Health Insurance Basics
Health insurance provides necessary coverage that helps us stay vital and active. It protects us medically and financially in case of a catastrophic illness or injury by collecting a premium—which is then used to pay for health treatment when we need it.
Depending on the plan, it may also cover certain types of routine health care, such as doctor's visits and lab tests.
Finding the Right Insurance Plan
To find the right insurance plan, we must first understand the basics.
Health insurance comes in two forms, managed care plans and indemnity plans. What's the difference? Managed care plans, such as HMOs, are what people think of when considering health insurance. This type of health coverage provides care at a discounted price through contracted hospitals, doctors and providers. Participants must use only their plan's health providers.
Indemnity plans, also known as "fee-for-service" plans, allow policyholders to choose their own health care providers. The patient or provider is then reimbursed following treatment. Though a bit more expensive, many consider the flexibility and freedom insurance indemnity plans offer well worth the price.
How to Save Money on Health Insurance
To lower insurance premiums, take these simple steps:
* Get physically healthy. Insurers calculate premiums based on a variety of health indicators, including
body mass index (BMI). A good predictor of overall health, a lower BMI means lower premiums.
* Get financially healthy. Over the years, insurers have discovered a strong correlation between financial
health and physical health. Therefore, those with good credit typically pay less for insurance than those
with mediocre-to-poor credit.
* Elect for a higher deductible. The more a person is willing to pay out of pocket, the lower his or her
premium will be.
* Shop rates. Diligent shoppers who compare quotes from multiple insurers often save a considerable
amount of money. Services like InsureMe make comparison shopping easy.
* Choose a reputable insurer. It's vital to pick an insurance company with high consumer satisfaction
scores and high scores from independent rating companies like A.M. Best. These factors are a good
indication of financial stability and long-term viability.
Finally, don't buy an insurance policy without vital coverage that's there when needed. Instead, for protection over the long term, take steps to save money on health insurance now—then choose the right plan at the right price. It'll help you stay healthy, vital and strong!
Insurance Legacy
The Life Insurance Legacy
Life: it’s unpredictable and ever changing. And when things get tough in life and we find ourselves faced with difficult circumstances, the love of family and friends; the healing balm of time and the right life insurance plan can help us carry on.
Planning & Preparing Now
Facing a loved one’s death is never easy. But when dealing with the emotional turmoil that follows, families are often left with unanswered financial questions—magnifying their loss to an even greater extent.
So “what if” a parent or spouse passes away suddenly? Would family members have the insurance they need to pay off the mortgage, relocate to a new job, pay private schooling expenses or simply go on with life?
Answers to questions like these don’t come easily. But planning and preparing for the inevitable with life insurance is the best way to make sure family members can survive alone during a time of life transition. Besides, it’s the right thing to do.
Choosing the Right Life Insurance Policy
When it comes to choosing the right life insurance plan, some want just the basics: a way loved ones can pay final expenses, cover monthly bills and start life fresh. Others need policies that build cash reserves to help carry families forward during a difficult time—and the lifelong period that follows.
Regardless of financial goals, there are several plan types of insurance available that can help prepare loved ones to lead productive lives alone. For example, the simplest and cheapest form of life insurance, a term life policy provides coverage during a specified length of time—and pays the family the policy’s value if he or she dies during that term.
For lifetime insurance coverage that’s a bit more expensive but doesn’t risk rising premiums, whole life coverage may be the right thing. This type of plan builds cash value over time, providing financial security long term and offering protection for life.
Leaving an Inheritance of Love
No one likes settling loved ones’ affairs. But it’s easy to aid those who will be left behind by buying insurance ahead of time.
With the help of a knowledgeable insurance agent, making final arrangements; recording dreams and wishes, and setting aside resources to help loved ones carry on is simple. All it takes is a little time, family budgeting and communication.
With small, monthly payments; some basic insurance information and the guidance of a licensed expert, family members can have peace and security when it’s needed most—and a lifelong inheritance of love unlike any other.
Life: it’s unpredictable and ever changing. And when things get tough in life and we find ourselves faced with difficult circumstances, the love of family and friends; the healing balm of time and the right life insurance plan can help us carry on.
Planning & Preparing Now
Facing a loved one’s death is never easy. But when dealing with the emotional turmoil that follows, families are often left with unanswered financial questions—magnifying their loss to an even greater extent.
So “what if” a parent or spouse passes away suddenly? Would family members have the insurance they need to pay off the mortgage, relocate to a new job, pay private schooling expenses or simply go on with life?
Answers to questions like these don’t come easily. But planning and preparing for the inevitable with life insurance is the best way to make sure family members can survive alone during a time of life transition. Besides, it’s the right thing to do.
Choosing the Right Life Insurance Policy
When it comes to choosing the right life insurance plan, some want just the basics: a way loved ones can pay final expenses, cover monthly bills and start life fresh. Others need policies that build cash reserves to help carry families forward during a difficult time—and the lifelong period that follows.
Regardless of financial goals, there are several plan types of insurance available that can help prepare loved ones to lead productive lives alone. For example, the simplest and cheapest form of life insurance, a term life policy provides coverage during a specified length of time—and pays the family the policy’s value if he or she dies during that term.
For lifetime insurance coverage that’s a bit more expensive but doesn’t risk rising premiums, whole life coverage may be the right thing. This type of plan builds cash value over time, providing financial security long term and offering protection for life.
Leaving an Inheritance of Love
No one likes settling loved ones’ affairs. But it’s easy to aid those who will be left behind by buying insurance ahead of time.
With the help of a knowledgeable insurance agent, making final arrangements; recording dreams and wishes, and setting aside resources to help loved ones carry on is simple. All it takes is a little time, family budgeting and communication.
With small, monthly payments; some basic insurance information and the guidance of a licensed expert, family members can have peace and security when it’s needed most—and a lifelong inheritance of love unlike any other.
Home Insurance
Affordable Home Insurance
Home ownership: it’s an American dream. But buying a place of your own or settling the family in new digs requires financial commitment. That means saving for a down payment, getting the right loan and—perhaps most importantly—finding affordable home insurance.Whether buying a first home or a fifth, all homeowners need insurance to protect against the unexpected. That’s where we come in. With some basic how-tos, money-saving insurance strategies and affordable quotes, protecting your home affordably is as easy as 1-2-3!
Learning Insurance Basics
When buying a new home, lenders require insurance information up-front. To make things quick and easy, try contacting insurance providers online. Let them know what you’re looking for, examine several price quotes, and choose the insurance plan that fits your budget best.Once a policy is in place, supply the lender your insurer’s name and contact information, coverage levels and deductibles. They’ll add this information to the new home contract and escrow insurance as part of your monthly expenses. If insuring an existing home, don’t just stick with the same insurance company year after year. Though commendable, loyalty may keep you from getting the best deal. Think instead about current rates, make home improvements and discuss discounts with home insurance providers. Then settle on the broadest coverage for the least money.
Maximizing Home Insurance Savings
Use these money-saving tips to save 60 percent or more on the right protection at the right cost—no matter which insurer you choose.
*Set deductibles as high as possible. Doing so could slash as much as 25 percent from insurance
rates.
*Buy insurance for car and home from the same provider. This could garner an additional
savings of up to 15 percent on insurance rates.
*Install security or safety devices. This extra protection makes homes more secure and can
score another 20 percent in savings.
*Eliminate unnecessary coverage. Save a bundle by getting rid of extra, unneeded coverage on
items no longer owned or greatly depreciated.
*Make home improvements. Update electrical or plumbing systems, or add items like deadbolt
locks for a sizeable discount.
Home insurance rates can vary by thousands from one insurer to the next. So learn insurance basics, take steps to shave costs from your policy, and shop for low insurance quotes. Then insure that home affordably today—and rest safely and securely for years to come.
Home ownership: it’s an American dream. But buying a place of your own or settling the family in new digs requires financial commitment. That means saving for a down payment, getting the right loan and—perhaps most importantly—finding affordable home insurance.Whether buying a first home or a fifth, all homeowners need insurance to protect against the unexpected. That’s where we come in. With some basic how-tos, money-saving insurance strategies and affordable quotes, protecting your home affordably is as easy as 1-2-3!
Learning Insurance Basics
When buying a new home, lenders require insurance information up-front. To make things quick and easy, try contacting insurance providers online. Let them know what you’re looking for, examine several price quotes, and choose the insurance plan that fits your budget best.Once a policy is in place, supply the lender your insurer’s name and contact information, coverage levels and deductibles. They’ll add this information to the new home contract and escrow insurance as part of your monthly expenses. If insuring an existing home, don’t just stick with the same insurance company year after year. Though commendable, loyalty may keep you from getting the best deal. Think instead about current rates, make home improvements and discuss discounts with home insurance providers. Then settle on the broadest coverage for the least money.
Maximizing Home Insurance Savings
Use these money-saving tips to save 60 percent or more on the right protection at the right cost—no matter which insurer you choose.
*Set deductibles as high as possible. Doing so could slash as much as 25 percent from insurance
rates.
*Buy insurance for car and home from the same provider. This could garner an additional
savings of up to 15 percent on insurance rates.
*Install security or safety devices. This extra protection makes homes more secure and can
score another 20 percent in savings.
*Eliminate unnecessary coverage. Save a bundle by getting rid of extra, unneeded coverage on
items no longer owned or greatly depreciated.
*Make home improvements. Update electrical or plumbing systems, or add items like deadbolt
locks for a sizeable discount.
Home insurance rates can vary by thousands from one insurer to the next. So learn insurance basics, take steps to shave costs from your policy, and shop for low insurance quotes. Then insure that home affordably today—and rest safely and securely for years to come.
Car Insurance
Cheap Car Insurance Protection You Deserve
Whether you drive an expensive new sports car; a cheap, slightly-used sedan or a beat-up old jalopy-of-a-car, cheap car insurance is a necessity. In case of an accident or car theft, having the right kind of car insurance can mean the difference between financial ruin and prosperity. But what should it cost? With escalating gas prices, expensive car repairs and medical costs that aren't exactly cheap, shelling out hundreds of dollars a month on car insurance just isn’t an option.Relax! Spending a bundle of money to get cheap car insurance isn’t necessary. Cheap rates with the protection you need can be found by taking a few preliminary steps, recommended by InsureMe and the Insurance Information Institute (I.I.I.):
1)Compare several insurance providers and price quotes. You want not only a cheap price, but also great service. Check with independent rating companies like A.M. Best to compare ratings on customer satisfaction and reputation. That information, along with free insurance price quotes, should help in making an informed decision.
2)Buy homeowner’s insurance and car insurance from the same company. This scores a multi-policy discount, and helps achieve cheap car insurance at savings of up to 10 percent.
3)Opt for a high deductible. The amount of money that comes out-of-pocket before your insurance policy kicks in, a high insurance deductible can make car insurance costs substantially cheaper, garnering additional savings of 15 to 40 percent on car insurance policies.
4)Ask for discounts. Most insurance companies offer cheap car insurance to policyholders with good driving records. Insurance discounts may also be available if you’re over 50, have taken a driver training or defensive driving course, are a student driver with good grades, own a car with safety devices, keep your annual mileage low, or insure more than one car with the same insurer.
5)Keep credit scores high. Credit scores may affect cheap car insurance rates, so monitor them carefully. Get this information directly from the three major credit-rating agencies (Experian, Trans Union and Equifax).
The price paid for car insurance can vary by hundreds from one insurance company to the next. But with some research, wise shopping and the right connections, cheap car insurance can be found today, no matter which insurer is chosen.
So take five minutes and request free insurance quotes now. You’ll stay protected on the road—and get cheap rates too!
Whether you drive an expensive new sports car; a cheap, slightly-used sedan or a beat-up old jalopy-of-a-car, cheap car insurance is a necessity. In case of an accident or car theft, having the right kind of car insurance can mean the difference between financial ruin and prosperity. But what should it cost? With escalating gas prices, expensive car repairs and medical costs that aren't exactly cheap, shelling out hundreds of dollars a month on car insurance just isn’t an option.Relax! Spending a bundle of money to get cheap car insurance isn’t necessary. Cheap rates with the protection you need can be found by taking a few preliminary steps, recommended by InsureMe and the Insurance Information Institute (I.I.I.):
1)Compare several insurance providers and price quotes. You want not only a cheap price, but also great service. Check with independent rating companies like A.M. Best to compare ratings on customer satisfaction and reputation. That information, along with free insurance price quotes, should help in making an informed decision.
2)Buy homeowner’s insurance and car insurance from the same company. This scores a multi-policy discount, and helps achieve cheap car insurance at savings of up to 10 percent.
3)Opt for a high deductible. The amount of money that comes out-of-pocket before your insurance policy kicks in, a high insurance deductible can make car insurance costs substantially cheaper, garnering additional savings of 15 to 40 percent on car insurance policies.
4)Ask for discounts. Most insurance companies offer cheap car insurance to policyholders with good driving records. Insurance discounts may also be available if you’re over 50, have taken a driver training or defensive driving course, are a student driver with good grades, own a car with safety devices, keep your annual mileage low, or insure more than one car with the same insurer.
