Filed Under:Agent Broker, Commercial Business

You Should See the Other Guy

Whether premium dollars for 2011 are flat—as some experts predict—or on the rise, none of the analysts interviewed by Tech Decisions for this article believe the industry is ready to return just yet to the golden days of three years ago.

That means insurers can expect fierce battles to attract new policyholders and retain their own best customers in 2011.

Craig Weber, senior vice president and head of the insurance practice at Celent, is among those who expect premiums to remain flat throughout 2011 and possibly to stay that way until 2013 at the earliest.

“What that says is insurers will be like dogs fighting over the scraps for new premiums,” he says. “It’s a very tough environment.”

Weber feels competitors will be going after the best customers while looking for ways to dump their own worst customers.

“We see that trend being extended out to not only top-tier insurers but also some regional players who are starting to get a better feel of who they really want for customers,” he says.

Surveys of insurance IT leaders conducted by Strategy Meets Action show 91 percent of carriers on the life/annuity side are maintaining flat spending levels or showing a slight increase. On the property/casualty side, 83 percent reported flat spending or slight increases, according to Deb Smallwood, founder of SMA.

The good news for the industry is those numbers are slightly higher than a year ago, notes Smallwood. Although the propensity for life/annuity companies is to spend less on IT than their property/casualty contemporaries, Smallwood notes the life/annuity side got hit harder by the economic downturn in 2008.

Today, the life/annuity side appears to be recovering faster, points out Smallwood, because they don’t have the soft market situation the P&C carriers continue to deal with.

“I think you’ll see more accelerated spend on the life/annuity side,” she says. “All our research is pointing to higher spending for them as they are looking for growth. Because of the nature of their business they can do that because of the way they price their products as opposed to the [rate] regulation [issues] on the property/casualty side.”

Estimated Spending

It hasn’t been the easiest time for running an IT shop in the insurance industry, according to Ellen Carney, senior analyst for Forrester.

“It’s certainly not like 2007, but it’s still better than other industries in terms of spending,” she says.

Carney maintains IT spending increases will continue in 2011. She bases this view on the nature of inquiries Forrester has received from insurance carriers during the course of the downturn.

“We had a thousand more [calls] from insurance companies than we had from banks,” she says. “You could figure there was a lag between the time they start asking about the technology and vendors and when it comes time to actually pick the vendors. You’ll definitely see that showing up in vendor revenues in 2011.”

Matt Josefowicz sees more of the same for insurance technology in 2011.

“With the exception of the largest companies with over $1.0 billion in direct written premium—those companies are most likely to keep their budgets relatively flat—by and large most companies are expecting to increase their budgets somewhat,” says Josefowicz, head of the insurance practice at Novarica. “We see more of a split for companies below $100 million in premium on the P&C side. Some are expanding and some are contracting. It’s fairly even for that very small segment.”

Josefowicz explains the large carriers on both the property/casualty and life/annuity sides don’t feel the pressure to spend more on technology.

“They already have a lot of resources, so they have more opportunity to find efficiencies and redeploy existing resources,” he says. “Smaller companies, in order to create the business capabilities they need, have to make additional investments.”

Celent is seeing similar spending patterns to last year, but Weber believes carriers will be investing in areas of growth and IT spending.

“The same rough estimates seem to apply—three to five percent of direct written premium is typically spent on IT—with a little less for life, a little more for P&C,” says Weber. “That’s also a little less for tier one—$5 billion-plus insurers—and a little more for everybody else.”

Carriers can’t afford to be satisfied with their performance these days. Josefowicz feels continuous improvement is the key phrase.

 “One of the challenges for senior executives on the business side is they say they’ve invested in IT and feel they are done,” he says. “You’re never done. There is continuous advancement. No company is able to solve its IT-related challenges in any given year. There always are new things coming up, whether it’s new capabilities on the business side, new demands on the distribution channel, or new capabilities that are enabled by technology advancements like mobile, virtualization, cloud, or anything on those lines. There is always change.”

Analytics in Their Future

Some companies plan to clean up data and jump into data management and data warehousing projects this year. While speaking at several CIO forums last fall, Smallwood learned many insurers report having a modern business intelligence tool in place.

“I think [insurers] are addressing data in two different ways,” she says.

