When considering the past results of Nationwide Insurance, CIOJim Korcykoski explains 2008 will forever be known as an asteriskyear because of the unprecedented bad performance of Nationwide andnearly every property/casualty insurance carrier.

In the beginning of last year, “we figured there never would beanother asterisk year, but 2009 almost did it,” says Korcykoski.“It was like a half-asterisk year. It's been a tough couple ofyears for the industry.”

Nevertheless, the problems of the last two years don't mitigatethe excitement Korcykoski and others in the industry feel about theinsurance technology field in 2010.

Insurance is more dependent on technology than most otherindustries, which Korcykoski believes benefits insurance ITorganizations. “It helps us from a trust and credibilityperspective, but the bottom line is we need to be good at what wedo because for the business to be successful, the IT has to begood,” says Korcykoski.

Deb Smallwood, founder of SMA, predicts 2010 will be a strongyear in insurance IT. In a survey on spending plans conducted withreaders of Tech Decisions, 76 percent of respondents reported planseither to increase spending or hold it flat.

Not surprisingly, Smallwood learned nearly every company has along list of needs. “Everyone wishes they had more money, moretime, or more resources,” she says.

The good news learned by the SMA analysts is most insurers aretrying to create some type of three- to five-year road map. “Theyare not just saying they need to replace their policy system,” saysSmallwood. “They know the sequence of what they need to do–policysystem and then add predictive analytics or straight-throughprocessing. They are starting to sequence them out.”

TowerGroup research director Karen Pauli doesn't see anydramatic change in IT budgets for 2010. “It should be flat to maybea two- to three-percent increase in spending,” she says. “I heard acouple of people talk about decreases, but it's so random and sucha small number I don't think that's a trend. I think the carriersin the industry know they have to invest something.”

Decreases in premium dollars make increased spending oreven flat budgets a difficult concept for insurers. “It's a toughsituation for a lot of carriers,” says Pauli. “There's no backingoff around what has to be done with BPM, data, and improving thecustomer experience. I think carriers are trying to pick out whatit is that is going to make the biggest difference for them andtriage their investment that way.”

Kimberly Harris-Ferrante, vice president and distinguishedanalyst with Gartner, agrees 2009 was not a crippling year forinsurers.

In looking at industry spending for 2009, Gartner learned onethird of carriers spent less money last year than in 2008 with alittle more than one third spending close to the same amount.However, somewhere around 30 percent of property/casualty carriersand 20 percent of life/annuity carriers reported spending moremoney in 2009, according to Harris-Ferrante.

For 2010, Gartner found the majority of insurance companies itspoke with are planning to spend more on technology this year. “Wefound the investment in data technologies is going up significantlyfor both P&C as well as life,” she says. “P&C companies arespending money on risk management in 2010 and data warehousing,with huge increases–almost double–in predictive modeling.”

On the life side, insurance carriers are sticking to traditionaldata warehousing and business intelligence projects, continuesHarris-Ferrante.

“Companies are saying they need to be able to get more value outof their data,” she says. “It's an untapped asset, and they need tofigure out how to get more value from it.”

INTERESTING TIMES

There is no shortage of interesting projects ahead in 2010,notes Matt Josefowicz, director of Novarica and head of theinsurance team. “I think by and large we are seeing budgets goingup cautiously,” he says. “We're certainly seeing a lot ofinvestment in different areas that are critical to businesssuccess–such as agent portals, policy admin systems, businessintelligence. These are the things on top of the board.”

The focus on investment in core systems has held throughout thelast decade and Josefowicz doesn't expect the trend to soften for awhile. “You figure the average carrier has a handful of policyadmin systems across its different units,” he says. “Consolidatingthose systems, replacing them, and bringing on new systems for newlines of business is going to be a lot of work in this sector forat least the next five to 10 years.”

It doesn't surprise Josefowicz the core systems issue has noquick end in sight. “The problems are well known, and the problemsare hard to solve,” he points out.

Such challenges include providing better service to distributorsand to customers, processing business more efficiently, and mininginternal data to evaluate risk and process business moreeffectively. “Those are big challenges, and they aren't the kindyou can solve in one year,” says Josefowicz.

Nationwide demonstrates its trust in the IT organization bycontinuing to invest in projects even in tough times, assertsKorcykoski. “We'll literally cut marketing spend before we cut ITspend,” he says. “It's a great endorsement [for IT], but at thesame time, it's a lot of responsibility.”

Consequently, demands made by Nationwide's business teams keepincreasing. “We are up another five percent [in spending] overwhere we were in 2009,” says Korcykoski. “When you look over aseven-year period, we are spending three times as much money onlarge projects as we did in 2003.”

TECHNOLOGY INITIATIVES

Pauli describes herself as a fan of predictive analytics andmodeling. Its pervasiveness has made it a given among personallines carriers, but she sees it becoming an equally importantcomponent for insurers working in commercial lines.

“You have to be able to manage expenses and get in there withbusiness intelligence, BPM, data management, and data integrationso you can start taking the cost out of your organization withoutmessing up the customer experience,” she says.