5)Keep credit scores high. Credit scores may affect cheap car insurance rates, so monitor them carefully. Get this information directly from the three major credit-rating agencies (Experian, Trans Union and Equifax).
The price paid for car insurance can vary by hundreds from one insurance company to the next. But with some research, wise shopping and the right connections, cheap car insurance can be found today, no matter which insurer is chosen.
So take five minutes and request free insurance quotes now. You’ll stay protected on the road—and get cheap rates too!
Protect your family with life insurance
Life insurance and Marriage
One of the best times in your life should be when you decide to get married. This is going to be the time in your life when everything falls into place and you will find that you are able to be very happy with the way that your life is at that moment. When you are looking at life insurance and marriage, there are some things to think about.
First of all life insurance is supposed to cover your spouse and your children if something happens to you. However, if you buy the policy before you are married, your spouse and children might not be listed as the beneficiaries of them money. Therefore, when you get married, you need to contact your insurance company and make sure that your spouse and children will be getting the money from the life insurance policy if something happens to you. This way you will know for sure that if something happens to you, your spouse and children will be protected and taken care of. This is usually something very important to remember because it is what allows you to have the peace of mind that life insurance policies should bring.
The other thing to think about is adding your spouse onto your policy if you already have one when you are married. Most of the life insurance policies will allow you to do this. This can be good because then whether something happens to you, or to your spouse, the money from the life insurance policy will be there for the one that is remaining and the children. Also, if something happens to both of you, you can know for sure that your children will be protected.
If you don't have a life insurance policy before you get married, then you and your spouse can take out one together. This is a good idea because it can be very important for both of you, especially when you have children. You need to be sure that you are able to do all you can to protect one another once you are married, and when you have kids you will need to be even more sure that you are able to protect those children. If you don't have a policy when you get married, there are lots of things to think about.
How much would you like to spend on the policy and how long do you want to spend paying for it?
How much should the policy cover?
You might want to think about getting the type of life insurance policy that you can take later and change to other investments if you would like to do so. This might be good for you because as a young couple it is often hard to tell where your needs will be several years from the time that you get married. The type of life insurance policy that can be either adjusted or that you can change into something else as you get older is always a good idea for this type of situation with your spouse.
Related Entries
Getting married: what happens to life insurance policies
Families and Life Insurance
Getting Divorced: what happens to life insurance policies
Changing your Life Insurance to Suit your Needs
Taking Business Insurance Into a Marriage
Recent Life Insurance Articles
The Benefits of Life Insurance
What is Term Life Insurance & How Does it Work?
Key Person Life Insurance
Whole Life Insurance & Your Family
Where Can you get Whole Life Insurance?
One of the best times in your life should be when you decide to get married. This is going to be the time in your life when everything falls into place and you will find that you are able to be very happy with the way that your life is at that moment. When you are looking at life insurance and marriage, there are some things to think about.
First of all life insurance is supposed to cover your spouse and your children if something happens to you. However, if you buy the policy before you are married, your spouse and children might not be listed as the beneficiaries of them money. Therefore, when you get married, you need to contact your insurance company and make sure that your spouse and children will be getting the money from the life insurance policy if something happens to you. This way you will know for sure that if something happens to you, your spouse and children will be protected and taken care of. This is usually something very important to remember because it is what allows you to have the peace of mind that life insurance policies should bring.
The other thing to think about is adding your spouse onto your policy if you already have one when you are married. Most of the life insurance policies will allow you to do this. This can be good because then whether something happens to you, or to your spouse, the money from the life insurance policy will be there for the one that is remaining and the children. Also, if something happens to both of you, you can know for sure that your children will be protected.
If you don't have a life insurance policy before you get married, then you and your spouse can take out one together. This is a good idea because it can be very important for both of you, especially when you have children. You need to be sure that you are able to do all you can to protect one another once you are married, and when you have kids you will need to be even more sure that you are able to protect those children. If you don't have a policy when you get married, there are lots of things to think about.
How much would you like to spend on the policy and how long do you want to spend paying for it?
How much should the policy cover?
You might want to think about getting the type of life insurance policy that you can take later and change to other investments if you would like to do so. This might be good for you because as a young couple it is often hard to tell where your needs will be several years from the time that you get married. The type of life insurance policy that can be either adjusted or that you can change into something else as you get older is always a good idea for this type of situation with your spouse.
Related Entries
Getting married: what happens to life insurance policies
Families and Life Insurance
Getting Divorced: what happens to life insurance policies
Changing your Life Insurance to Suit your Needs
Taking Business Insurance Into a Marriage
Recent Life Insurance Articles
The Benefits of Life Insurance
What is Term Life Insurance & How Does it Work?
Key Person Life Insurance
Whole Life Insurance & Your Family
Where Can you get Whole Life Insurance?
Insurance Business
Insurers Prepare for the Worst by Strengthening Business Continuity and Disaster RecoveryWhile insurance ranks among the industries best prepared to handle business interruptions, carriers need to constantly adapt disaster recovery plans and technology to changing conditions.
November 11, 2008
Related Sidebar: Mutual of Enumclaw Has Built Potential Mt. Rainier Eruption Into Its Disaster Response
By the time Hurricane Ike struck the U.S. mainland on Sept. 13, 2008, American National Insurance Co. was better prepared to avoid business interruptions than it had been earlier in the year. Just in time for hurricane season, the Galveston, Texas-based multiline insurer ($3.1 billion in annual revenue) had completed a move of some of its staff from the coastal island of Galveston to a new facility in San Antonio to limit exposure to hurricanes and strengthen the carrier's business continuity/disaster recovery (BC/DR) capabilities.
"We had been looking to move certain operations off the island, and we chose [the San Antonio] site in 2007," relates J.D. Johnson, American National's SVP and corporate CIO. In June 2008 the San Antonio facility became home for first-available representatives for the carrier's health, life and annuity call center operations, but it was also chosen to eventually replace an existing Dallas site that accommodates personnel in American National's investment and financial areas.
"We have about 80 employees in San Antonio, but the facility is built in such a way that we could balloon that up to 450," Johnson adds. "It was a lot of hard work to get it finished and operation
al by June."
"We had been looking to move certain operations off the island, and we chose [the San Antonio] site in 2007," relates J.D. Johnson, American National's SVP and corporate CIO. In June 2008 the San Antonio facility became home for first-available representatives for the carrier's health, life and annuity call center operations, but it was also chosen to eventually replace an existing Dallas site that accommodates personnel in American National's investment and financial areas.
"We have about 80 employees in San Antonio, but the facility is built in such a way that we could balloon that up to 450," Johnson adds. "It was a lot of hard work to get it finished and operation
al by June." The move followed a decision made in 2000 to relocate American National's data center 25 miles north to League City, Texas. Construction of the new facility began in 2003, and the data center went into production a month before Hurricane Rita delivered Galveston a glancing blow in September 2005. "It is a state-of-the-art facility designed to take a direct hit from a Category 5 hurricane with 30-foot storm surge and continue to run through the event and thereafter as an island," Johnson relates. "It has the water, the food, the sleeping facilities, the diesel -- everything is duplicated."
The League City data center played a critical role during Hurricane Ike, as did both the San Antonio and Dallas facilities, as it became clear that American National's headquarters were going to be closed for longer than the carrier's BC/DR plan accounted for. At no time in the century-old company's history had it been absent from the building for more than a week, according to Johnson. But Galveston city services were so devastated that it was clear that returning would not be feasible for a considerably longer time. The Galveston location finally reopened on Oct. 13, more than three weeks after Ike's landfall.
"We continued to build out our facilities when it was clear we were not going to get back on the island in the time frame that was typical for this type of event," Johnson explains. "We started enhancing our continuity plans to put more and more people into the League City and San Antonio locations."
Both the intensity and duration of the event exposed opportunities for improvement, Johnson acknowledges. But American National's real-life execution of its BC/DR plan, he says, surpassed any "paper test" Johnson had ever gone through in his career before arriving at the carrier in 2007. "The technology was very good -- we had a good plan. But our people really made the difference," he says.
"Our data center operated as it was designed to do: ride-out teams stayed in the building Sept. 12, we continued to run our cycles that night, and all the online systems were up the next morning as scheduled," Johnson adds. "The operations in Dallas and San Antonio were online, and it was literally business as usual, in a scaled-down mode based on the number of employees."
To some extent, American National's example reflects the superior preparedness typical of the financial services industry. According to Forrester Research (Cambridge, Mass.) analyst Stephanie Balaouras' July 2008 report, "What Your Business Can Learn About Disaster Recovery From Financial Institutions," financial services firms take a more disciplined approach to DR than do companies in other industries. Responding to a survey of 250 DR decision makers and influencers undertaken in October 2007 by Forrester and the Disaster Recovery Journal, 88 percent of financial institution respondents said they already have a formal and documented disaster recovery plan in place, compared with 76 percent of respondents across all industries.
"In addition 36 percent of financial institutions will conduct at least two full DR tests per year versus 30 percent of all other industries," Balaouras writes in the report, adding, "67 percent of financial institutions will update their plans at least twice a year versus 54 percent of other industries."
But American National's performance is also attributable to the heightened appreciation of danger by companies located in disaster-prone areas. As flattering as the Forrester study may be as a comparison to other industries, it nevertheless calls attention to the fact that 12 percent of financial services companies don't have a documented DR plan, 33 percent will update their plans less than twice a year, and little more than a third uphold the highest standards of testing. The bottom line is that for many financial services companies, natural disaster can still spell business disaster.
Constant Evolution
Perhaps the greatest lesson from American National's experience is that BC/DR preparedness is a process that is constantly evolving. Not only does technology continue to present opportunities to improve BC/DR preparedness, but changes of all sorts -- whether in the company, business or natural environment -- require constant adaptation. Many insurers made BC/DR a regular strategic priority after 9/11, but it's less clear how up-to-date their preparations are, according to Gail McGiffin, a partner with Accenture (Chicago).
"Insurers have made great progress in fortifying their operations, but I'm not sure that the discipline and regularity of testing is organic to their organizations yet," McGiffin comments. "The question is whether they test their plans on a regular basis, or are they waiting for an actual disaster to see if the plan is going to work."
Even when testing is sufficiently frequent, questions may still remain about its adequacy, McGiffin cautions. Tests should replicate the conditions of actual disasters as closely as possible, including activation of remote sites, execution of phone tree and other communications measures, and simulations of logistical challenges, such as traffic congestion slowing evacuation, McGiffin recommends.
The League City data center played a critical role during Hurricane Ike, as did both the San Antonio and Dallas facilities, as it became clear that American National's headquarters were going to be closed for longer than the carrier's BC/DR plan accounted for. At no time in the century-old company's history had it been absent from the building for more than a week, according to Johnson. But Galveston city services were so devastated that it was clear that returning would not be feasible for a considerably longer time. The Galveston location finally reopened on Oct. 13, more than three weeks after Ike's landfall.
"We continued to build out our facilities when it was clear we were not going to get back on the island in the time frame that was typical for this type of event," Johnson explains. "We started enhancing our continuity plans to put more and more people into the League City and San Antonio locations."
Both the intensity and duration of the event exposed opportunities for improvement, Johnson acknowledges. But American National's real-life execution of its BC/DR plan, he says, surpassed any "paper test" Johnson had ever gone through in his career before arriving at the carrier in 2007. "The technology was very good -- we had a good plan. But our people really made the difference," he says.
"Our data center operated as it was designed to do: ride-out teams stayed in the building Sept. 12, we continued to run our cycles that night, and all the online systems were up the next morning as scheduled," Johnson adds. "The operations in Dallas and San Antonio were online, and it was literally business as usual, in a scaled-down mode based on the number of employees."
To some extent, American National's example reflects the superior preparedness typical of the financial services industry. According to Forrester Research (Cambridge, Mass.) analyst Stephanie Balaouras' July 2008 report, "What Your Business Can Learn About Disaster Recovery From Financial Institutions," financial services firms take a more disciplined approach to DR than do companies in other industries. Responding to a survey of 250 DR decision makers and influencers undertaken in October 2007 by Forrester and the Disaster Recovery Journal, 88 percent of financial institution respondents said they already have a formal and documented disaster recovery plan in place, compared with 76 percent of respondents across all industries.
"In addition 36 percent of financial institutions will conduct at least two full DR tests per year versus 30 percent of all other industries," Balaouras writes in the report, adding, "67 percent of financial institutions will update their plans at least twice a year versus 54 percent of other industries."
But American National's performance is also attributable to the heightened appreciation of danger by companies located in disaster-prone areas. As flattering as the Forrester study may be as a comparison to other industries, it nevertheless calls attention to the fact that 12 percent of financial services companies don't have a documented DR plan, 33 percent will update their plans less than twice a year, and little more than a third uphold the highest standards of testing. The bottom line is that for many financial services companies, natural disaster can still spell business disaster.
