering spirits" to form a rejuvenated and innovative life insurance company. Today, Meiji Yasuda Life's

49,412 employees including sales personnel serve its customers through a worldwide network that encompasses its headquarters in Tokyo, 100 regional offices, 25 group marketing offices and 1,588 agency offices in Japan. Overseas offices include subsidiaries and affiliates in 8 cities around the world. At the end of fiscal 2003, Meiji Yasuda Life had ¥288 trillion (US $2,731 billion) worth of life insurance in force and total assets of ¥2 5,329 billion (US$239 billion).




In the first chapter the research problem was defined as follows:

"The effect of IT applications in cost reduction and customer satisfaction in Insurance sector all over the world"

To be able to find out these impacts there are two Hypotheses considered:

Hypothesis 1) IT application in Insurance Company will increase customer satisfaction.

Hypothesis 2) IT application in Insurance Company will decrease company's costs.


Type of Research:-

This research is an Exploratory Research which clarifies and defines the nature of the problem, where the purpose is to provide insights and understanding.

This research is partly Descriptive which describes Insurance and Information Technology. In order to perform descriptive research the researcher must have prior knowledge about the problem situation and the information needed to clearly defined .

Research Approach:-

This research has been done on deductive approach that implies conclusion derived from a known precise or something known to be true.

When collecting information, either qualitative data or quantitative data can be collected. Qualitative and Quantitative data will be gathered for this research.


Here the sample design process, the target population will be identified, as well as the sampling frame, sampling technique, and the size of the sample.

Identifying the population

Initially, the target population has to be identified. The target population is the specific group relevant to the research project, the group that possess the information relevant to the research.

The target population for this study is insured (customers who buys insurance) and IT managers of the insurance companies.

Sampling Technique

In this study, the non-probability sampling technique has been used. The IT Managers at Insurance Companies will be asked to provide necessary information regarding IT application in the company.

Thus, the selection of study objects is based on the judgment of experienced individuals, which is in accordance with the sampling technique called judgment sampling. More over the probability sampling was used to answering questionnaires by the insured.Questionnaires were distributed among insured referring to the company to buy different insurance products in different underwriting sections and some questionnaires were distributed among insured who were supposed to receive loss from the different claims sections in the company.

Determining the sample size

It's difficult to determine the size of the sample, and in order to make the right decision different factors must be considered. The nature of the research is such a factor. For exploratory research, using a qualitative approach, the sample design is usually small. Limitations of money and time also influence the selection of sample size.

For this study 100-120 insurance customers in two sections (Underwriting and Claims) will be randomly selected.

And IT managers of the companies will also be interviewed.

3.4 Data Collection

Classification of Data & Data Collection Method:-

In this study both primary and secondary data has been used. The secondary data about Insurance and Information technology was collected from external sources, such as websites. Further more, knowledge was also obtained from internal sources in form of oral information from the IT managers at various Insurance Companies. In order to get basic knowledge about the study objects, external data was collected from the internet.

The primary data was collected through interviews with people having good knowledge about the study objects as well as people being familiar with insurance and information technology.

The information sources used in this study will be documentation and interviews. Documentation will primly be used to gather secondary data, while the interviews will be used to gather primary data. The interviews conducted can be considered to be of opened-ended nature. Since the

interviews will be performed in a conversational manner and the respondent could answer in his own words.

Several interview approaches which will be used are

•Personal interviews

•Telephone interviews


The procedure of data gathering by the Questionnaires

In order to have the opinion of the customers of Insurance Companies regarding their satisfaction within the insurer by IT application two kinds of questionnaires has been prepared containing 8 questions each. The questions included in the Questionnaires are developed keeping the

research problem and research questions in mind.

The first part of the questionnaires related to the Underwriting part and was distributed among Insured who buy the policies from the Insurance Companies.

The second part of the questionnaires related to the Claimed part and was distributed among Insured who were claiming their claims.

There is also a series of questions for the IT managers of the insurance company.

Questionnaires and the interview questions are given below:-

Part 1: Underwriting Section

Question 1: Name of your Insurance Company


Question 2: Number of years connected with this Insurance Company

less than 3 years b)More than 3 years

Q3- What is the main reason for you to buy insurance from this Company?

a) Less premium

b) Personnel good behavior

c) Quick response

d) System automation e)All of the above

Q4: Do you think Mechanization of the system will be beneficial for you?

Yes b) to some extend c)no

Q5- If your answer is "Yes" or "To some extend" how much do you think the

Mechanization of the system will increase your satisfaction?

e) Very much (100%) b) Much (75%) c) To some extend (30%)

d)Not more than 10%

Q6: What would be the main part of you satisfaction from the system?

a) Quick service due to automated system

b) Better service due to automated system

c) Both of the above

d) Personnel good behaviour

Q7- Do you think your physical attendance in the company will decrease due to better

and exact information transfer that is based on the mechanization of the system?

Yes b) To some extend c) no

Q8: Do you think that "online" service will have a positive effect on your satisfaction

from the company?

a) Yes b) To some extend c) no

Q9: Do you agree?

"By Mechanizing the Underwriting system you will be more satisfied and will refer to

the same Insurance Company to buy insurance again"

Yes b) No

Part 2: Claims section

Question 1: Name of your Insurance Company


Question 2: Number of years connected with this Insurance Company

less than 3 years b)More than 3 years

Q3- Are You quite satisfied with claims payment system of the Company?

a) Yes b) To some extend c) No

Q4- If your answer to the previous question is "No" what is the Main reason?

a) Personnel behavior

b) Late loss payment due to system failure

c) Lack of automated system

if any other please mention ____________________________________________

Q5- How much do you think the Mechanization of the system will effect on your


a) Very much (100%) b) Much (75%) c) To some extend (30%)

d) Not more than 10%

Q6- What would be the main part of you satisfaction from the system?

a) Quick service due to automated system

b) Better service due to automated system

c) Both of the above

d) Personnel good behavior

e) if any other please mention ____________________________________________

Q7- Do you think your physical attendance in the company will decrease due to better

and exact information transfer that is based on the mechanization of the system?

a) Yes b) To some extend c)No

Q8- Do you think that "online" service will have a positive effect on your satisfaction

from the company?

a) Yes b) To some extend c)No

Q9- Do you agree?

"By Mechanizing the Underwriting system you will be more satisfied and will refer to

the same Insurance Company to buy insurance again in future"

Yes b) No