Insurance in Iran

8/9/2019 Insurance in Iran

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Universal Journal of Management and Social Sciences Vol. 3, No.5; May 2013

61

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

Afshin Honarbari , & Abdollah Alidoost

M A Student of Business Management, Science and Research Branch, Islamic Azad

University, Rasht, Iran

Abstract

Information technology has played a significant and central role in global evolutions during

recent years and this has accelerated performing different tasks. Expansion of the Internet

changes business conditions and methods rapidly and frequently. Like other industries,

insurance industry also has to be consistent with recent business relating global

transformations. Those insurance companies which changed their business approach and

strategies and benefit form information technology can grow significantly. The present

paper aims to investigate electronic business in insurance industry and the effect of IT on

sales of insurance companies besides presenting applications of IT in insurance and its

development challenges.

Keywords: information technology, insurance industry, business, E-insurance

Introduction

Growth and increasing development of information technology has transformed different

aspects of human life and organizational performance. The technology alters performance

and approaches of individuals, organizations and governments and leads to development of

modern industries and new jobs. The rapid acceleration of environmental evolution is a

main characteristic of the third millennia or "information era". This rapid movement will

undoubtedly affect today's business world and transforms traditional business paradigms. It

also obliges modern organizations to make essential changes in their structure and

guidelines. In facet, modern organizations are moving toward being "network-oriented" or

behave in the form of "small core – big network". Information technology can be considered

as one of the keys to success of insurance companies.

Electronic business

Electronic business means running a business using remote communications and its related

tools.

It is defined as "a new business method in which essential and vital business processes areperformed with making extensive use of computer, communicative technologies, and

computer data and network" (7).

Advantages and disadvantages of E-business

Advantages

1. Getting closer to communications, rapid data processing and fast data transfer

2. An increase in sales and profit rate, reduction in sales costs and investment costs to

develop and expand agencies' network

3. Possibility of full-time working, remote cooperation, improvement in consumer

relationship management, suppliers and employees.4. Developing and increasing sales opportunities


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5. Providing new facilities and equipments for customers and possibility of comparing

products and prices in the shortest time period

6. Business development and expansion by removing geographical constraints and

reduction of environmental pollution, traffic jam and population crowd

7.

Achieving more consistency between products and services and customers' needsthrough innovation and diversity

8. Expansion of customer relationships and delivering high speed services such as

simplicity in compensations

9. Simplicity of cooperation and knowledge transfer among beneficiaries, stakeholders,

agencies and brokers (9).

Disadvantages

1. High costs of required technologies and lack of standards in some communicative

protocols.

2.

Insufficiency of communicative bandwidth and software problems and deficiencies

3. Lack of integrity of digital and non-digital sales with production information

4. Troubles in integrating E-business infrastructures with current IT systems of the

organization

5. Safety issues and customers' fear of presenting personal and secret data such as

entering their user name and password

6. Obstacles relating to organizational culture and behavior and its current structure

7. Lack of sufficient supportive services such as banks, telecommunications, ISP, etc

8. Lack of employees skilled in applying E-business

9.

Rapid changes in the market and its requirements (4).

Information technology and insurance industry

Insurance industry has experienced various transformations in recent sequential years the

most important of which was deregulation in financial services section along with

fundamental advances in information and communication technologies and these all led to

an increase in competition in this market. In general, the followings are two main changes

occurred:

- Emergence of new capital markets, especially in reinsurance section

- Significant growth of computer networks (such as the Internet) in marketing and

sales of insurance products.

Information technology plays the supportive role in insurance industry. The industry is

currently facing following challenges in IT-based development:

1- Lack of information architecture and standardization of insurance data in order to

provide for aggregating common information and make an intensive and systematic

supervision (on different tasks) possible.

2- Absence of a center for intensive data in central insurance and insurance companies

in order to gain statistical and information needs

3- Lack of mechanization in financial, administrative and insurance operations


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4- Inefficiency of processes concerning customer-orientation to improve operations

and services in insurance companies

5- Lack of expert human forces in the field of IT, problem in attracting such experts and

effects of It on insurance industry (2)

Applying IT in insurance industry in order to have rapid access to information is necessaryfor decision-making and planning. This necessity comes from factors such as cost reduction,

increasing insurance culture level, increasing competitiveness, information, having up-to-

date data, recording insurance history, determining and calculating the premium based on

realities not on classical or imported models and improving insurance services.

Electronic insurance (E-insurance)

What is E-insurance? In a general meaning, it is the application of Internet and IT in

production and distribution of insurance services, but is a specific definition, it can be

considered as providing an insurance cover through a policy which is demanded, proposed,

negotiated and contracted online (5).

Information Technology and virtual insurance

IT is used as a distribution channel not only in insurance industry but in many others all

around the world. Advantages of IT led a huge amount of policyholder investments toward

this field. From policyholders' viewpoint, the traditional sales system must be replaced by IT

to be used as a distribution channel along with other available ones (1).

Efficiency of E-insurance

1. E-insurance reduces administrative and management costs through business

automation and improves management information.

2.

