Computerizing a Paper System: Introducing Electronic Data Interchange to AIG

Tamaerra Lodge
IS535ON_J
Professor Brooke
January 22, 2012

Table of Contents

Proposal

Topic……………………………………………………………1

Business Problem……………………………………………....1

Benefits to Organization………………………………………...2

Business and Technological Approaches……………………….2

Audience………………………………………………………..3

Milestone 1

Restating the Problem……………….…………………………..4

Company Background………………..…………………………4

Business Issues…………………………………………………5

Benefits of Electronic Data……………………………………...5

Initial Business/Technical Approach …………………………...6

High Level Solution…………………………………………….7

References……………………………………………………………...8

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Proposal

Topic This proposal briefly discusses the timely process in which the risk management department of American International Group(AIG) uses to quote their commercial auto(CA) business lines, how it effects the deliverance of quotes to their clients and approaches to a solution. AIG uses a standardized commercial auto rating system(CARS) that electronically outputs a rating. The input procedure isn't electronic by any means and can be very timely and costly due to the number of people involved, the excessive amount of paper being used and the turn around time for their clients to receive a quote. If AIG adopted a more technical approach to their quoting procedure, time and paper can become obsolete making room for profit.
Business Problem AIG lacks in efficiency of providing a timely business CA quote to prospective clients. In commercial lines of business, some companies may have over 100 vehicles to insure. In order for these clients to receive a quote from AIG, they must provide all of their vehicles information including year, make, model, vehicle identification number and name of driver. There is no consistency in the way clients send their automobile's information to AIG. Some companies send their list in spreadsheet form, others simply just type it in a word document. The manager of the department receives the list of automobiles to be quoted first. It then goes to the risk analyst, upstairs for data processing, back to the risk analyst and finally to the underwriter to give an estimated quote back to the manager. This process can be very timely because of the many hands it travels through and the number of vehicles a company may have. Multiple quotes come in daily from different businesses wanting to quote not only CA but worker's compensation and general liability as well. Some companies want their quote same day and others may give a week to provide
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a quote. The data entry department not only quotes for the risk management department but for other departments in the company as well. It can take up to two weeks for this process to be completed. The amount of time the client has to wait for a final quote would allow other competitors to submit quotes before AIG .

Organization Benefits If AIG had a more efficient way of rating their commercial auto policies, they would be able to send out quotes faster. They would also be able to quote multiple businesses in a given time frame because of how quickly they could get the ratings back to their clients. This can result in other companies referring AIG because they will be known to deliver faster quotes than their competitors. AIG would have an advantage over other insurance companies whose process is tedious with slow turn around time. It will allow AIG more communication time with their clients to discuss other pricing options or re-rate their data if needed. This builds a more personal relationship and makes companies feel secure and trustworthy of AIG. They would stay ahead of their competition if they implement a new and efficient process to their already existing system. Enhancing AIG's CARS system to process data quickly will give AIG more options and opportunities to work with new clients.
Business and Technological Approaches According to an article from FACCTS, a new technology should be implemented when it can provide a business with efficiency. This is used by creating a team of both business and technical experts. This team is called the cross disciplinary team. The business team approach will be to talk to the data processing department to figure out how the input process can become more effective. They can provide information on specific data that is needed for CARS to output a rating. They
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would also have to take into consideration if clients need additional information added to their policy for a given vehicle, i.e. handicapped or if the automobile is parked in a garage, etc. This will help the risk management process in receiving the listing of automobiles in a standard format. The technical team approach would be for AIG to implement an electronic document to input the data into CARS. They would have to maintain and update the document to keep up with the expansion or growth of prospective clients. Another technical team approach would be to bring in a technical expert to build a software program within CARS. The program will be able to read the data directly from the list of automobiles sent by their clients. Involving all departments will give AIG a better understanding of what needs to be done, change only what is necessary and enhance the existing system.
Audience
Once a solution is found, it could help management in the quoting process within their specified department. The particular department I'm discussing is risk management. They are responsible for commercial businesses whose net worth is over $500,000. Other departments who handles personal lines of insurance or smaller commercial businesses could use the results of my project as well. They all use CARS and the input process of vehicle information is the same. The data processing department is involved because they know exactly what is needed to input into CARS to receive a correct quote. It will also help the prospective clients of AIG because they could also be apart of developing a way to make quoting their information easy to read resulting in a timely quote.

