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Information Technology Liberty Mutual

Introduction

Implementation of the electronic invoice system is generally closely associated with the matters of the reformation of the IT system and the matters of information security and comfort of the insurance customers. Liberty Mutual was initially trying to reform and improve the IT system originally, by implementing electronic invoices for the improvement of the accounting system and reducing the costs for serving the accounts. The aim of the paper is to analyze this action and provide the assessment of the changes in the IT-sphere, describing and explaining how these actions influenced the entire insurance and financial system of the Liberty Mutual Company.

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The Aim of the IT Project

The implementation of the IT project and the improvement of the insurance system were aimed for improving and simplifying the original insurance procedures and simplifying the accounting system. The fact is that, electronic invoices have several standards, and, depending on the origins of the accounting operations, these standards vary. In accordance with the research by Bhimani (301), the following statement should be emphasized:

The standard for electronic invoices (“INVOICE”) includes standard codes for transmitting header information (common to the entire invoice) and codes for transmitting details for each of the line items (products or services). The “INVOIC” standard can also be used to transmit credit and debit memos. The “IFTMCS” standard is used to transmit freight invoices.

In the light of this consideration, the main aim of the IT transformation also entails the expansion of the insurance capabilities. From now on the Liberty Mutual Company has an opportunity to perform the insurance operation online, thus, expanding the target audience and the business territory of the company.

Specific Steps Outline

The year 2000 became the year of an extensive spread of the on line technologies all over the world, and Liberty Mutual became one of the first insurance companies, which started to experiment with electronic accounting systems. The first step of the implementation became the creation of the pilot project. The first electronic invoices of Liberty Mutual were tested on the contracts with a few law companies, and the aim of this pilot project was to test the system, and provide the necessary improvements of the electronic system. In accordance with the case(Strategy Spotlight, 1):

These firms, for the most part, handle claims litigation for Liberty, defending its policyholders in lawsuits. In success with this program convinced Liberty that it could achieve significant cost savings and also pass along differentiating features to its customers and strategic partners. Liberty now processes nearly 400,000 electronic legal-services invoices a year-70 percent of the total invoices that the firm receives.

Nevertheless, the initial transition system appeared to be rather expensive, and the next step was aimed at reducing the costs for the transactions. Thus, the company had to improve the data entry process, avoiding errors in this process. Thus, the intake totaled in $1 million, and the saves, which were achieved became close to $750 000.

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How the Automating Process Led to Information Opportunities

The aim of the automating process was to decrease the time spent on casual operations and constantly repeating actions, thus, liberate the additional time for more productive operations. The automation itself is arranged on the basis of the litigation phase. The working process itself is divided into several smaller phases and stages, thus, a single invoice that covers a month or even longer litigation may include up to 1000 or even more lines. Nevertheless, it should be emphasized that creation of the database of customers and accounts became a serious problem, and Liberty had to generate a highly granular report card about law firm activities and performance. Thus, the company had to provide a detailed and properly arranged feedback system for the customers and other external stakeholders. After this, the information opportunities, which were not of high quality, essentially improved and simplified the performance of numerous operations, associated with accounting. Thus, in accordance with the invoice practices, emphasized in Hussey (131):

In recognizing and reacting to the challenges of information operations, two aspects emerge as the basis for improving the economy; these are efficiency and certainty. Making value chains more effective for reducing cost; improving the certainty of the environment in which they operate makes them more competitive. Therefore achieving value chain efficiency and certainty is a foundation for innovation.

Therefore, the opportunities entailed the acceleration of the accounting operations, and the processing of the information, associated with the creation and arranging the customers’ accounting information database. Originally, these opportunities are clearly described in the case (Strategy Spotlight, 1):

Online invoicing has also helped speed up both processing and response time. Liberty can see how companies deploy and bill for partners and other staff, how they compete or cooperate with each other on rates, hours, and case outcomes, and whether, how, and how often they send duplicate invoices or charge for inappropriate services.

In the light of this perspective, it should be emphasized that the original value of these opportunities is closely associated with the matters of the expansion of the target audience, and improvement of the quality of the accounting services, which are inevitable in the insurance business.

How Transformation Opportunities Develop From the Use of IT to Support the Conduct of Business in this Case

The transformation of the business principles was shown in the “outline” part of the paper, nevertheless, the transformation of the process of business conduct deserved particular attention. As the Liberty Mutual had to rearrange the structure of the business processes, and arrange the IT department, the main task of which was to maintain the operation of the electronic accounting system and maintain the data security system, for keeping the private information safe and protected from attacks and leakage.

The changes in the business operation were the following:

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  • Corporate information and reporting system was rearranged.
  • The insurance system was subjected to more thorough market determination
  • The audit system was transformed for the electronic accounting
  • Data source audit
  • The key relations principles had to be modified due to the expansion of the target audience.

Conclusion

Finally, it should be emphasized that the implementation of the electronic invoice system is closely associated with the reformation of the accounting principles and the security policies. The fact is that the electronic invoices system, which was implemented in the Liberty Mutual Company changed the entire principle of insurance operations in this company. Along with the expansion of the customers range, the company had to offer them principally new guarantees and securities.

References

Bhimani, Alnoor, ed. Management Accounting in the Digital Economy. Oxford: Oxford University Press, 2003.

Hussey, R., ed. A Dictionary of Accounting. 2nd ed. Oxford: Oxford University Press, 2005.

Strategy Spotlight. “Liberty Mutual’s Electronic Invoice System: Combining Low Cost and Differentiation Advantages”

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