I fashion myself as a bit of a history buff. But while others focus on the Civil War or WWII, I turn my attention to the history of life insurance technology—sounds pretty boring, but hear me out. I started in the industry over 40 years ago. At the time, I was a programmer trainee working on a project for a small insurer that was one of the original sponsor companies for a new policy admin system.
I thought I was there at the infancy of the computer era. However, after reading JoAnne Yates’ Structuring the Information Age: Life Insurance and Technology in the Twentieth Century, I came to understand that many of the early advances in computing and insurance technology could be traced to 1905. It was then that Herman Hollerith’s company, the Computing-Tabulating-Recording Company (the forerunner to IBM), lost the 1910 census contract.
Hollerith pivoted to the life insurance industry to keep his company afloat, selling his keypunch-based tabulating machines to actuaries at major insurance companies. The first “admin systems” were, in essence, stacks of keypunch cards that contained individual policy information. These cards could be sorted, collated, and, in later years, printed to become the authoritative record of the business. Actuaries used these systems to perform early mortality studies. In fact, the actuaries were the technical architects of the era. They worked closely with the hardware vendors to shape the architecture and strategy for future advances.
Insurers began to collaborate, and standards, best practices, and industry associations started to emerge. The Life Office Management Association (LOMA) was one of these associations. The LOMA Systems Forums were networking events that featured a showcase of vendor technology. Instead of software, the exhibit halls at these early events contained tabulating machines from various manufacturers.
As tabulating machines evolved to mainframe computers, the information contained on the keypunch cards migrated to magnetic tape. Systems were developed to maintain policy information and provide a means to perform business transactions. One theme underlying these advances was that the time between the announcement and delivery was measured in years, sometimes as many as five to ten. Another theme was a high cost associated with changing data formats or media due to the migration of millions of policies. As a result, many insurers were slow to adopt. Sound familiar?
Another issue that hampered adoption was the cost of acquiring and running the new mainframe computers. Many smaller regional insurers couldn’t afford to acquire the hardware and develop the systems necessary for their specific products. IBM developed a life insurance policy admin system to address this issue, the 1962 Consolidated Functions Ordinary (‘62 CFO), providing it to insurers that bought IBM hardware. ’62 CFO was one of the first commercially available life PAS; its success and adoption rate helped spur the adoption of mainframe computers throughout the industry.
With the next generation of mainframes, IBM began to focus more on hardware and unbundled its software offerings. In 1969, three companies took the IBM system, extended it to build out additional capabilities, and offered their new systems to the industry. One of these systems was the one that my first employer sponsored and implemented in 1981.
The 75 years it took to get from Hollerith to my entry into the industry may epitomize the slow “march of technology” the industry is known for, but I can say there was an innovative tone to the work we did in those early days. None of the tools and data access technologies existed.
If what we needed didn’t exist, then we designed and built it. We built library management systems, regression test harnesses, conversion tools, reporting systems, and online transaction capabilities in a memory- and storage-constrained environment. We shared and bartered customer enhancements with other insurers while developing enhancements to support our unique products and processes.
I am reminded of my early days when I see the innovation and ingenuity prevalent in the InsureTech world today. InsureTechs are reimagining core insurance processes with an outside-in approach. Many startups are rethinking distribution, bringing products to consumers rather than simply enabling a direct online purchase. Startups previously positioned as competitors are becoming partners.
InsureTechs have focused on front-end applications in areas like customer experience and distribution. Now, they are also targeting back-end processes in underwriting and claims. Armed with Agile development methods, data analytic tools, and cloud-based architectures, startups can deliver the next level of advancement in five to ten months rather than five to ten years.
You’ll find more information on startups in the insurance industry in our recent InsureTech industry report, InsureTech for Insurers: 250 Startup Profiles.
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