Constant Evolution
Perhaps the greatest lesson from American National's experience is that BC/DR preparedness is a process that is constantly evolving. Not only does technology continue to present opportunities to improve BC/DR preparedness, but changes of all sorts -- whether in the company, business or natural environment -- require constant adaptation. Many insurers made BC/DR a regular strategic priority after 9/11, but it's less clear how up-to-date their preparations are, according to Gail McGiffin, a partner with Accenture (Chicago).
"Insurers have made great progress in fortifying their operations, but I'm not sure that the discipline and regularity of testing is organic to their organizations yet," McGiffin comments. "The question is whether they test their plans on a regular basis, or are they waiting for an actual disaster to see if the plan is going to work."
Even when testing is sufficiently frequent, questions may still remain about its adequacy, McGiffin cautions. Tests should replicate the conditions of actual disasters as closely as possible, including activation of remote sites, execution of phone tree and other communications measures, and simulations of logistical challenges, such as traffic congestion slowing evacuation, McGiffin recommends.
Insurance & Technology
Cyber Attacks Can Come in Many Shapes and Sizes 
Technology has allowed for growth in insurance, but it has created new risks that require a specific management plan.By Prasad Balakrishnan, Director, Advisory Practice, PricewaterhouseCoopers (New York) Insurance & Technology November 05, 2008
The threat of cyber attacks is very real. Over the past few decades, the adoption of technology to support activities across the insurance value chain coupled with using the Internet as a viable sales channel has led to tremendous gains in efficiencies for insurance companies. Unfortunately the pace of adoption of cyber protection mechanisms has not caught up; in some cases, companies have focused too narrowly on either government mandates or regulations.
Cyber threats are constantly evolving. Many are focused on hijacking financial transactions using phishing techniques. With the convergence of financial products within insurance companies -- which now offer brokerage, investment management and banking products -- the opportunities for hackers to realize financial gain from their cyber attacks have increased significantly. Gone are the days where the primary motivation for these attacks was personal glory.
Recent focus has been on protection technologies, such as malicious-code detection tools, content filters, wireless handheld device security and endpoint security. For this to be effective, however, carriers need comprehensive strategies that include all aspects of the enterprise: people, process and technology.
Insurers need to understand the risks associated with the information contained within their systems. When companies understand the risks, they can then design appropriate mitigation strategies that include technologies that can detect and, in some cases, prevent cyber attacks. Given the rapid evolution of these attacks, it is important that insurers are proactive in seeking and deploying technologies that aid in prevention. This is where senior management commitment is extremely important.
Technology alone can never be the silver bullet. It is only one aspect of a comprehensive information protection strategy that can help insurers mitigate cyber risk.
While there are several elements of a good cyber risk management plan, the key ones include senior management commitment; organizational education and awareness; thorough understanding of information and data risks; implemention of effective policies, procedures and technologies; and a proactive approach toward management of emerging risks. In fact, PwC's research has shown that there are two things companies can do that correlate with lower levels of security breaches and downtime: 1) have a senior executive, such as a CISO, dedicated to security, and 2) have a documented security strategy. If insurers develop effective organizational capabilities that include all of these elements, they can be more confident of defending against the threats of today and the future.
The threat of cyber attacks is very real. Over the past few decades, the adoption of technology to support activities across the insurance value chain coupled with using the Internet as a viable sales channel has led to tremendous gains in efficiencies for insurance companies. Unfortunately the pace of adoption of cyber protection mechanisms has not caught up; in some cases, companies have focused too narrowly on either government mandates or regulations.
Cyber threats are constantly evolving. Many are focused on hijacking financial transactions using phishing techniques. With the convergence of financial products within insurance companies -- which now offer brokerage, investment management and banking products -- the opportunities for hackers to realize financial gain from their cyber attacks have increased significantly. Gone are the days where the primary motivation for these attacks was personal glory.
Recent focus has been on protection technologies, such as malicious-code detection tools, content filters, wireless handheld device security and endpoint security. For this to be effective, however, carriers need comprehensive strategies that include all aspects of the enterprise: people, process and technology.
Insurers need to understand the risks associated with the information contained within their systems. When companies understand the risks, they can then design appropriate mitigation strategies that include technologies that can detect and, in some cases, prevent cyber attacks. Given the rapid evolution of these attacks, it is important that insurers are proactive in seeking and deploying technologies that aid in prevention. This is where senior management commitment is extremely important.
Technology alone can never be the silver bullet. It is only one aspect of a comprehensive information protection strategy that can help insurers mitigate cyber risk.
While there are several elements of a good cyber risk management plan, the key ones include senior management commitment; organizational education and awareness; thorough understanding of information and data risks; implemention of effective policies, procedures and technologies; and a proactive approach toward management of emerging risks. In fact, PwC's research has shown that there are two things companies can do that correlate with lower levels of security breaches and downtime: 1) have a senior executive, such as a CISO, dedicated to security, and 2) have a documented security strategy. If insurers develop effective organizational capabilities that include all of these elements, they can be more confident of defending against the threats of today and the future.
A Peek Inside Aetna's Books
Investors are normally content to simply let health insurers invest their capital wisely. Companies like UnitedHealth Group (NYSE: UNH) and WellPoint (NYSE: WLP) just have to give a quarterly update about how much is in the coffers and how much the company made from its investments to keep investors happy.
But these are extraordinary times. So Aetna (NYSE: AET) decided to open up the books and give investors a closer look at its balance sheet on Monday.
I have to say, the health insurer's capital structure is looking pretty healthy. Not every investment is at the same level as earlier in the year, but Aetna is far from being the next AIG (NYSE: AIG). Aetna is not so flush that it plans to up its token dividend, but the company doesn't expect to need an infusion of cash in the foreseeable future either. Call it a happy medium, which is a good place to be in this market.
Aetna and Humana (NYSE: HUM) did have Lehman Brothers and AIG bonds in their investment portfolios, but Aetna says that none of the companies in which it currently holds bonds are teetering on the brink of bankruptcy.
Aetna has also lost some money on mortgage-backed securities, but that's really only a paper loss, and the company is still receiving interest payments as expected. Most importantly, most are from before 2006 when property values were still appreciating, so major losses shouldn't be expected even if the value of the securities has gone down.
The company expects to see earnings growth of 3% to 5% next year. While that's nothing to get excited about, Aetna is basically priced like there won't be any growth in the foreseeable future. If the company can wiggle through 2009 and avoid any major interruptions in business, it should be in good shape when the economy picks up.
But these are extraordinary times. So Aetna (NYSE: AET) decided to open up the books and give investors a closer look at its balance sheet on Monday.
I have to say, the health insurer's capital structure is looking pretty healthy. Not every investment is at the same level as earlier in the year, but Aetna is far from being the next AIG (NYSE: AIG). Aetna is not so flush that it plans to up its token dividend, but the company doesn't expect to need an infusion of cash in the foreseeable future either. Call it a happy medium, which is a good place to be in this market.
Aetna and Humana (NYSE: HUM) did have Lehman Brothers and AIG bonds in their investment portfolios, but Aetna says that none of the companies in which it currently holds bonds are teetering on the brink of bankruptcy.
Aetna has also lost some money on mortgage-backed securities, but that's really only a paper loss, and the company is still receiving interest payments as expected. Most importantly, most are from before 2006 when property values were still appreciating, so major losses shouldn't be expected even if the value of the securities has gone down.
The company expects to see earnings growth of 3% to 5% next year. While that's nothing to get excited about, Aetna is basically priced like there won't be any growth in the foreseeable future. If the company can wiggle through 2009 and avoid any major interruptions in business, it should be in good shape when the economy picks up.
IT Strategy and the Financial Crisis
How will the current financial crisis affect insurance information technology growth? A recent Celent report examines how the economic crisis will affect technology strategies in the insurance industry and gives advice on how to react.
By Tammy J. McInturffThe economy is one everyone’s mind right now. Insurance companies, like most other organizations, are wondering how bad it is going to get. How is the financial crisis going to affect your company’s bottom line? What actions should you take?
Recent events prompted Celent to publish the report, “Bad News on the Street: Insurance IT Strategy and the Financial Crisis.” The report, written by Mike Fitzgerald, Donald Light, Catherine Stagg-Macey, and Craig Weber, looks at the global financial crisis and how it will affect insurers and their information technology (IT) strategies.
Boston-based Celent is a research and consulting firm focused on the application of information technology in the global financial services industry. Celent tracks insurance and technology developments very closely.
Senior Analysts, Donald Light and Catherine Stagg-Macey, recently presented a Webinar based on the findings of Celent’s “Bad News on the Street: Insurance IT Strategy and the Financial Crisis” report. “It has become clear that the turmoil in the housing market and the credit markets from banks to investment banks is becoming global and systematic,” Light said. “It is going to create a set of challenges that insurance companies both on the business side and the IT side are going to have to deal with.”
Riding the Roller Coaster
The markets have been a roller coaster of action lately, leaving companies unsure of what to expect in 2009. Although companies may not be planning any radical changes yet in their spending plans for 2009, most know those plans could change quickly in this volatile economy. “No one knows how all these situations in the financial markets are going to play out but you have to start somewhere,” Light said, during the recent Webinar. “We think in the near term there are going to continue to be severe stresses both on the global financial systems and on the national financial systems. We also make the assumption that there will continue to be disruptive failures, acquisitions of banks, investment banks and to a more limited degree insurance companies. We believe there will be a mild or moderate economic recession both globally and among leading major national economies. This recession will last at least through the beginning of 2010. However, we do not believe that there will be an extended and severe global financial or economic crisis. In other words, there won’t be a global financial system meltdown or severe depression in terms of national or global economies.”
How Did We Get Here?
How exactly did insurance companies get caught up in this mess? It has been well publicized that a lot of bad mortgage loans have been made, primarily in the U.S. Light discussed the root cause of the situation and how insurance companies became involved. “After these bad mortgage loans were made, they were securitized, bought, traded and even often guaranteed by various financial institutions,” he said. “Insurance companies make both explicit and implicit choices regarding their relationship between their liabilities—which is mainly the insurance policies and contracts they have issued, and their assets—which is basically their investment portfolios. So what has happened is the results of these bad mortgage loans and the securitization of these bad loans have been seeping through into the assets side. A lot of insurance companies have fixed income assets that are tied to the real estate values and those mortgage loans and the securitized version of those mortgage loans. Some insurers have had equity stakes in financial institutions whose well being was tied even more closely to those real estate values. We have seen some spectacular failures of financial institutions and also some insurers primarily on the life and annuity side have guaranteed the investment performance of some of their underlying products, which they will have to account for either now or later. A few insurance companies have been specifically in the business of guaranteeing mortgage debt or other financial obligations which has lead to a great deal of misfortune.”
Impact on the Industry
Given the recent events, Celent identified six different sectors of the financial crisis that will impact the insurance industry in the U.S. over the next year. First, Celent believes that losses are going to go up. “One reason for increased losses is what is sometimes called morale hazard,” said Light. “This is policyholders either engaging in soft fraud or even hard fraud in lines like health, auto insurance, workers compensation and so on.”
Celent also predicts that the soft market will continue to impact insurers. “You might think that increased losses would be an opportunity for pricing practices to harden, but we don’t think that is going to happen. We think there are too many other factors at play,” Light said.
Celent also believes that overall financial results for P&C and general insurance carriers will deteriorate. “There is going to be less value out there to insure. There will be fewer employees for workers compensation and health insurance and the demand for variable life and annuity products is going to go down,” said Light. “In terms of capital and solvency, the good news here is that within the U.S. most of the property & casualty, general, and life & annuity industry had started from a very strong capitalization position; there have been and will continue to be however hits to those positions with possibly a limited number of additional insurancecompany failures.”
Celent predicts that regulation and rating scrutiny is going to be both broader and tighter. “It will be broader in the sense that not just the insurance activities but other financial commitments at the holding company level will come under scrutiny. It will be tighter in the sense that there will be a lot more aggressive examinations and more probing questions by rating agencies and much more willingness to pull the trigger earlier on rating downgrades,” Light said.
In terms of mergers and acquisitions, Celent believes there will be an increasing level of consolidation in the industry.
According to Catherine Stagg-Macey, the impact will be similar for Europe but probably not as intense. “Europe is really going to be impacted by what I consider to be the third ripple effect of the subprime crisis in the U.S. which is really the economic slowdown,” she said. “We are also going to see increased claims and fraud which is typical of a slowdown. We will also see pressure to keep prices down. It is always harder to increase prices in difficult times which will obviously erode financial results. In the area of capitalization and solvency there will probably be less of an impact for a European insurer than for a U.S. insurer. In regards to mergers and acquisitions, I think that European insurers may acquire some of the American assets that are for sale.”
How Should Insurer’s React?
Given the challenges that insurers are facing and will continue to face how should they react? Light cautioned that IT groups within insurance companies should not overreact to the current crisis but at the same time they should not under-react either. He added that it is important for these groups to take both a midterm and long term view of the situation.