The internal use of Wikis and blogs for knowledge transferwithin the enterprise is taking place throughout the industry withWeb 2.0 and social networking becoming hot areas in 2009. Onereason for the excitement is most of the technology to enable thesefunctions is free. “It's more expensive from a time standpoint, butwe've seen some people get some great internal synergy from it,”says Pauli.

While she doesn't believe investment in claims systems willcontinue, she predicts insurers will look to tools that can beintegrated with the claims system, such as analytics and dashboardsto manage the claims process.

“Where we think there will be more action in 2010 is inunderwriting because the underwriters have been neglected aseveryone worried about claims,” says Pauli.

Another big area for 2010 will be in document and contentmanagement. Harris-Ferrante points out companies are looking atreducing mailing costs and are having conversations about goinggreen.

“We started to hear people talk about customer communicationmanagement and being able to deliver more electronic content tocustomers vs. paper,” she says. “We heard more focus ontechnologies that would underpin this, such as portal-basedtechnologies and customer communication technologies. We had thetechnology conversations and the change in business processconversations, and now people actually are going to start to investin some of the underlying source systems such as content anddocument management.”

STAYING FOCUSED

Because of back-to-back challenging years, Korcykoski maintainsNationwide is remarkably focused heading into 2010. “Like a lot ofcompanies with good, solid growth over an extended period of time,sometimes you can lose a little of your focus,” he says. “Yourspending increases, and you always are funding projects thatultimately result in good things. But you actually may bite offmore than you can chew, and you are not necessarily filtering downto the highest-priority items.”

For 2010, Nationwide is focused on the customer, indicatesKorcykoski, which means projects that specifically allow Nationwideto evolve with customer specifications.

In the case of property/casualty insurance, Korcykoski feelspotential customers expect more information not only to shop andlearn online about personal lines coverage but to buy a productonline and eventually service it without ever touching anagent.

The Nationwide strategy doesn't exclude the carrier's agencyforce, but Korcykoski notes it takes advantage of online andtraditional needs. “You can choose wherever you want to go,” hesays.

Customers can go online and shop for an auto quote, butKorcykoski points out they are not always sure what to do from adeductible perspective or whether they are eligible for discountsand feel the need to call an agent. “They can give the agent theirname and ZIP Code, and the agent can call it up,” he says. “WhatI'm excited about is this capability and focus going into2010.”

That doesn't mean business will be easier or even better, butNationwide believes it must react to market needs and make changeswhere necessary. “Like a lot of companies over the past two years,we've had declining growth in the new business we are writing, andretention is down,” says Korcykoski. “So, we're looking to createthat point of inflection in 2010 to go from negative growth topositive growth. That's exciting but a little bit scary.”

NEW CONCERNS

Insurers are concerned with incorporating data feeds into theunderwriting process so underwriters are pulling more informationfrom alternate sources about prospective risk, explainsJosefowicz.

He also sees more portal strategies laying the groundwork for apossible direct strategy. “No one will admit on the record tocontemplating a direct strategy, but a lot of people arecontemplating it,” says Josefowicz. “They are watching the way themarket is going and the buying preferences of the youngergeneration, the speed of information flow, and the value of theintermediaries changing.”

Josefowicz doesn't believe any agent-based carriers are ready tojump to the direct channel yet, but he points out the mostrevealing evidence of a potential shift came in a survey Novaricaconducted on self-service issues for small-business insurers.

“A lot of small-business insurance writers offer some type ofonline self-service, and we asked whether anyone was doing onlinesales,” he says. “Nobody was, but when we asked why not, the toptwo responses were a commitment to the agent channel and a fear ofalienating the agency channel. The last [bottom] response was abelief the market was not ready for it. What we have here is aclass of providers that believe the market is ready for a differentand possibly more efficient service method, but those providersaren't going to offer it because of a fear of cannibalizing theircurrent business. Long term that is going to change, and I think alot of people are trying to lay the groundwork for that changewithout specifically saying they are preparing for it.”

The value of intermediaries is changing, points out Josefowicz.“[Their value] always has been tied to their expertise and theirability to access markets people couldn't access on their own,” hesays. “A lot of other industries have disaggregated in a lot ofways. It's already happening pretty dramatically in personal auto,and there's no reason it won't happen in a lot of other lines.”

The iPhone app developed by Nationwide in 2009 was a specificeffort to learn more about the demographic changes of Nationwide'scustomers. “When you look at the customers who make up the bulk ofour business–and, in many cases, the big bulk for manycompanies–there are a lot of baby boomers and long-term customers,”Korcykoski says. “They may be a little slower to move to certainnew technologies, but they are moving. When we look at what we wantfor new customers–the folks we want to get earlier in their lifewho are establishing families or coming out of college–we see adistinct shift in their buying preferences.”

At Nationwide, there has been a significant increase in theamount of business that is sold directly to consumers vs. what goesthrough an agent's office, reports Korcykoski.

In 2007, the percentage of Nationwide business sold direct toconsumers was 22 percent, and by 2014, the carrier expects it toreach 30 percent.

“Most of our business is coming through our agents, but ourcustomers aren't saying that's the only way they want to do it,”says Korcykoski. “So, we are going to direct a lot of our businessto direct [channel].”