One company she met with is starting to work the data through a tool to clean it up. “Let’s say they start with finance,” says Smallwood. “Rather than taking a pure data map for data management, they are getting people up to speed with initiatives that are linked to the business. It’s really the first step.”

Smallwood looks at data from three levels. The first is how do you gain new insights from historical data through the use of reporting, dashboards, ad hoc, and queries.

The second level involves new opportunities. (“You start to ask the question why rather than where,” says Smallwood.) At this point carriers examine their book of business and bring in external data for market intelligence.

The third is capitalizing on new opportunities. This involves turning to the predictive models and analysis and answering the question: What is likely to happen?

“We know in underwriting for personal lines, carriers are using predictive models for insurance scores and risk appetite,” says Smallwood. “They are using models in claims, but now [the models] are more widespread throughout the value chain. Once you have all the data together for new opportunities and predicting the future it creates a whole chain.”

Carriers are embracing analytics to help them determine both the best and worst customers. That means carriers need to invest in a data program, particularly one that will clean the data.

“We’ve seen a lot of investing in data storage, cleaning, and analytics in the last three years,” says Weber. “You would like to think that’s now paying off. This may be the year [carriers] are starting to produce changes in business behavior. The data is available, it’s clean enough, and you can apply the analytics and a business strategy that reflects what you are seeing in the data.”

Top Projects

Each year, Celent asks insurers what their top three projects are and what the budgets are for those projects. This year, Weber sees a good mix of core systems renewal almost across the board.

“For P&C insurers there is more spending on distribution systems, analytics, and some infrastructure rationalization,” he says.

Life insurers are more conservative in their IT strategy, he explains.

“We see some investment in policy admin and some in underwriting and new business, but it’s not like P&C, which is aggressively going at it,” says Weber.

SMA’s research disclosed that one of the key areas that has surfaced to the top on both sides is business process management (BPM).

“That’s the highest rating on both sides with 65 to 70 percent of the insurers,” says Smallwood. “The other area that scored higher this year than last year is business optimization.”

Policy administration system replacements continue to be a focus on both sides, points out Smallwood, with claims becoming a higher priority on the P&C side for 2011.

Not surprisingly, data is also near the top for insurers. Data scored number three on the property/casualty side and CRM and data projects ranked third and fourth on the life/annuity side.

BPM and workflow also are viewed as important areas for 2011 from the SMA research. Smallwood claims 69 percent of P&C carriers and 78 percent of life/annuity carriers report they are positioning for growth.

“In the flat economy one way to grow is to cut expenses,” she says. “If you look at their business drivers for technology spending, business optimization scores high on cost containment.”

In examining the priorities listed by insurers, Carney admits she was surprised by the low number of insurers expressing an interest in investing in a billing solution.

“It floored me because it was a big inquiry last year,” she says. “You would absolutely think from a revenue recognition standpoint they would care more [about billing].”

On the other end, distribution management—picking the best performing agents, giving them the most attention, and enhancing their processes—has turned out to be an important topic for carriers, explains Carney.

Another area of investment that stands out is driving innovation such as mobile technology and social networking.

There are 5.6 billion cellular phones in the world today, points out Carney, and many of them are Web-enabled.

Consumers will begin to get away from having Internet service at home when they can do everything they need with their cellphone, explains Carney.

Carriers also are developing agent-facing apps and some even have adjuster-facing apps, which are being driven by electronic tools such as the iPad.

On top of that, IT security scores high for insurance investment. Smallwood believes mobile technology, social media, and smartphones have created a new level of security issues.

“Many executives are asking for iPads and the CIOs are wondering how they can secure them,” says Smallwood. “IT security is taking on a different level of maturity.”

Expense Reduction

Growth and competitive parity are the major issues companies are looking at to support their strategies in 2011, explains Josefowicz.

“Some companies also are looking at organization-wide expense reduction and operational effectiveness as major drivers,” he says. “Other than some of the larger life/annuity companies, we’re not seeing compliance or investment-market losses driving a lot of action. At some of the larger companies we are seeing pressure to reduce IT expenses, which we take to mean redeploying more effectively as a big priority.”

There are many different strategies being thrown around the distribution channels, points out Kimberly Harris-Ferrante, vice president and distinguished analyst for Gartner.

“A lot of [life insurers] are talking about how to build relationships with the distribution staff, how to get them better tools, and holding conversations around commission systems and licensing appointments,” she says.

