As the final quarter of 2006 begins, many insurance carriers are in the midst of budget plans for 2007. While this traditionally is the time to consider major improvements, Gartner's research vice president, Kimberly Harris-Ferrante, warns the industry needs to focus on two areas that may not be considered exciting but can affect carriers long term: regulatory compliance and the replacement of legacy systems.

"Insurers definitely need to invest better in compliance," says Harris-Ferrante, conceding compliance issues are not sexy. "Companies are more interested in funding new business and invest the bare minimum in compliance. Many companies completely underfund [compliance]."

She cautions insurers not to jeopardize their business by ignoring regulators. "The risk of being noncompliant–the fines and penalties–is one thing, but you have to consider your public image if you have a security breach or if you are under investigation," she says. A tarnished reputation hurts the carrier in dealing with both the consumer and the agent, she points out.