According to Celent, the basic options for business strategies for insurers have not really changed. Insurers can still use the same operational strategies that they have been using for years. Celent identified these three operational strategies as getting bigger, leaner or smarter. “The financial crisis means that every insurer needs to rethink its choices,” said Light. “Insurers can choose to get bigger by generating more sales and growing in more markets. They can choose to get leaner by reducing expenses and increasing productivity. Or they can choose to get smarter by correctly pricing risks, making the right underwriting decisions, adjusting claims and matching their assets and liabilities. The choices that insurance companies are going to make among these options are going to change. Corporate goals and objectives may change with companies ratcheting down their return on equity. It may take a mix of strategies to reach new objectives. In past recessions we have seen eagerness in many cases to just cut staff. We will have to wait and see if that will happen this time around. We think the tactical focus within strategies is going to be changed. Insurers are going to have to look at what strategic or tactical levers are available to pull right now and which of them have a longer lead time.”
IT Strategy
A company’s IT strategy must be there to enable and support business strategies. Light said this aspect of an insurance company’s IT strategy has not changed. However, he said some companies may need to rethink some of their IT strategies given the current financial crisis. Every insurer has ongoing IT initiatives. Most insurers’ portfolios of planned or ongoing IT projects probably include point solutions, infrastructure, sourcing strategies or IT governance. “These IT initiatives can provide tactical and/or strategic benefits for an insurer,” Light said. “The current financial crisis makes it critical that insurers re-evaluate their current and future IT initiatives and review the kind of value each initiative can provide; keeping in mind that tactical benefits are available sooner but may address more limited issues; while strategic benefits take longer but can change how an insurer competes. Balancing tactical and strategic initiatives is essential to making sure short-term goals are met while at the same time supporting long-term business strategies.”
According to Celent’s recent report, “IT initiatives must adjust to the new economic environment.” Light described in detail which IT initiatives could provide strategic value, which could provide tactical value and which initiatives provided both. In general, tactical solutions usually take less than a year to make an impact, while strategic solutions take one to three years to make an impact.
Core Systems
First, Light looked at core systems initiatives, such as policy administration replacement, rationalization of multiple policy administration systems and claims. According to Light, because of the size and complexity of replacing an administration system, most of the value is going to be on a strategic level and will provide all three types of strategies Celent identified—getting bigger, leaner and smarter. “For policy administration system rationalization where there are multiple policy admin platforms that are being combined onto a smaller number, this is a multi-year process,” Light said. “So we think the value here is also primarily strategic. Core claim systems we think can deliver both tactically and strategically because companies can see leaner benefits within a year in addition to longer-term productivity improvement.”
Point Solutions
Celent also looked at the strategic value of Point Solutions such as product development, pricing and rating solutions, new business and distribution, business intelligence analytics and data mastery and billing solutions. “We think solutions that enable product development or product configuration are primarily strategic in value especially among variable life and annuity products,” Light said. “We also think product development initiatives can help improve innovation and customer responsiveness thus allowing companies to take share from competitors by having a better product available in the market more quickly using these tools.”
Pricing and rating solutions can provide both tactical and strategic benefits, according to Celent. These solutions can enable quick changes in pricing structures. “In the long term, fundamental changes in pricing strategy, such as developing a microsegment pricing approach for a new line of business can have major impacts but takes longer to achieve,” Light said.
New business and distribution initiatives can also provide both tactical and strategic benefits. “In the short term, these solutions can help grow top-line revenue through better partnership with producers,” Light explained. “These solutions can also address longer-term issues like more straight-through processing for certain lines. They can also help with becoming leaner by potential reduction of staff and they can help improve underwriting efficiency and results.”
Analytics, business intelligence and data mastery initiatives can also have both tactical and strategic benefits. “In the short term, tactically, these capabilities let companies become both smarter and leaner in an operational sense,” said Light. “Over the long term, these solutions can give insights for major adjustments in business and financial models leading to improved financial performance.”
Billing solutions tend to have more strategic long term benefits, according to Celent. “These solutions have benefits in terms of management information and dues, but we think they will take a longer time to realize,” said Light.
Infrastructure Initiatives
The third category of IT initiatives that Light discussed during the recent Webinar were infrastructure initiatives, which include business rules and business process management solutions, content/document management, integration and SOA, risk management and data centers. Business rules and business process management solutions can make substantial changes especially for companies with inflexible legacy systems. These solutions can help companies achieve greater control, consistency and decision quality over what is happening, but because these benefits can take longer to be realized, Celent categories these as strategic initiatives.
According to Light, content management and document management can have both strategic and tactical benefits. “In the near term, content and document management can be deployed to get companies much leaner and more efficient. The longer-term benefits are primarily from a compliance point of view.
Service oriented architecture and integration methods tend to provide more strategic benefits. “These strategies will lead to companies becoming leaner and more agile,” Light said. “Most companies have started their SOA build-outs and realize that seeing the benefits is a multiyear process.”
Risk management initiatives can have both strategic and tactical benefits. “This might be seen as kind of the heart of the issue, especially over on the investment banking side and to an increasing degree on the insurance side,” Light said. “Risk management initiatives can help yield smarter capabilities which are important before a crisis and absolutely critical now. The benefits of risk management initiatives range from meeting regulatory requirements to survival.”
Data centers and networks tend to yield more tactical benefits, according to Light. He said these initiatives can help deliver “get leaner” benefits; integrated voice/data/video benefits and also have potential “get smarter” benefits in the short term.
Sourcing initiatives consist of two categories, Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO). “We see ITO as primarily tactical especially in the traditional areas of maintenance and support,” Light said. “Business Process Outsourcing on the other hand is more strategic. It can have an impact both on the fixed cost and the variable cost structure of a company. This is a big step that requires more time to understand and to find the right partner to do this with.”
IT Spending
How will the financial crisis affect IT spending in 2009? Celent believes that there will be a downward pressure on IT budgets for 2009 and maybe even 2010. “Before the severe current stage of the crisis and the crisis spreading to the insurance industry, we had projected that IT spending in 2009 in general would be modestly higher than 2008,” Light said. “Now, we are predicting spending being stable or down two to three percent. We realize that most insurance companies are on an annual calendar budget year and most of the plans are already in place. Right now, from what we have seen companies are not panicking and reducing budget plans. However, budget plans and allocations can change in a matter of days or weeks if senior management sees the overall situation deteriorating in a serious way.”
Advice for IT Vendors
Celent also had advice for insurance IT vendors. Light said that although this may not be the best of times for IT vendors, it is really not the worst of times either. “The need for the types of value that IT solutions provide in terms of enabling the strategies of insurance companies has not changed,” he said. “In fact, the limitations and difficulties that the older legacy systems present may be felt more acutely as companies are forced to make more rapid adjustments to new environments.”
According to Light, Celent does believe that the way insurance companies buy IT is going to change. “We believe the purchase process for IT will slow down in some cases,” he said. “We also believe that some insurers will employ modified priorities in financial criteria in terms of choosing which vendors they want to partner with. Vendors need to recalibrate and recraft their offerings and messaging to meet these needs. This is a good time for vendors to revisit their own strategies and product roadmaps. A smart insurance company that is looking at vendors for a major initiative will ask questions about the roadmap and want to see a roadmap that reflects that current set of realities.”
Weathering the Storm
So what should insurance companies do to remain strong through this financial crisis? Celent recommends that the insurance company first decide how it will deal with the challenges presented by the financial crisis. “Insurance companies should take a view on what this crisis is going to mean for their particular enterprise,” Light said. “Then, they need to rethink their strategy in terms of that view for 2009. Rethink your tactical and strategic IT projects and initiatives. Looking within IT ask how the current application portfolio can help in terms of flexibility. Where do you have flexibility and the ability to change decisions, processes and product offerings? Make sure that you take full advantage of those capabilities, especially if you are a company that has upgraded your systems in recent years. Look at the IT initiatives pipeline to see if priorities should change.”
Light also advised companies to rethink the approval criteria for new initiatives. “Think about how or what projects might make it easier to take business from current competitors,” he said. “Analyze the tactical and strategic value of these projects. Look at the projects that might enable near-term expense reductions. If an insurance company does not have a risk management system and tools in place this might be an excellent time to start looking at that area. If you do have those systems in place, make sure they are robust enough to handle the changes that are likely to occur in the current environment.”
By Tammy J. McInturffThe economy is one everyone’s mind right now. Insurance companies, like most other organizations, are wondering how bad it is going to get. How is the financial crisis going to affect your company’s bottom line? What actions should you take?
Recent events prompted Celent to publish the report, “Bad News on the Street: Insurance IT Strategy and the Financial Crisis.” The report, written by Mike Fitzgerald, Donald Light, Catherine Stagg-Macey, and Craig Weber, looks at the global financial crisis and how it will affect insurers and their information technology (IT) strategies.
Boston-based Celent is a research and consulting firm focused on the application of information technology in the global financial services industry. Celent tracks insurance and technology developments very closely.
Senior Analysts, Donald Light and Catherine Stagg-Macey, recently presented a Webinar based on the findings of Celent’s “Bad News on the Street: Insurance IT Strategy and the Financial Crisis” report. “It has become clear that the turmoil in the housing market and the credit markets from banks to investment banks is becoming global and systematic,” Light said. “It is going to create a set of challenges that insurance companies both on the business side and the IT side are going to have to deal with.”
Riding the Roller Coaster
The markets have been a roller coaster of action lately, leaving companies unsure of what to expect in 2009. Although companies may not be planning any radical changes yet in their spending plans for 2009, most know those plans could change quickly in this volatile economy. “No one knows how all these situations in the financial markets are going to play out but you have to start somewhere,” Light said, during the recent Webinar. “We think in the near term there are going to continue to be severe stresses both on the global financial systems and on the national financial systems. We also make the assumption that there will continue to be disruptive failures, acquisitions of banks, investment banks and to a more limited degree insurance companies. We believe there will be a mild or moderate economic recession both globally and among leading major national economies. This recession will last at least through the beginning of 2010. However, we do not believe that there will be an extended and severe global financial or economic crisis. In other words, there won’t be a global financial system meltdown or severe depression in terms of national or global economies.”
How Did We Get Here?
How exactly did insurance companies get caught up in this mess? It has been well publicized that a lot of bad mortgage loans have been made, primarily in the U.S. Light discussed the root cause of the situation and how insurance companies became involved. “After these bad mortgage loans were made, they were securitized, bought, traded and even often guaranteed by various financial institutions,” he said. “Insurance companies make both explicit and implicit choices regarding their relationship between their liabilities—which is mainly the insurance policies and contracts they have issued, and their assets—which is basically their investment portfolios. So what has happened is the results of these bad mortgage loans and the securitization of these bad loans have been seeping through into the assets side. A lot of insurance companies have fixed income assets that are tied to the real estate values and those mortgage loans and the securitized version of those mortgage loans. Some insurers have had equity stakes in financial institutions whose well being was tied even more closely to those real estate values. We have seen some spectacular failures of financial institutions and also some insurers primarily on the life and annuity side have guaranteed the investment performance of some of their underlying products, which they will have to account for either now or later. A few insurance companies have been specifically in the business of guaranteeing mortgage debt or other financial obligations which has lead to a great deal of misfortune.”
Impact on the Industry
Given the recent events, Celent identified six different sectors of the financial crisis that will impact the insurance industry in the U.S. over the next year. First, Celent believes that losses are going to go up. “One reason for increased losses is what is sometimes called morale hazard,” said Light. “This is policyholders either engaging in soft fraud or even hard fraud in lines like health, auto insurance, workers compensation and so on.”
Celent also predicts that the soft market will continue to impact insurers. “You might think that increased losses would be an opportunity for pricing practices to harden, but we don’t think that is going to happen. We think there are too many other factors at play,” Light said.
Celent also believes that overall financial results for P&C and general insurance carriers will deteriorate. “There is going to be less value out there to insure. There will be fewer employees for workers compensation and health insurance and the demand for variable life and annuity products is going to go down,” said Light. “In terms of capital and solvency, the good news here is that within the U.S. most of the property & casualty, general, and life & annuity industry had started from a very strong capitalization position; there have been and will continue to be however hits to those positions with possibly a limited number of additional insurancecompany failures.”
Celent predicts that regulation and rating scrutiny is going to be both broader and tighter. “It will be broader in the sense that not just the insurance activities but other financial commitments at the holding company level will come under scrutiny. It will be tighter in the sense that there will be a lot more aggressive examinations and more probing questions by rating agencies and much more willingness to pull the trigger earlier on rating downgrades,” Light said.
In terms of mergers and acquisitions, Celent believes there will be an increasing level of consolidation in the industry.
According to Catherine Stagg-Macey, the impact will be similar for Europe but probably not as intense. “Europe is really going to be impacted by what I consider to be the third ripple effect of the subprime crisis in the U.S. which is really the economic slowdown,” she said. “We are also going to see increased claims and fraud which is typical of a slowdown. We will also see pressure to keep prices down. It is always harder to increase prices in difficult times which will obviously erode financial results. In the area of capitalization and solvency there will probably be less of an impact for a European insurer than for a U.S. insurer. In regards to mergers and acquisitions, I think that European insurers may acquire some of the American assets that are for sale.”
How Should Insurer’s React?
