Microsoft’s ‘Virtual Team’ Takes Insurance to the Fast Track

It’s the twelfth round, and the technology industry has been badly battered—but it’s still in the ring and on its feet. Participants in the new economy that have held on thus far are forging ahead, priorities in place, in the quest for developing business solutions which will finally realize the efficiencies the Internet has long promised.

Ironically, the insurance industry, frequently a target of ridicule during the recent dot-com dot-bust mania, is likely to benefit from its lack of alacrity to rush into the fray when the Internet was largely unexplored territory.

Or at least, that’s what Kevin Kelly, Microsoft’s managing director, global insurance industry, believes.

“Fortunately, the insurance industry, which is often accused of being behind on technology, quite frankly, missed a lot of…pain because it didn’t rush to formulate all kinds of new strategies that abandoned fundamental business practices,” Kelly said in an exclusive streaming audio interview with Insurance Journal.

Kelly’s multi-faceted career includes approximately two decades of experience developing strategic planning, marketing and sales initiatives, focused on technology. Kelly also has spent 12 years assisting insurance vendors, standards bodies, carriers, agents, brokers and national associations, in understanding, developing and promoting emerging information technologies.

In the streaming audio interview, Kelly also discusses how the relationship between the insurance industry and technology will evolve over the next few years, the importance of developing XML standards and Microsoft’s current insurance-specific initiatives.

Josh Lee, Kelly’s technical evangelist, agreed that the insurance industry may have indeed saved itself a lot of grief and can now take a fresh approach to what has become a more mature platform for developing solutions. “The Internet has grown up a little bit,” Lee said. “People understand that the Internet is not what it used to be. It’s not about people building web pages that are neat to look at and then doing an IPO based on a couple of cool graphics.”

Kelly and Lee represent two major components of a Microsoft department, or virtual team, known as the Enterprise Sales & Industry (ES&I) Group, headed by Vice President Ralph Young, which focuses on a variety of vertical industries, including financial services—that is, insurance, banking and securities.

While Kelly is Microsoft’s insurance specialist on the virtual team, technical evangelist Lee, in working with Kelly, can identify the specific technology solutions to answer those business problems and processes identified by Kelly. They are the people who “evangelize” Microsoft’s platform, talk about the value of the corporation’s solutions and technologies, and work with companies who deploy those solutions and technologies.

“A lot of times, the joke I make is that I check and make sure that what Kevin says isn’t absolutely crazy in terms of technology,” explained Lee, who described himself as a programmer by trade, with years of experience doing programming for financial services before he came to Microsoft.

Kelly reports to William C. Hartnett, currently Microsoft’s global director of financial services, who was recruited into Microsoft in 1994 as worldwide insurance industry manager to start up the corporation’s efforts in the insurance vertical.

“When I started here…I was really an experiment,” Hartnett told IJ. “We had tried to get some industry focus by taking people from inside Microsoft who [were] good technology people and pretty good managers, and saying, ‘Why don’t you go out and figure out all you can about the insurance industry…Let’s just do some research, and we can get smart enough, and it’ll be fine.’

“Well, they went through three managers in about nine months with that approach,” Hartnett continued. “It takes a while to really understand what the issues are [in the insurance industry], and you really need to be in that industry before you have an appreciation for it.”

Hartnett said he was hired mostly for his background in business and insurance, which, in addition to running a brokerage for about 15 years, included experience in the technical and political sides of the industry.

In addition to financial services, the ES&I Group is focused on several other key vertical markets, including retail and manufacturing for Hartnett’s immediate group, for which there are individual segment managers, like Kelly.

“Some of the customers and even some of the analysts and press we deal with are expecting the insurance person, the insurance guy,” Hartnett said. “The financial services world is converging…quite rapidly. We try and treat the industry as one continuum rather than individual segments. But some customers still expect us to segment it out a little bit.”

There is also a partner management organization. “One of our core tenets here is that we don’t really build any of the applications that go into running an insurance company,” Hartnett said. “We’re not going to build policy administration systems or agency automation systems. For that we have a group of partners that we’ve aligned with…to build those products.” Such partners include Applied Systems, Accenture and XDimensional Technologies.

“Seven years ago when we started to do this, we were selling an awful lot of software into key verticals and into enterprises,” Hartnett continued. “But we weren’t an enterprise software company…Back then, we were preparing for the day when we were to grow into an organization [with] a product line that was capable of really being a true enterprise software platform.”

While he was still in the insurance business, Hartnett met Kelly. Hartnett was on the ACORD board, and Kelly, who was in technology consulting and communications, worked with ACORD as a consultant. Hartnett went to join Microsoft, and Kelly continued his consulting work in the industry, eventually joining a startup company that was working on innovative approaches of using the Internet to sell insurance.

