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DENNIS CHOOKASZIAN: And the idea at that time was to create IVANS, Insurance Value-Added Network Services. So what we would do is create a network service link between agents and companies, and it would be value added.
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SPEAKER: This is the Insurance Technology Podcast, where we bring interesting people from across the insurance ecosystem to discuss and debate technology's impact on the industry. Join us each episode for insights and best practices from industry stewards and tomorrow's innovators. Now, here's your host, Reid Holzworth.
REID HOLZWORTH: Welcome, everyone. I'm Reid Holzworth. And this is the Insurance Technology Podcast. So I'm going to warn you, this episode is going to be a little bit of a history lesson. But I'm a firm believer that knowing where you've been only helps you to move forward.
Now, this is specifically going to get into the exchange. To some, "exchange" is a cuss word. To others, they may not even know what that means.
But a lot of people in this industry have been involved in the various exchanges. Our guest today has tried and been involved in a number of them. On this episode, joining me is Dennis Chookaszian.
Now, a lot of you know Dennis. But for those that don't, Dennis has been in the industry for a very long time. And he's been a part of most of the insurance technology companies, from his days as CEO of CNA to being the chairman of AMS.
Dennis still is very active in our industry, even being a professor at Chicago Booth. Dennis is an amazing individual, and he's done a lot for this industry. And it's a pleasure for him to be here today.
Dennis and I have known each other for a number of years. And Dennis, you're my first guest on the podcast. And I thought it'd be great to have you on, just because of the depth and the richness of your experience within the industry, on so many levels, from the past and even now.
I'd just love to hear your story, and how it began, and how you got to where you are today, and some of the things you've been involved with along the way. So how did you get into this, Dennis? How did you get into the industry?
DENNIS CHOOKASZIAN: First, Reid, I'm glad to be here. And I didn't realize I was the first on your podcast. That's great.
I've been involved in the industry for a long, long time. To give you just a little bit of background in my story, my first introduction to the insurance industry on the technology side was in 1970, when I was given a project to design and build a reinsurance system and an excess circle sign system for Allstate Insurance.
And at that time, if you think back to 1970, it was very, very primitive at that point. And so we built it. And it was the first IMSTB system that Allstate ever had at that time, in 1970. And it was also the first system they had written PL/I. Now, those are all things that have become pretty obsolete now, of course.
But then, after doing that, I went to CNA. And then I was with CNA for about 26 or 27 years. And when I went to CNA, I went in as the chief financial officer, and then I picked up responsibility for computer systems. So for 15 years, I was responsible for finance and accounting, and also for the computer systems operation.
And that's where I first got involved with it, and then continued when I became the CEO. So I was president, chairman, and CEO for nine years after that, and then served in the board for three years. So going back to the early days and how it was originally created, the idea that I had learned when I was in consulting days was that, as a general statement, if you could buy something, it was going to be better than building it.
We did a lot of bespoke building of systems, like the one we did for Allstate in reinsurance. I know just how hard that was. So in 1975, when I joined CNA, I started looking at the various things they were doing. And we recognized that we had to do some things to upgrade our computer systems.
And so we spent quite a bit of time on it. And by the time we got to the early '80s, some of the systems had matured. And we bought some of the early package systems at that time.
And the two fundamental systems that we had-- one on the premium side and one on the claim side-- were the PMSC systems from PMS. And then, on the claim side, we had McAuto, which is McDonnell Douglas Automation.
McDonnell Douglas, the airline company, of course. McDonnell Douglas at that time had a big technology system, and they were building computer systems for the insurance industry. They had some things in the health care side, and then they had a really effective claim system they had built. So we bought those as packages and then built around that.
Then the other element of it that was interesting was the evolution of how you had the computer systems and technology and business of the companies and then you had the agency plans that supported it. And of course, there are those companies that are direct writers, where you have no agents, where you go direct to them. That would be somebody, like an Allstate through its own Allstate captivation, or like today at GEICO, where you go online. There's no agent at all. And then you have the independent agency companies.
And the independent agency companies at that time had 60%, 70% of the market share in commercial insurance and maybe 50% in personal insurance. Today, that 50% share is down under 10%. The independent agency companies have very little in the way of personalized insurance today, largely driven by the lower cost of online. [AUDIO OUT] ratios are quite different, and that's what drove it. So that's more or less the evolution. But going back to the '60s and '70s, as the insurance industry was evolving, and we were building the system for Allstate, the idea was it would be a good idea to try to put together exchanges or networks for sharing risk online. That was in, again, very early days.
REID HOLZWORTH: Exchange-- that's quite a word, by the way.
DENNIS CHOOKASZIAN: Oh, yes. Yeah, it is. Yep.
REID HOLZWORTH: I know. Yep.
DENNIS CHOOKASZIAN: And so at that time, there had been four major attempts to do it. The first of the exchanges was the one that was put together by AM Best and IBM. And it was called REX, R-E-X, which was Reinsurance Exchange.
So the whole idea would be that, if you were an insurance company, you would take a risk that you needed to reinsure. You'd put it on an exchange, and reinsurance companies would bid on it. And you would do that rather than going through Lloyd's or through a reinsurance intermediary.
It was a pretty good idea. IBM had developed the technology. It sort of made sense. And then, because we were building the reinsurance exchange for Allstate, they asked me if I would get involved and take a look at it. And I did.
And as I got into it and started to understand how the technology really worked and the cost of it, I didn't really think that it was a good idea. I didn't think it was good for Allstate. So we recommended against it. And Allstate did not join it.