Given the challenges that insurers are facing and will continue to face how should they react? Light cautioned that IT groups within insurance companies should not overreact to the current crisis but at the same time they should not under-react either. He added that it is important for these groups to take both a midterm and long term view of the situation.
According to Celent, the basic options for business strategies for insurers have not really changed. Insurers can still use the same operational strategies that they have been using for years. Celent identified these three operational strategies as getting bigger, leaner or smarter. “The financial crisis means that every insurer needs to rethink its choices,” said Light. “Insurers can choose to get bigger by generating more sales and growing in more markets. They can choose to get leaner by reducing expenses and increasing productivity. Or they can choose to get smarter by correctly pricing risks, making the right underwriting decisions, adjusting claims and matching their assets and liabilities. The choices that insurance companies are going to make among these options are going to change. Corporate goals and objectives may change with companies ratcheting down their return on equity. It may take a mix of strategies to reach new objectives. In past recessions we have seen eagerness in many cases to just cut staff. We will have to wait and see if that will happen this time around. We think the tactical focus within strategies is going to be changed. Insurers are going to have to look at what strategic or tactical levers are available to pull right now and which of them have a longer lead time.”
IT Strategy
A company’s IT strategy must be there to enable and support business strategies. Light said this aspect of an insurance company’s IT strategy has not changed. However, he said some companies may need to rethink some of their IT strategies given the current financial crisis. Every insurer has ongoing IT initiatives. Most insurers’ portfolios of planned or ongoing IT projects probably include point solutions, infrastructure, sourcing strategies or IT governance. “These IT initiatives can provide tactical and/or strategic benefits for an insurer,” Light said. “The current financial crisis makes it critical that insurers re-evaluate their current and future IT initiatives and review the kind of value each initiative can provide; keeping in mind that tactical benefits are available sooner but may address more limited issues; while strategic benefits take longer but can change how an insurer competes. Balancing tactical and strategic initiatives is essential to making sure short-term goals are met while at the same time supporting long-term business strategies.”
According to Celent’s recent report, “IT initiatives must adjust to the new economic environment.” Light described in detail which IT initiatives could provide strategic value, which could provide tactical value and which initiatives provided both. In general, tactical solutions usually take less than a year to make an impact, while strategic solutions take one to three years to make an impact.
Core Systems
First, Light looked at core systems initiatives, such as policy administration replacement, rationalization of multiple policy administration systems and claims. According to Light, because of the size and complexity of replacing an administration system, most of the value is going to be on a strategic level and will provide all three types of strategies Celent identified—getting bigger, leaner and smarter. “For policy administration system rationalization where there are multiple policy admin platforms that are being combined onto a smaller number, this is a multi-year process,” Light said. “So we think the value here is also primarily strategic. Core claim systems we think can deliver both tactically and strategically because companies can see leaner benefits within a year in addition to longer-term productivity improvement.”
Point Solutions
Celent also looked at the strategic value of Point Solutions such as product development, pricing and rating solutions, new business and distribution, business intelligence analytics and data mastery and billing solutions. “We think solutions that enable product development or product configuration are primarily strategic in value especially among variable life and annuity products,” Light said. “We also think product development initiatives can help improve innovation and customer responsiveness thus allowing companies to take share from competitors by having a better product available in the market more quickly using these tools.”
Pricing and rating solutions can provide both tactical and strategic benefits, according to Celent. These solutions can enable quick changes in pricing structures. “In the long term, fundamental changes in pricing strategy, such as developing a microsegment pricing approach for a new line of business can have major impacts but takes longer to achieve,” Light said.
New business and distribution initiatives can also provide both tactical and strategic benefits. “In the short term, these solutions can help grow top-line revenue through better partnership with producers,” Light explained. “These solutions can also address longer-term issues like more straight-through processing for certain lines. They can also help with becoming leaner by potential reduction of staff and they can help improve underwriting efficiency and results.”
Analytics, business intelligence and data mastery initiatives can also have both tactical and strategic benefits. “In the short term, tactically, these capabilities let companies become both smarter and leaner in an operational sense,” said Light. “Over the long term, these solutions can give insights for major adjustments in business and financial models leading to improved financial performance.”
Billing solutions tend to have more strategic long term benefits, according to Celent. “These solutions have benefits in terms of management information and dues, but we think they will take a longer time to realize,” said Light.
Infrastructure Initiatives
The third category of IT initiatives that Light discussed during the recent Webinar were infrastructure initiatives, which include business rules and business process management solutions, content/document management, integration and SOA, risk management and data centers. Business rules and business process management solutions can make substantial changes especially for companies with inflexible legacy systems. These solutions can help companies achieve greater control, consistency and decision quality over what is happening, but because these benefits can take longer to be realized, Celent categories these as strategic initiatives.
According to Light, content management and document management can have both strategic and tactical benefits. “In the near term, content and document management can be deployed to get companies much leaner and more efficient. The longer-term benefits are primarily from a compliance point of view.
Service oriented architecture and integration methods tend to provide more strategic benefits. “These strategies will lead to companies becoming leaner and more agile,” Light said. “Most companies have started their SOA build-outs and realize that seeing the benefits is a multiyear process.”
Risk management initiatives can have both strategic and tactical benefits. “This might be seen as kind of the heart of the issue, especially over on the investment banking side and to an increasing degree on the insurance side,” Light said. “Risk management initiatives can help yield smarter capabilities which are important before a crisis and absolutely critical now. The benefits of risk management initiatives range from meeting regulatory requirements to survival.”
Data centers and networks tend to yield more tactical benefits, according to Light. He said these initiatives can help deliver “get leaner” benefits; integrated voice/data/video benefits and also have potential “get smarter” benefits in the short term.
Sourcing initiatives consist of two categories, Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO). “We see ITO as primarily tactical especially in the traditional areas of maintenance and support,” Light said. “Business Process Outsourcing on the other hand is more strategic. It can have an impact both on the fixed cost and the variable cost structure of a company. This is a big step that requires more time to understand and to find the right partner to do this with.”
IT Spending
How will the financial crisis affect IT spending in 2009? Celent believes that there will be a downward pressure on IT budgets for 2009 and maybe even 2010. “Before the severe current stage of the crisis and the crisis spreading to the insurance industry, we had projected that IT spending in 2009 in general would be modestly higher than 2008,” Light said. “Now, we are predicting spending being stable or down two to three percent. We realize that most insurance companies are on an annual calendar budget year and most of the plans are already in place. Right now, from what we have seen companies are not panicking and reducing budget plans. However, budget plans and allocations can change in a matter of days or weeks if senior management sees the overall situation deteriorating in a serious way.”
Advice for IT Vendors
Celent also had advice for insurance IT vendors. Light said that although this may not be the best of times for IT vendors, it is really not the worst of times either. “The need for the types of value that IT solutions provide in terms of enabling the strategies of insurance companies has not changed,” he said. “In fact, the limitations and difficulties that the older legacy systems present may be felt more acutely as companies are forced to make more rapid adjustments to new environments.”
According to Light, Celent does believe that the way insurance companies buy IT is going to change. “We believe the purchase process for IT will slow down in some cases,” he said. “We also believe that some insurers will employ modified priorities in financial criteria in terms of choosing which vendors they want to partner with. Vendors need to recalibrate and recraft their offerings and messaging to meet these needs. This is a good time for vendors to revisit their own strategies and product roadmaps. A smart insurance company that is looking at vendors for a major initiative will ask questions about the roadmap and want to see a roadmap that reflects that current set of realities.”
Weathering the Storm
So what should insurance companies do to remain strong through this financial crisis? Celent recommends that the insurance company first decide how it will deal with the challenges presented by the financial crisis. “Insurance companies should take a view on what this crisis is going to mean for their particular enterprise,” Light said. “Then, they need to rethink their strategy in terms of that view for 2009. Rethink your tactical and strategic IT projects and initiatives. Looking within IT ask how the current application portfolio can help in terms of flexibility. Where do you have flexibility and the ability to change decisions, processes and product offerings? Make sure that you take full advantage of those capabilities, especially if you are a company that has upgraded your systems in recent years. Look at the IT initiatives pipeline to see if priorities should change.”
Light also advised companies to rethink the approval criteria for new initiatives. “Think about how or what projects might make it easier to take business from current competitors,” he said. “Analyze the tactical and strategic value of these projects. Look at the projects that might enable near-term expense reductions. If an insurance company does not have a risk management system and tools in place this might be an excellent time to start looking at that area. If you do have those systems in place, make sure they are robust enough to handle the changes that are likely to occur in the current environment.”
IT Strategy and the Financial Crisis
How will the current financial crisis affect insurance information technology growth? A recent Celent report examines how the economic crisis will affect technology strategies in the insurance industry and gives advice on how to react.
By Tammy J. McInturffThe economy is one everyone’s mind right now. Insurance companies, like most other organizations, are wondering how bad it is going to get. How is the financial crisis going to affect your company’s bottom line? What actions should you take?
Recent events prompted Celent to publish the report, “Bad News on the Street: Insurance IT Strategy and the Financial Crisis.” The report, written by Mike Fitzgerald, Donald Light, Catherine Stagg-Macey, and Craig Weber, looks at the global financial crisis and how it will affect insurers and their information technology (IT) strategies.
Boston-based Celent is a research and consulting firm focused on the application of information technology in the global financial services industry. Celent tracks insurance and technology developments very closely.
Senior Analysts, Donald Light and Catherine Stagg-Macey, recently presented a Webinar based on the findings of Celent’s “Bad News on the Street: Insurance IT Strategy and the Financial Crisis” report. “It has become clear that the turmoil in the housing market and the credit markets from banks to investment banks is becoming global and systematic,” Light said. “It is going to create a set of challenges that insurance companies both on the business side and the IT side are going to have to deal with.”
Riding the Roller Coaster
The markets have been a roller coaster of action lately, leaving companies unsure of what to expect in 2009. Although companies may not be planning any radical changes yet in their spending plans for 2009, most know those plans could change quickly in this volatile economy. “No one knows how all these situations in the financial markets are going to play out but you have to start somewhere,” Light said, during the recent Webinar. “We think in the near term there are going to continue to be severe stresses both on the global financial systems and on the national financial systems. We also make the assumption that there will continue to be disruptive failures, acquisitions of banks, investment banks and to a more limited degree insurance companies. We believe there will be a mild or moderate economic recession both globally and among leading major national economies. This recession will last at least through the beginning of 2010. However, we do not believe that there will be an extended and severe global financial or economic crisis. In other words, there won’t be a global financial system meltdown or severe depression in terms of national or global economies.”
How Did We Get Here?
How exactly did insurance companies get caught up in this mess? It has been well publicized that a lot of bad mortgage loans have been made, primarily in the U.S. Light discussed the root cause of the situation and how insurance companies became involved. “After these bad mortgage loans were made, they were securitized, bought, traded and even often guaranteed by various financial institutions,” he said. “Insurance companies make both explicit and implicit choices regarding their relationship between their liabilities—which is mainly the insurance policies and contracts they have issued, and their assets—which is basically their investment portfolios. So what has happened is the results of these bad mortgage loans and the securitization of these bad loans have been seeping through into the assets side. A lot of insurance companies have fixed income assets that are tied to the real estate values and those mortgage loans and the securitized version of those mortgage loans. Some insurers have had equity stakes in financial institutions whose well being was tied even more closely to those real estate values. We have seen some spectacular failures of financial institutions and also some insurers primarily on the life and annuity side have guaranteed the investment performance of some of their underlying products, which they will have to account for either now or later. A few insurance companies have been specifically in the business of guaranteeing mortgage debt or other financial obligations which has lead to a great deal of misfortune.”
Impact on the Industry
Given the recent events, Celent identified six different sectors of the financial crisis that will impact the insurance industry in the U.S. over the next year. First, Celent believes that losses are going to go up. “One reason for increased losses is what is sometimes called morale hazard,” said Light. “This is policyholders either engaging in soft fraud or even hard fraud in lines like health, auto insurance, workers compensation and so on.”
Celent also predicts that the soft market will continue to impact insurers. “You might think that increased losses would be an opportunity for pricing practices to harden, but we don’t think that is going to happen. We think there are too many other factors at play,” Light said.
Celent also believes that overall financial results for P&C and general insurance carriers will deteriorate. “There is going to be less value out there to insure. There will be fewer employees for workers compensation and health insurance and the demand for variable life and annuity products is going to go down,” said Light. “In terms of capital and solvency, the good news here is that within the U.S. most of the property & casualty, general, and life & annuity industry had started from a very strong capitalization position; there have been and will continue to be however hits to those positions with possibly a limited number of additional insurancecompany failures.”
Celent predicts that regulation and rating scrutiny is going to be both broader and tighter. “It will be broader in the sense that not just the insurance activities but other financial commitments at the holding company level will come under scrutiny. It will be tighter in the sense that there will be a lot more aggressive examinations and more probing questions by rating agencies and much more willingness to pull the trigger earlier on rating downgrades,” Light said.
In terms of mergers and acquisitions, Celent believes there will be an increasing level of consolidation in the industry.