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Milestone 1
Restating the Problem American International Group, Inc. (AIG) is an international insurance company who serves commercial, individual and institutional customers. The specific department of AIG I'm discussing is the risk management department for commercial lines of business whose net worth is over $500,000. For quoting commercial automobiles(CA), the risk management department needs to move towards using technology to improve operational efficiencies, enhance information quality, and achieve reduction in the processing time of providing CA quotes. Currently, the information received for quoting automobiles are sent in paper form and manually entered into the Commercial Auto Rating System(CARS). These papers are then stored and filed by company name to create a paper record.
Company Background American International Group, Inc. was founded in 1919 in Shanghai by C.V. Starr to represent American insurance companies offering fire and marine coverages under a small insurance agency named American Asiatic Underwriters. He then expanded to China and sold insurance to other Asian countries. Starr opened his first US office in New York called American International Underwriters to write insurance on American risks outside the United States in 1926. In 1939, Starr moved his companies' headquarters to New York due to political unrest in China and East Asia. While in New York, the company merged with other insurers. American International Group Inc., was formed in 1967 to include all of the various domestic companies. They continued to expand its presence internationally in both Asia and Europe to become the most powerful insurance company today. Today, AIG is a leading internal insurance organization serving customers in
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more than 130 countries. They are also the leading providers of life insurance and retirement services in the United States. Serving 16 million customers with over 300,000 licensed financial professionals, their assets are worth $240 billion.
Business Issues AIG uses a paper system to quote commercial auto lines of insurance. Prospective and existing clients send paper documents listed with the vehicle's information to quote. This can easily turn into stacks of paper considering the number of vehicles to quote and how many business submit paperwork for CA quotes. Another issue paper has is limited of access. If the company wants to alter or edit the document sent, it has to send another sheet of paper with the corrections. It is difficult to manage and edit paper documents and they also can take up a lot of physical space. These paper documents are handled by many people before an actual quote is given. In the process, the paper documents can become hard to read because of fading and damaging. They also can be damaged from the client though transmission of mail, fax or email. The manual entry of automobiles into the rating system is very timely and allows room for error or omission of data. The data entry department is very large and the quotes are randomly given to a certain employee. This creates an issue with last minute edits because no one knows who is working on the ratings. AIG also spends time and money on hiring and training the data entry department on CARS. The process of quoting CA is not efficient, is very timely and can create a paper trail. In my research, I read that reducing paper pileup is a key to gain efficiencies in data management and increase productivity.
Benefits of Electronic Data Interchange By definition, electronic data interchange(EDI) is the direct transfer of business information
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between computer systems in different organizations. (Magutu, Lelei & Nanjira, 2010). This means there is no human intervention or there is minimal human contact. EDI provides the means for businesses to connect electronically. It can also be an exchange of structured information in a standard, machine-readable format. This can enhance information quality and achieve reductions in processing time of CA quotes for AIG. EDI will reduce the amount of incorrect or incomplete data being manually being entered into CARS. It will reduce processing time of quotes and allow time to quote multiple business because of the shorter processing time. EDI will provide a more accurate and organized entry process and is less expensive than paper documents. Studies have shown that manually processing a paper-based document can cost $70 or more while EDI order costs less than one dollar(McCorry,2009). Another advantage of EDI is the paper documents will be stored electronically creating additional space and eliminating the large volume of paper records and files being created. Going paperless can also protect the environment. Being environmentally friendly and going green can build a good image in the eye of potential customers(Joesph, 2012)
Initial Business/Technical Approach The business approach would be to discuss with the regional manager the benefits of computerizing a paper system and introducing EDI. We would need to discuss the exact information needed in quoting CA lines, research the different databases that can link companies to each other and allow them to transfer documents between systems. The database would also need the capability of importing the document into AIG's existing system CARS and be able to accept edits or additions from the initial uploader. The database would have to be large enough to accept multiple documents from different organizations. We would also have to analyze if switching to a computerized paper system would be an advantage to quoting commercial auto lines. If it would
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reduce processing time, enhance information quality and be cost efficient. The cost and calculations of what upgrades or computer software and services will be considered. AIG will also have to discuss with existing clients the introduction of EDI to see if it is something they would be willing to add into their system.
High Level Solution The high level solution would be to explore the different types of EDI applications and decide which application would work best in solving our business problems. Would AIG create a privately owned network and use traditional EDI data forms or will they receive the data over the Internet? We need to determine how EDI will be transmitted from prospective clients to AIG. There are various options AIG can consider when choosing a solution to the business problems. Here is a list of methods for EDI transmission(Magutu, Lelei, & Nanjira, 2010) • VAN-Value-Added-Network • FTP-File Transfer Protocol • HTTP-Hypertext Transfer Protocol • AS2-Applicability Statement 2
AIG would need to discuss the pros and cons of each transmission method, the cost to install and maintain the system, user friendliness of set up and operation, security of the documents and time in which each method takes to delivery information. The application would also need to be able to upload the EDI files into CARS and be able to support large multiple businesses documents.

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References

American International Group, Inc. (2011). AIG's Story. Retrieved from www.aigcorporate.com
Magutu, P.O, Lelei, J.K., & Nanjira, A.O. (2010). The benefits and Challenges of Electronic Data Interchange. African Journal of Business & Management, 1, 212-222
McCorry, K.J. (2009, October 28) Becoming Paperless for Effectiveness and Efficiency. Retrieved from http://www.informit.com/articles/article.aspx?p=1400871&seqNum=6
Walli, B. (2011). Identifying Acquisition Needs. Faulkner Information Services