About three years later, I joined CNA. And one of the first things that I saw is, they were a member of REX. They had joined REX.
So I didn't think it was good for CNA either, so we dropped out of it at that point. And it really failed for lack of support. Because the other carriers felt the way that I did, basically. And it didn't get much support. So REX basically died, even though, in principle, it made sense.
Now, as things unfolded, as we got into the '80s, it became clearer that it would be a good idea to have some form of an exchange or intercommunication, and to try to build something that would be company-agent communication mechanism. There was a guy named Jim Keuchel, really good guy, a very creative person. He was the head of systems for Crum and Forster at the time.
Jim said he wanted to build this exchange. I thought it was a pretty good idea. And so I helped him.
And he was the lead on it. But I was the CFO at CNA at that time and had systems as well. And we got a number of our associates together from other companies. And we built something called IVANS, which, of course, you have some familiarity with.
And the IVANS idea at that time was to create IVANS, Insurance Value-Added Network Services. So what we would do is create a network service link between agents and companies, and it would be value added.
What would "value added" mean? Well, "value added" would mean that you can do something like what was called at that time-- we still used SEMCI, S-E-M-C-I, which is a Single Entry Multiple Company Interface.
REID HOLZWORTH: So explain the SEMCI idea to me.
DENNIS CHOOKASZIAN: So the idea would be that, if you were an agent, you might take a risk, and you might put it out on the network. The network would be looked at by the various carriers and transmitted via IVANS to the carriers. They could quote on it, and send it back to you. And you only had to enter the data one time, and it could link to your computer systems.
And by that time, there were a number of these agency automation systems that were built, that were coming into play. And so that was the idea behind it. And I thought that was a pretty good idea. So we joined it.
REID HOLZWORTH: Wow. That's really interesting. That system obviously isn't around today. Can you speak to your and the industry's reaction to it?
DENNIS CHOOKASZIAN: We got it off the ground. We got some funding. We got a lot of people behind it.
But for a variety of reasons, once we started implementing it, and we got into the mechanism of getting companies and agents to join it, it didn't get the traction we wanted.
Now, IVANS had already negotiated some great contracts with AT&T, for example, and for lower cost data and voice. And so what IVANS became at that time was a reseller of voice and data, where, as a carrier, at CNA, we used IVANS. But we weren't using it for the exchange. There was no value added. It was merely a reseller of idea of AT&T services.
REID HOLZWORTH: We still have that today by the way. No, but it's still there, believe it or not.
DENNIS CHOOKASZIAN: Interesting. Well, that's exactly what we did when we got involved in it. But we could never get the value added services.
We could never get things like rating or comparative rating. None of that ever worked. So IVANS as a business became quite successful in other ways, but the core idea never happened.
Now, there were two subsequent events. And one was in 1989. At that point, AMS, which is now Vertafore, we were the owner of that at CNA. And we tried to create another one.
And we called it APT, the Alliance for Productive Technology. APT was 1989. We tried to put it together. It failed. We'll get to some reasons why.
And then there was a fourth attempt in 2006. And that got the insurance agents, the IIAA, which is the Independent Insurance Agents of America, the IIAA. They were involved in it. Ken Carar at the council was involved in it, the CID.
And they built the thing that was called The Exchange. And David Rohde was the leader. It was a good idea. They attempted to do it, but it eventually failed as well. So there have been four attempts to build network alternatives in the insurance industry, and all four failed.
REID HOLZWORTH: Why do you think it failed? Or why did it not work?
DENNIS CHOOKASZIAN: I think you can summarize it in one word, and that's "cooperation." You couldn't get the agents and the companies to cooperate for their mutual benefit. And it's actually very interesting.
Because in game theory, there's a thing called prisoner's dilemma that many people, I'm sure, know about, where two people are arrested. They're kept in separate rooms. And then they're told, if they will implicate the other person, they'll get a lower sentence.
And they're both told the same thing. But if they don't, they'll get a bigger sentence. So they've got this trade-off, because they don't know if the other guy's going to implicate them or not.
And it's a very interesting thing in game theory. And it results usually in a suboptimal decision for both of them. Because they would both be better off if they said nothing. But that's the way it would work in that now.
In the end, that's the problem. Because it would be better, I believe, for the industry as a whole, and for the individual competitors, I think, as well, if they could come together, and form these things, and cooperate. IVANS would be a perfect place to do that. It's got the infrastructure to do it.
But it's been very difficult in the combination of jealousies, in some cases. In some instances, it's a concern that they wouldn't want to give up some competitive advantage.
So it's reasons like that have prevented it from happening. And when you try to pull together a company meeting, you have one other problem, and that is antitrust law. Because whenever we would have an industry meeting, we'd always have antitrust lawyers present.
Now, you have McCarran-Ferguson, which allows you to share data. But for other things, you can't do that. You can't jointly do something in certain instances because of the antitrust laws.
Now, I believe that you could resolve that from a processing systems point of view as long as you weren't cutting out all the other people in the industry. But you could do that if you have the right pipe in place and then let everybody else join to it. But it's such a difficult concept to get to happen and to get people to sit down and cooperate. I'm not optimistic that that will happen.
REID HOLZWORTH: That's really interesting.
DENNIS CHOOKASZIAN: It's a variety of reasons why it just didn't get sufficient support, and it failed.
REID HOLZWORTH: Wow, that was a great episode with Dennis. Man, he has a lot of experience with these exchanges. Well, in our next episode, we're going to talk with Denis about the history of the agency management systems, as well as the core policy administration systems, how they came about, and how he was involved in most of them.
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