According to Catherine Stagg-Macey, the impact will be similar for Europe but probably not as intense. “Europe is really going to be impacted by what I consider to be the third ripple effect of the subprime crisis in the U.S. which is really the economic slowdown,” she said. “We are also going to see increased claims and fraud which is typical of a slowdown. We will also see pressure to keep prices down. It is always harder to increase prices in difficult times which will obviously erode financial results. In the area of capitalization and solvency there will probably be less of an impact for a European insurer than for a U.S. insurer. In regards to mergers and acquisitions, I think that European insurers may acquire some of the American assets that are for sale.”
How Should Insurer’s React?
Given the challenges that insurers are facing and will continue to face how should they react? Light cautioned that IT groups within insurance companies should not overreact to the current crisis but at the same time they should not under-react either. He added that it is important for these groups to take both a midterm and long term view of the situation.
According to Celent, the basic options for business strategies for insurers have not really changed. Insurers can still use the same operational strategies that they have been using for years. Celent identified these three operational strategies as getting bigger, leaner or smarter. “The financial crisis means that every insurer needs to rethink its choices,” said Light. “Insurers can choose to get bigger by generating more sales and growing in more markets. They can choose to get leaner by reducing expenses and increasing productivity. Or they can choose to get smarter by correctly pricing risks, making the right underwriting decisions, adjusting claims and matching their assets and liabilities. The choices that insurance companies are going to make among these options are going to change. Corporate goals and objectives may change with companies ratcheting down their return on equity. It may take a mix of strategies to reach new objectives. In past recessions we have seen eagerness in many cases to just cut staff. We will have to wait and see if that will happen this time around. We think the tactical focus within strategies is going to be changed. Insurers are going to have to look at what strategic or tactical levers are available to pull right now and which of them have a longer lead time.”
IT Strategy
A company’s IT strategy must be there to enable and support business strategies. Light said this aspect of an insurance company’s IT strategy has not changed. However, he said some companies may need to rethink some of their IT strategies given the current financial crisis. Every insurer has ongoing IT initiatives. Most insurers’ portfolios of planned or ongoing IT projects probably include point solutions, infrastructure, sourcing strategies or IT governance. “These IT initiatives can provide tactical and/or strategic benefits for an insurer,” Light said. “The current financial crisis makes it critical that insurers re-evaluate their current and future IT initiatives and review the kind of value each initiative can provide; keeping in mind that tactical benefits are available sooner but may address more limited issues; while strategic benefits take longer but can change how an insurer competes. Balancing tactical and strategic initiatives is essential to making sure short-term goals are met while at the same time supporting long-term business strategies.”
According to Celent’s recent report, “IT initiatives must adjust to the new economic environment.” Light described in detail which IT initiatives could provide strategic value, which could provide tactical value and which initiatives provided both. In general, tactical solutions usually take less than a year to make an impact, while strategic solutions take one to three years to make an impact.
Core Systems
First, Light looked at core systems initiatives, such as policy administration replacement, rationalization of multiple policy administration systems and claims. According to Light, because of the size and complexity of replacing an administration system, most of the value is going to be on a strategic level and will provide all three types of strategies Celent identified—getting bigger, leaner and smarter. “For policy administration system rationalization where there are multiple policy admin platforms that are being combined onto a smaller number, this is a multi-year process,” Light said. “So we think the value here is also primarily strategic. Core claim systems we think can deliver both tactically and strategically because companies can see leaner benefits within a year in addition to longer-term productivity improvement.”
Point Solutions
Celent also looked at the strategic value of Point Solutions such as product development, pricing and rating solutions, new business and distribution, business intelligence analytics and data mastery and billing solutions. “We think solutions that enable product development or product configuration are primarily strategic in value especially among variable life and annuity products,” Light said. “We also think product development initiatives can help improve innovation and customer responsiveness thus allowing companies to take share from competitors by having a better product available in the market more quickly using these tools.”
Pricing and rating solutions can provide both tactical and strategic benefits, according to Celent. These solutions can enable quick changes in pricing structures. “In the long term, fundamental changes in pricing strategy, such as developing a microsegment pricing approach for a new line of business can have major impacts but takes longer to achieve,” Light said.
New business and distribution initiatives can also provide both tactical and strategic benefits. “In the short term, these solutions can help grow top-line revenue through better partnership with producers,” Light explained. “These solutions can also address longer-term issues like more straight-through processing for certain lines. They can also help with becoming leaner by potential reduction of staff and they can help improve underwriting efficiency and results.”
Analytics, business intelligence and data mastery initiatives can also have both tactical and strategic benefits. “In the short term, tactically, these capabilities let companies become both smarter and leaner in an operational sense,” said Light. “Over the long term, these solutions can give insights for major adjustments in business and financial models leading to improved financial performance.”
Billing solutions tend to have more strategic long term benefits, according to Celent. “These solutions have benefits in terms of management information and dues, but we think they will take a longer time to realize,” said Light.
Infrastructure Initiatives
The third category of IT initiatives that Light discussed during the recent Webinar were infrastructure initiatives, which include business rules and business process management solutions, content/document management, integration and SOA, risk management and data centers. Business rules and business process management solutions can make substantial changes especially for companies with inflexible legacy systems. These solutions can help companies achieve greater control, consistency and decision quality over what is happening, but because these benefits can take longer to be realized, Celent categories these as strategic initiatives.
According to Light, content management and document management can have both strategic and tactical benefits. “In the near term, content and document management can be deployed to get companies much leaner and more efficient. The longer-term benefits are primarily from a compliance point of view.
Service oriented architecture and integration methods tend to provide more strategic benefits. “These strategies will lead to companies becoming leaner and more agile,” Light said. “Most companies have started their SOA build-outs and realize that seeing the benefits is a multiyear process.”
Risk management initiatives can have both strategic and tactical benefits. “This might be seen as kind of the heart of the issue, especially over on the investment banking side and to an increasing degree on the insurance side,” Light said. “Risk management initiatives can help yield smarter capabilities which are important before a crisis and absolutely critical now. The benefits of risk management initiatives range from meeting regulatory requirements to survival.”
Data centers and networks tend to yield more tactical benefits, according to Light. He said these initiatives can help deliver “get leaner” benefits; integrated voice/data/video benefits and also have potential “get smarter” benefits in the short term.
Sourcing initiatives consist of two categories, Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO). “We see ITO as primarily tactical especially in the traditional areas of maintenance and support,” Light said. “Business Process Outsourcing on the other hand is more strategic. It can have an impact both on the fixed cost and the variable cost structure of a company. This is a big step that requires more time to understand and to find the right partner to do this with.”
IT Spending
How will the financial crisis affect IT spending in 2009? Celent believes that there will be a downward pressure on IT budgets for 2009 and maybe even 2010. “Before the severe current stage of the crisis and the crisis spreading to the insurance industry, we had projected that IT spending in 2009 in general would be modestly higher than 2008,” Light said. “Now, we are predicting spending being stable or down two to three percent. We realize that most insurance companies are on an annual calendar budget year and most of the plans are already in place. Right now, from what we have seen companies are not panicking and reducing budget plans. However, budget plans and allocations can change in a matter of days or weeks if senior management sees the overall situation deteriorating in a serious way.”
Advice for IT Vendors
Celent also had advice for insurance IT vendors. Light said that although this may not be the best of times for IT vendors, it is really not the worst of times either. “The need for the types of value that IT solutions provide in terms of enabling the strategies of insurance companies has not changed,” he said. “In fact, the limitations and difficulties that the older legacy systems present may be felt more acutely as companies are forced to make more rapid adjustments to new environments.”
According to Light, Celent does believe that the way insurance companies buy IT is going to change. “We believe the purchase process for IT will slow down in some cases,” he said. “We also believe that some insurers will employ modified priorities in financial criteria in terms of choosing which vendors they want to partner with. Vendors need to recalibrate and recraft their offerings and messaging to meet these needs. This is a good time for vendors to revisit their own strategies and product roadmaps. A smart insurance company that is looking at vendors for a major initiative will ask questions about the roadmap and want to see a roadmap that reflects that current set of realities.”
Weathering the Storm
So what should insurance companies do to remain strong through this financial crisis? Celent recommends that the insurance company first decide how it will deal with the challenges presented by the financial crisis. “Insurance companies should take a view on what this crisis is going to mean for their particular enterprise,” Light said. “Then, they need to rethink their strategy in terms of that view for 2009. Rethink your tactical and strategic IT projects and initiatives. Looking within IT ask how the current application portfolio can help in terms of flexibility. Where do you have flexibility and the ability to change decisions, processes and product offerings? Make sure that you take full advantage of those capabilities, especially if you are a company that has upgraded your systems in recent years. Look at the IT initiatives pipeline to see if priorities should change.”
Light also advised companies to rethink the approval criteria for new initiatives. “Think about how or what projects might make it easier to take business from current competitors,” he said. “Analyze the tactical and strategic value of these projects. Look at the projects that might enable near-term expense reductions. If an insurance company does not have a risk management system and tools in place this might be an excellent time to start looking at that area. If you do have those systems in place, make sure they are robust enough to handle the changes that are likely to occur in the current environment.”
By Tammy J. McInturffThe economy is one everyone’s mind right now. Insurance companies, like most other organizations, are wondering how bad it is going to get. How is the financial crisis going to affect your company’s bottom line? What actions should you take?
Recent events prompted Celent to publish the report, “Bad News on the Street: Insurance IT Strategy and the Financial Crisis.” The report, written by Mike Fitzgerald, Donald Light, Catherine Stagg-Macey, and Craig Weber, looks at the global financial crisis and how it will affect insurers and their information technology (IT) strategies.
Boston-based Celent is a research and consulting firm focused on the application of information technology in the global financial services industry. Celent tracks insurance and technology developments very closely.
Senior Analysts, Donald Light and Catherine Stagg-Macey, recently presented a Webinar based on the findings of Celent’s “Bad News on the Street: Insurance IT Strategy and the Financial Crisis” report. “It has become clear that the turmoil in the housing market and the credit markets from banks to investment banks is becoming global and systematic,” Light said. “It is going to create a set of challenges that insurance companies both on the business side and the IT side are going to have to deal with.”
Riding the Roller Coaster
The markets have been a roller coaster of action lately, leaving companies unsure of what to expect in 2009. Although companies may not be planning any radical changes yet in their spending plans for 2009, most know those plans could change quickly in this volatile economy. “No one knows how all these situations in the financial markets are going to play out but you have to start somewhere,” Light said, during the recent Webinar. “We think in the near term there are going to continue to be severe stresses both on the global financial systems and on the national financial systems. We also make the assumption that there will continue to be disruptive failures, acquisitions of banks, investment banks and to a more limited degree insurance companies. We believe there will be a mild or moderate economic recession both globally and among leading major national economies. This recession will last at least through the beginning of 2010. However, we do not believe that there will be an extended and severe global financial or economic crisis. In other words, there won’t be a global financial system meltdown or severe depression in terms of national or global economies.”
How Did We Get Here?
How exactly did insurance companies get caught up in this mess? It has been well publicized that a lot of bad mortgage loans have been made, primarily in the U.S. Light discussed the root cause of the situation and how insurance companies became involved. “After these bad mortgage loans were made, they were securitized, bought, traded and even often guaranteed by various financial institutions,” he said. “Insurance companies make both explicit and implicit choices regarding their relationship between their liabilities—which is mainly the insurance policies and contracts they have issued, and their assets—which is basically their investment portfolios. So what has happened is the results of these bad mortgage loans and the securitization of these bad loans have been seeping through into the assets side. A lot of insurance companies have fixed income assets that are tied to the real estate values and those mortgage loans and the securitized version of those mortgage loans. Some insurers have had equity stakes in financial institutions whose well being was tied even more closely to those real estate values. We have seen some spectacular failures of financial institutions and also some insurers primarily on the life and annuity side have guaranteed the investment performance of some of their underlying products, which they will have to account for either now or later. A few insurance companies have been specifically in the business of guaranteeing mortgage debt or other financial obligations which has lead to a great deal of misfortune.”
Impact on the Industry
Given the recent events, Celent identified six different sectors of the financial crisis that will impact the insurance industry in the U.S. over the next year. First, Celent believes that losses are going to go up. “One reason for increased losses is what is sometimes called morale hazard,” said Light. “This is policyholders either engaging in soft fraud or even hard fraud in lines like health, auto insurance, workers compensation and so on.”
Celent also predicts that the soft market will continue to impact insurers. “You might think that increased losses would be an opportunity for pricing practices to harden, but we don’t think that is going to happen. We think there are too many other factors at play,” Light said.
Celent also believes that overall financial results for P&C and general insurance carriers will deteriorate. “There is going to be less value out there to insure. There will be fewer employees for workers compensation and health insurance and the demand for variable life and annuity products is going to go down,” said Light. “In terms of capital and solvency, the good news here is that within the U.S. most of the property & casualty, general, and life & annuity industry had started from a very strong capitalization position; there have been and will continue to be however hits to those positions with possibly a limited number of additional insurancecompany failures.”