That means more work needs to be done to service the policybecause Korcykoski believes customers who buy online also want toservice the policy, submit the claim, and get access to the policywithout going through an agent.

“The iPhone app was one way not only to fulfill that serviceneed but also [enable] marketing positioning,” he says. “We werethe first ones out with that app. Within two months, there werethree more companies with it. Product innovation is not going toget you much for a long time. It may give you a little buzz, butsomeone is going to copy it very quickly.”

Nationwide has no intention of ignoring its biggest saleschannel, either. The carrier recently deployed an app for itsagents who use BlackBerry, the carrier's preferred mobileplatform.

“We gave them an application that allows them to do things suchas take pictures of people's homes and upload that as part of theinformation we gather to insure someone,” says Korcykoski. “Theycan view documents and photos we put in for their customers. It'swhat I hope is a beginning of a trend to give our agents access toinformation in a mobile fashion. If an agent runs into a customerin the mall and the customer has a quick question, the agent canpull up the coverage and give the customer advice. You are going tosee a continuing focus on that. That's our core strategy atNationwide Insurance to support customer demographics andtrends.”

VENDOR PROBLEMS

The good news for technology vendors in the insurance space isGartner has a positive outlook for 2010, including a positiveoutlook for service providers to help with implementation.

“One thing we found quite interesting is when we asked insurerswhat are the main challenges when it comes to technology andproject plans, the number-one challenge was the staffing problem,”says Harris-Ferrante. “[Insurers] don't have people with the rightskills sets. That's going to drive the need for external resourcesto come in and help fill the gaps. Insurers want to get thingsdone, but if they don't have the right people, they need someone tocome in and augment that.”

Gartner also quizzed insurers about specific concerns withinsurance technology. The researchers learned the top challenge forboth life and P&C companies is legacy systems, whethermodifying or maintaining them, reports Harris-Ferrante. “How do youkeep the old systems running and meet business requirements?” sheasks.

Related to that will be the investment in the tools andtechnology around legacy modernization. “We are seeing companiestalk about BPM to make the legacy system workflow run better andrules engines to externalize those rules in the legacy systems, andwe've seen a lot about Web-enabling the legacy systems throughportal-based technology as a way to expose things that are trappedin a legacy environment,” says Harris-Ferrante. “For somecompanies, that will mean revisiting the replacement discussion,but for other companies, it means things such as systemconsolidation or modernizing the legacy system through those toolsand techniques.”

From the vendor perspective, Josefowicz feels spending onsoftware solutions is not moving as dramatically as vendors wouldlike. “It's taking a while for these projects to result in anapplication sale or a service contract,” he says. “We're not seeinga massive jump in external spend, but we are seeing continuedexternal spend. The selection or evaluation processes probably areslower than vendors would like them to be, but carriers realize theimportance of selecting the right partner and making a strongstrategic commitment.”

BUSINESS DRIVERS

The economy remains the number-one business driver for 2010,points out Pauli. Second on TowerGroup's list of business driversis the global regulatory environment. Insurers are dealing withEurope's Solvency II regulations that are changing internationalaccounting standards. In addition, they are navigating stateregulatory commissions in the U.S. seeking to prove they are thebest point of regulation for American insurers.

TowerGroup's third business driver involves shifting consumerrequirements. “Consumers are starting to vote with their feet ifthey are not getting the kind of service they want,” says Pauli,pointing to self-service initiatives as a starting point.

The good news for IT departments is in all of TowerGroup'stop-10 business drivers, technology is a key component in dealingwith each.

“The discussion over whether technology needs to be in theinsurance industry is gone,” says Pauli. “You can't manage expenseswithout it. You can't differentiate products and services withoutit. There's no way to do anything without technology.”

The good news for 2010 and beyond, notes Smallwood, is theinsurance industry has adopted a different attitude toward ITspending than what was shown earlier this decade when the industrywent through 9/11, the dot-com crash, and Y2K.

“The industry went into the trenches and stopped spending,” shesays. “It was like the Dark Ages.”

Since then, insurers have made strategic investments in portals,straight-through processing, predictive analytics, automating thefront end, and new claims systems, remarks Smallwood.

“There has been a lot of technology enablement in the businessprocess,” she says. “Insurers realize they can't go back to wherethey were eight years ago and stop spending. They have seen thevalue, and it is interwoven into their fabric. Leveragingtechnology is the only way to survive.”

“Insurance IT came through with some bandages and some bruises,but it wasn't as detrimental as what some people might haveprojected going into 2008,” says Harris-Ferrante.

CHANGES

The vital lesson from 2008 and 2009 is the importance ofagility, emphasizes Josefowicz. “Things can change very quickly,”he says, pointing to regulatory change, economic change, andchanges that can open new market opportunities.

Change may build slowly, but eventually it reaches the tippingpoint. For example, he points to agent portals. Fifteen years ago,no insurer had a good agent portal. Today, it absolutely is acompetitive requirement.

“Insurers are used to that slow build and feeling like they havea long time to react, but if you look at the way the market canchange dramatically from external factors, insurers need to focuson their own agility and their ability to react and do thingsdifferently,” he concludes.