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How Extranets Impact Insurance Secure Transactions and Information Sources Aug. 21, 2000 (SmartPros) The media abounds with stories -- and warnings -- about the demise of insurance and financial firms that are not quick to embrace the Internet way of doing business. In e-business, as in more traditional businesses, history has lessons for those who are willing to listen. And, as always, some of the best lessons come from stupendous failures - failures such as the Maginot Line. After World War I, the French constructed a defensive barrier wall against German invasion. The Maginot Line -- considered a superb, advanced fortification -- was touted for its three key features that older, circular forts lacked: it was thicker, it was comfortable for troop activity, and it stretched for hundreds of miles in a straight line. Troops could be moved along underground rails to fight wherever needed.
Unfortunately, the barrier didn't work. The German army simply traveled through Belgium and around the line. The French artillery along the Maginot Line was encased in cement and could not be redirected against the onslaught. The mighty fortress might have been effective had it been extended but the creators assumed there was no need to fortify against their friends, the Belgians. They did not anticipate their friends being overrun.
Unlike the Maginot Line, e-business must be extremely flexible and forward thinking. Strategic planners must be able to think outside the rigid barriers and systems of the bricks-and-mortar world to imagine a more fluid, evolving online world in which many hands make lighter work of managing and updating intranet and extranet systems. E-business requires:
Some firms will be overtaken by faster, techno-savvy new enterprises. Indeed, the business-to-business aspect of e-commerce is expected to grow exponentially (when compared to the sale of consumer goods) as service industries realize the economies and synergies of online partnerships.
According to Forrester Research, an Internet market research firm, consumers are expected to spend only $108 billion to buy goods online in 2003. Businesses are expected to spend $1.3 trillion.
Financial service providers such as insurers, personal financial planners, consultants, securities brokers and accounting firms are beginning to experience Maginot-like experiences on the Web. Those who ally with neighboring service providers to connect their infrastructures in strategic ways that accommodate demand will prevail. G.E. Capital and benefitsmall.com are examples.
Connecting Infrastructures
These strategic alliances are made easy by technology. Extranets, for example are private, password-protected networks that use the Internet to securely share part of a business's information or operations with suppliers, vendors, partners, customers or other businesses, as defined by Whatis.com. An extranet can be viewed as part of a company's intranet that is extended to users outside the company. Some typical extranet applications among financial and insurance companies include:
Online financial service providers can run into the same difficulties in "supply chain management" as their consumer site counterparts. When firms make the first move to provide transactions online, a disconnect often occurs between the customer-facing aspect and back-end business support. An example of this type of disconnect was the 1999 Christmas season failure of Toys-R-Us.com. Difficulties arose when the company was unable to scale up to meet demand. One delay in particular was caused by the company's failure to plan for an adequate supply of large shipping boxes. As financial and insurance services gain Internet experience they will learn from recent end-runs such as this to avoid the Maginot Lines of consumer goods providers.
Where financial service companies fail to coordinate delivery, the glitches might appear in understaffed or untrained call-center personnel or in current rate information gaps. A common difficulty arises when two or more firms merge their database information.
An extranet is a business vehicle, not just a technical phenomenon of communication. Successful insurance companies who have examined their internal processes and studied customer needs and usage will adapt more quickly to conducting e-business. The Web portal is the key configuration of the New Economy, where firms provide a potpourri of like services. Extranets, with their powerful databases, are the backbone of portals, providing secure transactions and choices for business customers and agents.
Strategic Planning
To implement the extranet business plan, a joint technology audit is the first order of the day. The audit must cover hosting, servers, design and development, security and maintenance. It must be reviewed and updated quarterly. The trend is to outsource application services to Web-based IT managers. Just as each associate and employee maintains a firm's relationships, so too should every individual in each participating firm become accustomed to enhancing the extranet. The more that each party engages in communications planning, the more likely it is that the e-business model will succeed.
To manage the review of processes, documents and projects, two or more aligning companies must create a cross-functional project team. Sometimes the project leads to the birth of a new company. An illustration: Jack Welch of General Electric has already required some 40,000 business partners and suppliers to transact business via extranet, under the threat of GE's finding other vendors.
The extranet project team reviews:
The Gramm-Leach-Bliley Financial Services Modernization Act has realigned financial services delivery across the insurance, banking and securities industries. The Act permits new alliances among the three industries for the delivery of complete financial service packages to clients. As a result, insurance aggregates and portals are beginning to appear on the Web. Aggregates are Web marketplaces that require excellent marketing strategy and Web design. But most importantly, they require well-developed intranet and extranet back-end systems to support customer transactions. Their success depends on accurate tracking and anticipation of customer preferences.
The best carriers will want to support and motivate independent agents with extranets by providing current information and applications.
Getting Sticky: The 80-20 Secret
Even old economy companies know that eighty percent of business comes from twenty percent of current customers. Customers tend to repeat business where they have an easy time getting current information and performing transactions. Successful Web site marketplaces are "sticky." They attract repeat business. A site may provide attractive design, easy transaction capability and even useful financial planning and insurance tips. But if the site does not deliver the necessary information, the customer doesn't stick. Customers who are able to research claims status, policy rules and limits, and actual rates for financial planning packages may not realize that this information is stored on extranet databases. But if their personal information is readily available, he or she will be drawn back like a magnet. The more fluid the information capture and transaction experience, the more dependent the end customer becomes. When it comes to creating customer loyalty, traditional business rules still apply in the New Economy.
Insurance Companies are Responding
The purpose of an extranet is the efficient management of information and documents used to prepare contracts, proposals and transactions. A password-protected extranet is a good place to develop joint presentations for product development or financial planning packages. One example of a successfully implemented health insurance extranet is a workplace online benefit renewal system. Employees may check current coverage information and selection criteria. As digital signatures become legal standard, actual renewal contracts may be executed at these workplace sites. Another example is the Putnam 401(k) plan site which, when connected to a company intranet, gives employees direct access to the status of their personal funds.
Other examples of extranet relationships are those between carriers and claims management firms and accounts receivable services. One company may provide services to a group of other companies, as when an online claims or medical records application is managed by one company on behalf of affiliated companies.
At the heart of the extranet is a strong security plan that defines policies and practices such as authorization privileges, remote access, encryption and use of digital signatures. The right combination of access control, auditing, authentication and encryption should not be left to any single business unit. Partner firms must also be assured of the physical safety of firewalls and other server and client computers.
For examples of extranet applications, visit:
Satellite, Internet, and other technologies have rendered the Maginot defensive barrier concept obsolete. The lesson learned from its failure is at the heart of New Economy business survival.
Please send your comments, questions and article proposals to information@smartpros.com.
2000, Smartpros Ltd. All Rights Reserved.
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