Celent predicts that regulation and rating scrutiny is going to be both broader and tighter. “It will be broader in the sense that not just the insurance activities but other financial commitments at the holding company level will come under scrutiny. It will be tighter in the sense that there will be a lot more aggressive examinations and more probing questions by rating agencies and much more willingness to pull the trigger earlier on rating downgrades,” Light said.
In terms of mergers and acquisitions, Celent believes there will be an increasing level of consolidation in the industry.
According to Catherine Stagg-Macey, the impact will be similar for Europe but probably not as intense. “Europe is really going to be impacted by what I consider to be the third ripple effect of the subprime crisis in the U.S. which is really the economic slowdown,” she said. “We are also going to see increased claims and fraud which is typical of a slowdown. We will also see pressure to keep prices down. It is always harder to increase prices in difficult times which will obviously erode financial results. In the area of capitalization and solvency there will probably be less of an impact for a European insurer than for a U.S. insurer. In regards to mergers and acquisitions, I think that European insurers may acquire some of the American assets that are for sale.”
How Should Insurer’s React?
Given the challenges that insurers are facing and will continue to face how should they react? Light cautioned that IT groups within insurance companies should not overreact to the current crisis but at the same time they should not under-react either. He added that it is important for these groups to take both a midterm and long term view of the situation.
According to Celent, the basic options for business strategies for insurers have not really changed. Insurers can still use the same operational strategies that they have been using for years. Celent identified these three operational strategies as getting bigger, leaner or smarter. “The financial crisis means that every insurer needs to rethink its choices,” said Light. “Insurers can choose to get bigger by generating more sales and growing in more markets. They can choose to get leaner by reducing expenses and increasing productivity. Or they can choose to get smarter by correctly pricing risks, making the right underwriting decisions, adjusting claims and matching their assets and liabilities. The choices that insurance companies are going to make among these options are going to change. Corporate goals and objectives may change with companies ratcheting down their return on equity. It may take a mix of strategies to reach new objectives. In past recessions we have seen eagerness in many cases to just cut staff. We will have to wait and see if that will happen this time around. We think the tactical focus within strategies is going to be changed. Insurers are going to have to look at what strategic or tactical levers are available to pull right now and which of them have a longer lead time.”
IT Strategy
A company’s IT strategy must be there to enable and support business strategies. Light said this aspect of an insurance company’s IT strategy has not changed. However, he said some companies may need to rethink some of their IT strategies given the current financial crisis. Every insurer has ongoing IT initiatives. Most insurers’ portfolios of planned or ongoing IT projects probably include point solutions, infrastructure, sourcing strategies or IT governance. “These IT initiatives can provide tactical and/or strategic benefits for an insurer,” Light said. “The current financial crisis makes it critical that insurers re-evaluate their current and future IT initiatives and review the kind of value each initiative can provide; keeping in mind that tactical benefits are available sooner but may address more limited issues; while strategic benefits take longer but can change how an insurer competes. Balancing tactical and strategic initiatives is essential to making sure short-term goals are met while at the same time supporting long-term business strategies.”
According to Celent’s recent report, “IT initiatives must adjust to the new economic environment.” Light described in detail which IT initiatives could provide strategic value, which could provide tactical value and which initiatives provided both. In general, tactical solutions usually take less than a year to make an impact, while strategic solutions take one to three years to make an impact.
Core Systems
First, Light looked at core systems initiatives, such as policy administration replacement, rationalization of multiple policy administration systems and claims. According to Light, because of the size and complexity of replacing an administration system, most of the value is going to be on a strategic level and will provide all three types of strategies Celent identified—getting bigger, leaner and smarter. “For policy administration system rationalization where there are multiple policy admin platforms that are being combined onto a smaller number, this is a multi-year process,” Light said. “So we think the value here is also primarily strategic. Core claim systems we think can deliver both tactically and strategically because companies can see leaner benefits within a year in addition to longer-term productivity improvement.”
Point Solutions
Celent also looked at the strategic value of Point Solutions such as product development, pricing and rating solutions, new business and distribution, business intelligence analytics and data mastery and billing solutions. “We think solutions that enable product development or product configuration are primarily strategic in value especially among variable life and annuity products,” Light said. “We also think product development initiatives can help improve innovation and customer responsiveness thus allowing companies to take share from competitors by having a better product available in the market more quickly using these tools.”
Pricing and rating solutions can provide both tactical and strategic benefits, according to Celent. These solutions can enable quick changes in pricing structures. “In the long term, fundamental changes in pricing strategy, such as developing a microsegment pricing approach for a new line of business can have major impacts but takes longer to achieve,” Light said.
New business and distribution initiatives can also provide both tactical and strategic benefits. “In the short term, these solutions can help grow top-line revenue through better partnership with producers,” Light explained. “These solutions can also address longer-term issues like more straight-through processing for certain lines. They can also help with becoming leaner by potential reduction of staff and they can help improve underwriting efficiency and results.”
Analytics, business intelligence and data mastery initiatives can also have both tactical and strategic benefits. “In the short term, tactically, these capabilities let companies become both smarter and leaner in an operational sense,” said Light. “Over the long term, these solutions can give insights for major adjustments in business and financial models leading to improved financial performance.”
Billing solutions tend to have more strategic long term benefits, according to Celent. “These solutions have benefits in terms of management information and dues, but we think they will take a longer time to realize,” said Light.
Infrastructure Initiatives
The third category of IT initiatives that Light discussed during the recent Webinar were infrastructure initiatives, which include business rules and business process management solutions, content/document management, integration and SOA, risk management and data centers. Business rules and business process management solutions can make substantial changes especially for companies with inflexible legacy systems. These solutions can help companies achieve greater control, consistency and decision quality over what is happening, but because these benefits can take longer to be realized, Celent categories these as strategic initiatives.
According to Light, content management and document management can have both strategic and tactical benefits. “In the near term, content and document management can be deployed to get companies much leaner and more efficient. The longer-term benefits are primarily from a compliance point of view.
Service oriented architecture and integration methods tend to provide more strategic benefits. “These strategies will lead to companies becoming leaner and more agile,” Light said. “Most companies have started their SOA build-outs and realize that seeing the benefits is a multiyear process.”
Risk management initiatives can have both strategic and tactical benefits. “This might be seen as kind of the heart of the issue, especially over on the investment banking side and to an increasing degree on the insurance side,” Light said. “Risk management initiatives can help yield smarter capabilities which are important before a crisis and absolutely critical now. The benefits of risk management initiatives range from meeting regulatory requirements to survival.”
Data centers and networks tend to yield more tactical benefits, according to Light. He said these initiatives can help deliver “get leaner” benefits; integrated voice/data/video benefits and also have potential “get smarter” benefits in the short term.
Sourcing initiatives consist of two categories, Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO). “We see ITO as primarily tactical especially in the traditional areas of maintenance and support,” Light said. “Business Process Outsourcing on the other hand is more strategic. It can have an impact both on the fixed cost and the variable cost structure of a company. This is a big step that requires more time to understand and to find the right partner to do this with.”
IT Spending
How will the financial crisis affect IT spending in 2009? Celent believes that there will be a downward pressure on IT budgets for 2009 and maybe even 2010. “Before the severe current stage of the crisis and the crisis spreading to the insurance industry, we had projected that IT spending in 2009 in general would be modestly higher than 2008,” Light said. “Now, we are predicting spending being stable or down two to three percent. We realize that most insurance companies are on an annual calendar budget year and most of the plans are already in place. Right now, from what we have seen companies are not panicking and reducing budget plans. However, budget plans and allocations can change in a matter of days or weeks if senior management sees the overall situation deteriorating in a serious way.”
Advice for IT Vendors
Celent also had advice for insurance IT vendors. Light said that although this may not be the best of times for IT vendors, it is really not the worst of times either. “The need for the types of value that IT solutions provide in terms of enabling the strategies of insurance companies has not changed,” he said. “In fact, the limitations and difficulties that the older legacy systems present may be felt more acutely as companies are forced to make more rapid adjustments to new environments.”
According to Light, Celent does believe that the way insurance companies buy IT is going to change. “We believe the purchase process for IT will slow down in some cases,” he said. “We also believe that some insurers will employ modified priorities in financial criteria in terms of choosing which vendors they want to partner with. Vendors need to recalibrate and recraft their offerings and messaging to meet these needs. This is a good time for vendors to revisit their own strategies and product roadmaps. A smart insurance company that is looking at vendors for a major initiative will ask questions about the roadmap and want to see a roadmap that reflects that current set of realities.”
Weathering the Storm
So what should insurance companies do to remain strong through this financial crisis? Celent recommends that the insurance company first decide how it will deal with the challenges presented by the financial crisis. “Insurance companies should take a view on what this crisis is going to mean for their particular enterprise,” Light said. “Then, they need to rethink their strategy in terms of that view for 2009. Rethink your tactical and strategic IT projects and initiatives. Looking within IT ask how the current application portfolio can help in terms of flexibility. Where do you have flexibility and the ability to change decisions, processes and product offerings? Make sure that you take full advantage of those capabilities, especially if you are a company that has upgraded your systems in recent years. Look at the IT initiatives pipeline to see if priorities should change.”
Light also advised companies to rethink the approval criteria for new initiatives. “Think about how or what projects might make it easier to take business from current competitors,” he said. “Analyze the tactical and strategic value of these projects. Look at the projects that might enable near-term expense reductions. If an insurance company does not have a risk management system and tools in place this might be an excellent time to start looking at that area. If you do have those systems in place, make sure they are robust enough to handle the changes that are likely to occur in the current environment.”
NASA looks back on 2008
Northern Lights
Researchers using NASA satellites believe they solved the mystery of the Northern Lights this year. Data from five THEMIS (Time History of Events and Macroscale Interactions during Substorms) satellites indicate that the phenomenon is caused an explosion of magnetic energy a third of the way to the moon. The key to the aurora borealis, NASA says, is magnetic reconnection, or "stressed magnetic field lines that suddenly snap to a new shape, like a rubber band that's been stretched too far." This causes a burst of light and movement near the northern and southern poles.
This artist's concept shows the explosion of energy responsible for sudden increases in the brightness and movement of the Northern Lights.
Researchers using NASA satellites believe they solved the mystery of the Northern Lights this year. Data from five THEMIS (Time History of Events and Macroscale Interactions during Substorms) satellites indicate that the phenomenon is caused an explosion of magnetic energy a third of the way to the moon. The key to the aurora borealis, NASA says, is magnetic reconnection, or "stressed magnetic field lines that suddenly snap to a new shape, like a rubber band that's been stretched too far." This causes a burst of light and movement near the northern and southern poles.
This artist's concept shows the explosion of energy responsible for sudden increases in the brightness and movement of the Northern Lights.
NASA looks back on 2008
Arctic sea ice declines
For 30 years, NASA has used satellites to observe and record changes to sea ice. NASA and the National Snow and Ice Data Center at the University of Colorado say that in 2008, Arctic sea ice reached the second-lowest level recorded since satellite observations have been possible. The lowest point was recorded in September 2007.
"Based on what we've learned over the last 30 years, we know that the perennial ice cover is now in trouble," said Joey Comiso of NASA's Goddard Space Flight Center in Greenbelt, Md. "You need more than just one winter of cooling for the ice to recover to the average extent observed since the measurements began. But the trend is going the other way. A warming Arctic causes the surface water to get warmer, which delays the onset of freeze up in the winter and leads to a shorter period of ice growth. Without the chance to thicken, sea ice becomes thinner and more vulnerable to continued melt."
This map shows the extent of Arctic sea ice in August 26, 2008. The orange line shows the 1979 to 2000 average extent for that day.
For 30 years, NASA has used satellites to observe and record changes to sea ice. NASA and the National Snow and Ice Data Center at the University of Colorado say that in 2008, Arctic sea ice reached the second-lowest level recorded since satellite observations have been possible. The lowest point was recorded in September 2007."Based on what we've learned over the last 30 years, we know that the perennial ice cover is now in trouble," said Joey Comiso of NASA's Goddard Space Flight Center in Greenbelt, Md. "You need more than just one winter of cooling for the ice to recover to the average extent observed since the measurements began. But the trend is going the other way. A warming Arctic causes the surface water to get warmer, which delays the onset of freeze up in the winter and leads to a shorter period of ice growth. Without the chance to thicken, sea ice becomes thinner and more vulnerable to continued melt."
This map shows the extent of Arctic sea ice in August 26, 2008. The orange line shows the 1979 to 2000 average extent for that day.
NASA looks back on 2008
Ares I rocket
In 2008, NASA passed a major hurdle on its journey back to the moon. NASA completed preliminary design review for its new Ares I rocket, which is planned to carry astronauts to the International Space Station, the moon, and out into the solar system beginning in 2015. It is the first time in more than 35 years that NASA has reached such a milestone for a rocket that will carry astronauts into space.
Ares I is a two-stage rocket configuration topped by the Orion crew vehicle and its launch abort system. It is designed to carry crews of four to six astronauts and has a 25-ton payload capacity.
This is an artist's rendition of Ares I in the vehicle assembly building at the Kennedy Space Center in Florida.
