Insurance:<br>Cash-Crunched Sector Bets On E-ServicesInsurance:<br>Cash-Crunched Sector Bets On E-Services

Nearly every U.S. business sector was affected by the terrorist attacks last year, but few were hammered as hard as insurance. Insured losses from that tragedy will prove to be the single most costly disaster ever. Estimates range upward of $70 billion, and they encompass all areas of the industry, including reinsurance, property and casualty, and health. By contrast, Hurricane Andrew, which held the most-costly record, soaked the industry for about $20 billion.

Following the attacks, insurance companies bolstered their IT investments in business continuity and disaster recovery. They also increased spending on document-management systems, as firms with offices in major cities contemplated not merely the loss of communications services or electricity for several days, but the loss of entire buildings and all the knowledge stored on the paper within. Despite the tragedy and the cash crunch the industry is experiencing, IT spending -- which is flat to slightly down -- is still humming along at a steady, yet slower pace.

Insurers who made this year's information 500 ranking are investing in technology that provides a quick and tangible return.

Insurance companies are cutting down on paperwork by simply tying back-end systems to agents' Web portals that provide customers with self-service tools, which improve customer service and cut costly phone time in call centers. "There's been a backing away from large CRM and E-business projects," says Judy Johnson, VP for insurance information strategies at the Meta Group.

Another technology investment focus for the past year is document management, Johnson says. "There's been a huge resurgence in imaging. 9/11 shook up a lot of insurance companies, and they started asking not what happens if they lose a server, but what happens if they lose an entire building."

John Steber, executive VP and CIO at HIP Health Plan of New York, says "E-enabling" customer-service transactions through the company's Web site and interactive voice-response services have paid off by letting members easily and inexpensively locate and change health-care providers, check claims, and enroll dependents. As a result, HIP Health Plan handles 15% of its customer-service transactions electronically, saving the company $12 million in administrative expenses.