Reduces paid commissions to dealers and brokers through selling the policy directly

to the customer (of course, a part the commission is paid on marketing). Cost

reduction in a competitive market declines the premium(3).

Advantages of insurance electronic sales

1) Nowadays it is difficult for insurance companies to compete on prices because of

similarity among insurance products. Since insurances are distinguished through services

they provide, electronic sales plays an important role in reducing costs and prices.

Moreover, executive affairs and loss equity decline 9 – 12 percents based on insurance type

(according to estimations).

2) A reduction in costs in a competitive market results in a decrease in price and an increase

in insurance penetration.

3) E-insurance decreases obstacles of entering the market and increases competition. The

internet allows insurance companies to avoid costly and long process of initiating the

traditional sales network.

4) Insurance activity is important for E-commerce as a result of information-intensive nature

of the task.

5) The Internet allows for rapid and massive distribution of information


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6) The Internet can be used as a marketing tool or loss equity for those insurances having

higher complexity and transactional value such as pension, medical insurance and many

business insurances needing consultancy.

Disadvantages of insurance electronic sales

1) The electronic sales lacks enough pressure to attract potential customers since insurancemust be sold not purchased.

2) It is not appropriate to apply E-insurance for those complicated insurance types having

high transactional value (10).

3) Application of electronic sales requires expansion of insurance culture and its publicity.

4) Deficiency in proper electronic and telecommunication infrastructures for premium and

compensations in developing countries blocks development of electronic sales.

5) Deficient data transfer may affect validity and efficiency of an insurance contract and

generate serious problems.

6) Concern on unrevealing personal information is another obstacle of electronic sales

expansion.

7) E-insurance accelerates transaction steps creates many fraud opportunities.

8) Since electronic signature is not legal, it is hard to sell insurance online.

The effect of IT on insurance agencies

By emergence of changes coming from E-business insurance agencies face big challenges,

opportunities and threats. The structure of many agencies and role of intermediates will

gradually change. Since the main function of these agencies is to provide customers with

sufficient information and insurance, E-business made it simpler and has reduces many of

their costs. Most ordinary insurance products are distributed online, including car and fire

insurances. But those complicated insurances such as liability insurance which have

complicated pricing processes are mostly distributed by conventional insurance companies.

E-business has also resulted in a decline in using independent agency system compared to

exclusive agencies and direct distribution system (growing since 1970). On the other hand,

the role of agencies in guiding and advising customers, on how to optimize their purchased

insurances and on other cases such as providing customers with expensive side services to

custom, is improving. It can be anticipated that those agencies and brokers achieve success

in the future who can adapt to these conditions and present novel methods to provide

insurance services.

Agents can play a dominant role in policyholders' web strategies (8). Most websites lead

customers to agencies through navigations introducing the nearest agency to customers. If

customers want to receive a price list or purchase insurance most websites lead them

toward agencies.

Only a small number of websites of insurance companies present online price lists and some

of them have direst sales for customers. In fact, companies having direct sales websites are

still emphasizing on the role of agencies through promoting a multi-channel strategy or on

using the web as a complementary strategy of the current technology.


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Indeed, as websites lead customers toward agencies to gain more information and purchase

a policy agencies' role improve. It was once believed that the Internet omits agencies but

leading more transactions toward them increases their role. Moreover, insurance websites

become more efficient by relating agencies to conventional and computer systems of the

company (6).Conclusion

Onset of information and communication technologies in Iran made many organizations use

various tools to equip themselves. Meanwhile, they received new rules and disciplinary

principles. In these circumstances companies grew well and benefited from IT that changed

their business approach and strategies. However, diversity of products or, in other words,

services in insurance industry, wide range of customers and market's geographical

expansion created certain conditions in which making correct use of IT can solve many

problems.

Main challenges faced by insurance industry for IT-based development can be summarized

as follows:

- Most of recent actions were not coordinated. These inconsistencies and challenges

are direct results of management approaches dominant in the industry. Hence,

insurance industry has not been successful in developing IT compared to other fields,

despite its economic dynamicity.

- Software development respecting local characteristics and ability to provide

integrated services

- Developing hardware infrastructure in sales agencies and central offices to generate

a common framework

- Expanding communication infrastructures based on geographical expansion and

sales network in the industry

- Public education and human resource in IT development lead insurance companies

from product-orientation toward customer-orientation

- As policyholders have less searching costs, more clarity is observed in pricing, quality

and insurance services. This reinforces the discipline of competitive market.

- Another important aspect of IT in insurance industry is an increase in its clarity,

- especially for policyholders. Not only the policyholder is able to compare different

- fees and make the best choice but also can compare insurance companies based on

their financial capacities. One of the traditional justifications of legislating for policies

and their fees was that policyholders always face problems in making proper

insurance use, comparing different fees and quality of various insurance companies.

Making use of insurance in conventional manner may cause policyholders purchase

insurance solely based on rate differences and do not notice that (1) policies of

different companies may not be compared directly and (2) those companies offering

cheap fees have lower-quality services and are prone to bankruptcy while online

insurance provides customers with the opportunity to compare and choose costs

and qualities with better understanding and more information.


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Insurance in Iran

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