In 2008, NASA passed a major hurdle on its journey back to the moon. NASA completed preliminary design review for its new Ares I rocket, which is planned to carry astronauts to the International Space Station, the moon, and out into the solar system beginning in 2015. It is the first time in more than 35 years that NASA has reached such a milestone for a rocket that will carry astronauts into space.
Ares I is a two-stage rocket configuration topped by the Orion crew vehicle and its launch abort system. It is designed to carry crews of four to six astronauts and has a 25-ton payload capacity.
This is an artist's rendition of Ares I in the vehicle assembly building at the Kennedy Space Center in Florida.
NASA looks back on 2008
Phoenix Mars Lander
NASA's Phoenix Mars Lander touched down on the Red Planet and completed its mission this year. The Phoenix landed on Mars on May 25 farther north than any previous spacecraft had landed. During its mission, the Phoenix took and studied soil samples, and shot more than 25,000 pictures of the Martian surface. NASA credits Phoenix with confirming the presence of water-ice in Mars' subsurface.
After shutting itself down due to lack of sunlight to fuel its solar-powered batteries, the Phoenix ceased sending data back to Earth on November 2, two months later than the project had been expected to run.
This is an artist's rendering of the lander on Mars.
Images: NASA looks back on 2008
As 2008 comes to a close, NASA has published a short retrospective of the year's biggest advances and discoveries. Here's a look at the highlights.
10th anniversary of the ISS
This year marked the 10th anniversary of the International Space Station. The first piece of what would become the space station--the Russian-built FGB, also called Zarya--lifted off from Earth on November 20, 1998. The Zarya is pictured here after two weeks aloft, a shot taken from the approaching space shuttle Endeavour, which would deliver the second piece, the Unity module.
NASA made four trips to the ISS in 2008 to build out the station with new modules and hardware, increasing its size, volume, and scientific research capabilities, and famously deliveirng a new water recycling system.
Its mass is now more than 313 tons, with an interior volume of more than 25,000 cubic feet, comparable, NASA says, to the size of a five-bedroom house. The ISS now contains 19 research facilities.
10th anniversary of the ISS
This year marked the 10th anniversary of the International Space Station. The first piece of what would become the space station--the Russian-built FGB, also called Zarya--lifted off from Earth on November 20, 1998. The Zarya is pictured here after two weeks aloft, a shot taken from the approaching space shuttle Endeavour, which would deliver the second piece, the Unity module.
NASA made four trips to the ISS in 2008 to build out the station with new modules and hardware, increasing its size, volume, and scientific research capabilities, and famously deliveirng a new water recycling system.
Its mass is now more than 313 tons, with an interior volume of more than 25,000 cubic feet, comparable, NASA says, to the size of a five-bedroom house. The ISS now contains 19 research facilities.
Contractless in Seattle
After nine months of searching for work, Ben Klausner thought he'd finally caught a break when he landed a contract gig in September doing security work for Microsoft's cloud computing project.
Just a month after he started, though, he learned his contract was ending. Now Klausner, a 55-year-old former IBM worker finds himself again out of work. And the prospects for employment look even dimmer than they were before the Microsoft job.
Klausner
"It was frustrating," he said of his brief Microsoft experience. "You go in and you expect to be there for a year or more and after a month they tell you you have another 30 days."
Klausner's story is the kind that unemployment statistics and headlines don't often take into account. Unlike companies that have had widespread cuts, Microsoft hasn't announced broad layoffs. However, that doesn't mean the ranks of those doing work for Microsoft are as robust as they once were.
Microsoft has sharply slowed hiring and cut a significant--but unspecified--number of contractors. The company has also said it is looking to reduce its bills from its vendors, an action that could also trim the ranks of those who do business on Microsoft's behalf.
"I don't think many people are aware that Microsoft has cut back a lot of projects," Klausner said.
Klausner said he tried to find another job either within Microsoft or at the consulting company through which he got the Microsoft work, but he came up empty. "They talked about finding other things, but they didn't have anything," he said.
Things haven't worked out the way Klausner planned when he left his IBM job in Texas nearly a decade ago. Klausner, a ham radio enthusiast and science fiction fan, had grown tired of Texas and wasn't enjoying his latest assignment at IBM. He headed to Seattle at the peak of the dot-com boom because of its low unemployment rate and fast-growing technology sector.
"It was the height of the boom, so I figured I could make a move," said Klausner, whose resume includes work as a systems and network architect in addition to his security work. He found jobs at a couple of Seattle-area start-ups, but after the dot-com bust, he found steady work harder to come by.
Eventually, he settled on finding work as a contractor--one of the legions of tech workers that companies hire for specific projects. "I've been doing contract work for about four years; not so much by choice but by circumstance. It's what was available."
Click for complete special report
But now, Klausner said he doesn't find very many jobs even for contractors. He said he applies for several jobs each day but that there's a huge amount of competition, noting that the recent failure of Washington Mutual has put even more technical folks in competition for the slots that do come open. "There just aren't that many coming up either," he said.
For now, Klausner is also curtailing spending as best he can. "I'm going into what I think of as hermit mode," he said. "I don't go out much. I don't buy much. I was on the verge of replacing my car and that went on hold."
Instead, he is relying on his 12-year-old Ford Explorer as he searches for new work. That, he hopes, will make his savings last longer.
"Of course, investments have gone in the toilet so it's not as big a cushion as I would have liked," Klausner said. "I've got some savings for a couple of months, but it could be a real problem if this goes on."
Just a month after he started, though, he learned his contract was ending. Now Klausner, a 55-year-old former IBM worker finds himself again out of work. And the prospects for employment look even dimmer than they were before the Microsoft job.
Klausner"It was frustrating," he said of his brief Microsoft experience. "You go in and you expect to be there for a year or more and after a month they tell you you have another 30 days."
Klausner's story is the kind that unemployment statistics and headlines don't often take into account. Unlike companies that have had widespread cuts, Microsoft hasn't announced broad layoffs. However, that doesn't mean the ranks of those doing work for Microsoft are as robust as they once were.
Microsoft has sharply slowed hiring and cut a significant--but unspecified--number of contractors. The company has also said it is looking to reduce its bills from its vendors, an action that could also trim the ranks of those who do business on Microsoft's behalf.
"I don't think many people are aware that Microsoft has cut back a lot of projects," Klausner said.
Klausner said he tried to find another job either within Microsoft or at the consulting company through which he got the Microsoft work, but he came up empty. "They talked about finding other things, but they didn't have anything," he said.
Things haven't worked out the way Klausner planned when he left his IBM job in Texas nearly a decade ago. Klausner, a ham radio enthusiast and science fiction fan, had grown tired of Texas and wasn't enjoying his latest assignment at IBM. He headed to Seattle at the peak of the dot-com boom because of its low unemployment rate and fast-growing technology sector.
"It was the height of the boom, so I figured I could make a move," said Klausner, whose resume includes work as a systems and network architect in addition to his security work. He found jobs at a couple of Seattle-area start-ups, but after the dot-com bust, he found steady work harder to come by.
Eventually, he settled on finding work as a contractor--one of the legions of tech workers that companies hire for specific projects. "I've been doing contract work for about four years; not so much by choice but by circumstance. It's what was available."
Click for complete special report
But now, Klausner said he doesn't find very many jobs even for contractors. He said he applies for several jobs each day but that there's a huge amount of competition, noting that the recent failure of Washington Mutual has put even more technical folks in competition for the slots that do come open. "There just aren't that many coming up either," he said.
For now, Klausner is also curtailing spending as best he can. "I'm going into what I think of as hermit mode," he said. "I don't go out much. I don't buy much. I was on the verge of replacing my car and that went on hold."
Instead, he is relying on his 12-year-old Ford Explorer as he searches for new work. That, he hopes, will make his savings last longer.
"Of course, investments have gone in the toilet so it's not as big a cushion as I would have liked," Klausner said. "I've got some savings for a couple of months, but it could be a real problem if this goes on."
Contractless in Seattle
After nine months of searching for work, Ben Klausner thought he'd finally caught a break when he landed a contract gig in September doing security work for Microsoft's cloud computing project.
Just a month after he started, though, he learned his contract was ending. Now Klausner, a 55-year-old former IBM worker finds himself again out of work. And the prospects for employment look even dimmer than they were before the Microsoft job.
Klausner
"It was frustrating," he said of his brief Microsoft experience. "You go in and you expect to be there for a year or more and after a month they tell you you have another 30 days."
Klausner's story is the kind that unemployment statistics and headlines don't often take into account. Unlike companies that have had widespread cuts, Microsoft hasn't announced broad layoffs. However, that doesn't mean the ranks of those doing work for Microsoft are as robust as they once were.
Microsoft has sharply slowed hiring and cut a significant--but unspecified--number of contractors. The company has also said it is looking to reduce its bills from its vendors, an action that could also trim the ranks of those who do business on Microsoft's behalf.
"I don't think many people are aware that Microsoft has cut back a lot of projects," Klausner said.
Klausner said he tried to find another job either within Microsoft or at the consulting company through which he got the Microsoft work, but he came up empty. "They talked about finding other things, but they didn't have anything," he said.
Things haven't worked out the way Klausner planned when he left his IBM job in Texas nearly a decade ago. Klausner, a ham radio enthusiast and science fiction fan, had grown tired of Texas and wasn't enjoying his latest assignment at IBM. He headed to Seattle at the peak of the dot-com boom because of its low unemployment rate and fast-growing technology sector.
"It was the height of the boom, so I figured I could make a move," said Klausner, whose resume includes work as a systems and network architect in addition to his security work. He found jobs at a couple of Seattle-area start-ups, but after the dot-com bust, he found steady work harder to come by.
Eventually, he settled on finding work as a contractor--one of the legions of tech workers that companies hire for specific projects. "I've been doing contract work for about four years; not so much by choice but by circumstance. It's what was available."
Click for complete special report
But now, Klausner said he doesn't find very many jobs even for contractors. He said he applies for several jobs each day but that there's a huge amount of competition, noting that the recent failure of Washington Mutual has put even more technical folks in competition for the slots that do come open. "There just aren't that many coming up either," he said.
For now, Klausner is also curtailing spending as best he can. "I'm going into what I think of as hermit mode," he said. "I don't go out much. I don't buy much. I was on the verge of replacing my car and that went on hold."
Instead, he is relying on his 12-year-old Ford Explorer as he searches for new work. That, he hopes, will make his savings last longer.
"Of course, investments have gone in the toilet so it's not as big a cushion as I would have liked," Klausner said. "I've got some savings for a couple of months, but it could be a real problem if this goes on."
Just a month after he started, though, he learned his contract was ending. Now Klausner, a 55-year-old former IBM worker finds himself again out of work. And the prospects for employment look even dimmer than they were before the Microsoft job.
Klausner
"It was frustrating," he said of his brief Microsoft experience. "You go in and you expect to be there for a year or more and after a month they tell you you have another 30 days."
Klausner's story is the kind that unemployment statistics and headlines don't often take into account. Unlike companies that have had widespread cuts, Microsoft hasn't announced broad layoffs. However, that doesn't mean the ranks of those doing work for Microsoft are as robust as they once were.
Microsoft has sharply slowed hiring and cut a significant--but unspecified--number of contractors. The company has also said it is looking to reduce its bills from its vendors, an action that could also trim the ranks of those who do business on Microsoft's behalf.
"I don't think many people are aware that Microsoft has cut back a lot of projects," Klausner said.
Klausner said he tried to find another job either within Microsoft or at the consulting company through which he got the Microsoft work, but he came up empty. "They talked about finding other things, but they didn't have anything," he said.
Things haven't worked out the way Klausner planned when he left his IBM job in Texas nearly a decade ago. Klausner, a ham radio enthusiast and science fiction fan, had grown tired of Texas and wasn't enjoying his latest assignment at IBM. He headed to Seattle at the peak of the dot-com boom because of its low unemployment rate and fast-growing technology sector.
"It was the height of the boom, so I figured I could make a move," said Klausner, whose resume includes work as a systems and network architect in addition to his security work. He found jobs at a couple of Seattle-area start-ups, but after the dot-com bust, he found steady work harder to come by.
Eventually, he settled on finding work as a contractor--one of the legions of tech workers that companies hire for specific projects. "I've been doing contract work for about four years; not so much by choice but by circumstance. It's what was available."
Click for complete special report
But now, Klausner said he doesn't find very many jobs even for contractors. He said he applies for several jobs each day but that there's a huge amount of competition, noting that the recent failure of Washington Mutual has put even more technical folks in competition for the slots that do come open. "There just aren't that many coming up either," he said.
For now, Klausner is also curtailing spending as best he can. "I'm going into what I think of as hermit mode," he said. "I don't go out much. I don't buy much. I was on the verge of replacing my car and that went on hold."
Instead, he is relying on his 12-year-old Ford Explorer as he searches for new work. That, he hopes, will make his savings last longer.
"Of course, investments have gone in the toilet so it's not as big a cushion as I would have liked," Klausner said. "I've got some savings for a couple of months, but it could be a real problem if this goes on."
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