When Hartnett was promoted at Microsoft to take over all of the financial services efforts almost four years ago, he immediately thought of Kelly as a good fit for Hartnett’s soon-to-be vacant insurance position.

“Kevin was very heavily recruited to come in here because he had the right mix of qualities for the job,” Hartnett said.

During Kelly’s online interview with IJ, one of the things he was most emphatic about was the importance of the development of XML standards, a movement which is spearheaded for the insurance industry by the standards body ACORD.

For a layperson trying to understand the precise nature of XML, it’s perhaps best to consider it in terms of the non-technical answer, which, as phrased by Lee, is that “it gives an industry standard way to define data that flows over the Internet.”

The next question might be, “Why would agents care about this?” Lee pointed out that the great majority of independent agents, small brokers and so forth are never going to even see it, and if they do, they probably won’t care. This is in contrast to some large carriers, which do a lot of their own custom application development. Agents, on the other hand, will be interested, on the periphery, in applications that use XML to communicate with other parties.

To clarify even further, XML is not really a language per se. “XML is really about communications,” Lee said. When agents communicate with companies, it’s important they know that when they send out data, the receiver can deconstruct and understand it.

But anyone who has been part of the industry during the past 15 years has no doubt heard the virtues of SEMCI (single entry, multiple-company interface) touted many times—seemingly with no concrete realization. Some analysts have even gone as far as to suggest that XML is merely the new technological flavor of the month in terms of hype and may be unable to live up to the high hopes built around it by marketing machines.

But even skeptics, like the consultant who stated in an article earlier this year that 90 percent of XML standards will fail, noted in the same article that only two abiding sources of XML standards currently exist: the World Wide Web Consortium (W3C), which owns, shepherds and guards XML; and “credible vendors,” such as Microsoft, which create “publicly available XML formats and protocols as part of meaningful products.”

Certainly there is no doubt whatsoever in Kelly’s mind about the virtues of XML. “It’s extremely important…to understand—all of the real magic that is emerging after the dot-com mania and looking forward on technology, revolves around the use of this XML standard,” Kelly said. “I can’t over-emphasize it enough. XML, the Internet standard, now allows us to do cross-platform application development, to do collaborative processes that go from a Sun platform to a Microsoft platform to an IBM platform, without the misery and pain that IT has long had in trying to integrate disparate platforms.”

“In the past, SEMCI described a methodology for communication between agents and carriers,” Lee explained. “XML is almost like the next generation, the next version of SEMCI. Where the benefit comes in is that in the old SEMCI world, they were dealing with Electronic Document Interface (EDI) standards.” Lee described these as being very heavy and bulky, unable to flow well over Internet and somewhat slow. “So XML is the next version. It’s a better way to describe data.”

So is the real challenge getting carriers to embrace XML?

According to Lee, XML has been fairly widely accepted by the industry since it really rolled out about three years ago, and a number of carriers, even some of the smaller ones, have been very progressive in adopting and using it. In addition, a number of carriers take measures to send their own people to participate in each of the working groups associated with ACORD.

One of the hurdles now, Lee explained, is “there are still a lot of EDI messages floating around, and people that use their own proprietary format. If an agent needs to communicate with a company that they write with, that company may actually require that the data be sent in this specific format…People that are already on [a legacy system] would have to change the way that their systems work. So it’s kind of a slow process of just getting everyone rolled over.”

But, Lee pointed out, “The carriers really have to drive it because they have the money… Essentially, they’re storing all the policy data. They’re the ones paying out the claims, all that stuff. So really the onus is on the carriers.”

In his 1995 book, The Road Ahead, Microsoft Chairman and Chief Software Architect Bill Gates wrote: “As the information highway assumes the role of market maker in realm after realm, traditional middlemen will have to contribute real value to the transaction to justify a commission. For example, stores and services that until now have profited just because they are ‘there’—in a particular geographic location—may find they have lost that advantage. But those who provide added value will not only survive, they will thrive, because the information highway will let them make their services available to customers everywhere.”

“I come from the agency ranks, and I have family still in the agency ranks, so I care very deeply about that,” Hartnett said. “I think…[it’s] a fairly unique thing to find somebody who had a heritage there and came from that background running the worldwide strategy for a corporation like Microsoft.” Hartnett added that he has never shared the point of view that the impact of technology will result in agents being disintermediated and put out of business.

“Frankly, I think that insurance agents probably have the best chance to come out in the integrated/merged financial services world on top of everyone else just because of their professionalism and their contacts with clients,” Hartnett concluded. “As we look at our technology directions and the way our technology is used in the industry, we think a very important component of our strategy is how the agent fits in there.”