Property/casualty insurers are having conversations around how to make the direct channels more effective, direct marketing, and how to conduct more customer conversations.

“Everyone’s talking about how they can strengthen the sale process, whether that’s through direct sales or an intermediary-based sales force,” says Harris-Ferrante.

Some of those conversations eventually get around to mobility.

“If you are agent/broker-based you are getting pressure from the people who want to be mobile so part of the problem is what are the basic things that your sales people will want—accessibility, straight-through processing, how to do what needs to be done from a day-to-day basis, and keeping up with the next generation,” she says.

That will involve mobile technology, performance management, real-time visibility, and opening analytics to the sales people.

“We’re right now dealing with the tactical and the next thing we’ll be dealing with is long-term strategy around analytics,” says Harris-Ferrante.

Carriers are still trying to figure out how to give people what they need and what they want without opening security risks. There’s no firm agreement on the problem, though.

“Some people say it’s critical; some say it’s nice to have,” she says. “We anticipate the investment in mobility to go up drastically in the next 12 months. Where it might be nice to have for some, when you look at the proliferation of smart devices, mobility is quickly moving from nice to have to have to have. That should be a key priority on most companies’ agendas.”

Pull the Lever

Weber believes expenses are still a lever that most insurers can pull.

“It’s not a question of knowing where your costs are; it’s a question of being willing to take the cultural hit you have to take to aggressively do that,” he says. “Our industry has known where the costs are forever, we just aren’t willing to excise them and go through the pain. Some carriers do, but the vast majority—even some pretty effective organizations—have little pools of cost savings they have not yet tapped.”

It is becoming increasingly difficult for North American insurers to grow their business in the face of a leveling population, points out Carney.

People are not buying more cars, boats, and big-ticket items they want to insure. That means carriers are forced to examine faster-growing markets.

“That’s being expressed by their interest in multi-cultural marketing—making a pitch for a segment that’s overlooked,” says Carney. “They are going after niche spaces.”

Insurers still aren’t done cutting expenses, which is why BPM remains such a priority.

“People start to externalize the processes from some of these legacy systems,” says Harris-Ferrante. “You can buy a BPM system to sit beside a legacy system and it will allow you to take out the business logic and move it into a separate application. It also allows things to go faster through business process orchestration.”

Insurers also can turn BPM into an active development tool.

“You can build a claims application for workflow on top of BPM,” says Harris-Ferrante. “There are so many different value propositions for insurance companies. We’re going to see a lot of BPM investment and people asking how can they use it in different ways. It’s an opening of the minds as companies bring it in as an enterprise initiative.”

Ready to Go

Weber feels carriers with projects scheduled for 2011 are already working on their lists. He maintains this is a different scenario from the last few years when there was more uncertainty over the economy.

“I think we’ve bottomed out and the feeling is we are starting to bounce back,” he says. “The second half of [2010] was OK for life premiums and even for property/casualty. That reflects lower unemployment and some improvement in the housing and the job market.”

There are several indicators that Weber feels will slowly start to crank up insurance as an industry, but he believes if carriers wait for those indicators to be cranked up before companies start investing they’ll be too late.

“The time to invest is before that run-up gets started,” he says. “Think about the old saying: A rising tide lifts all boats. We will have a rising tide, but it’s going to come in slowly. No one wants to wait for the tide to lift them. They have to go find some water somewhere.”

Smallwood reports seeing more activity in claims spending in the latter part of 2010.

“For the most part I feel many insurers have addressed policy and the agent issues and are now moving to the back office,” she says. “It could be claims management replacement or a BPM type solution for workflow, or it could be scanning and imaging, or it could be providing analytics and external data. It’s an area with lots of potential projects.”

IT is no longer a separate part of the business, explains Carney. IT people are involved heavily in the core business processes of insurance—claims, billing, and policy administration.

What Carney has seen in strategy sessions is if there is a mix of business people and IT people in attendance and it’s a business requirements discussion, the IT people already have the answer. They may not know what the requirements are, but they are quick to pull a trigger on the solution.

Not surprisingly, Carney feels this also is when you hear that things didn’t go so well.

“The fact is, the IT organization has to prioritize and be accountable for the budget,” she says. “You definitely have to involve business to spread the risk and make sure everything is transparent and accountable in terms of what gets spent.”

Josefowicz believes the advances users are enjoying in mobile computing are a reflection of the work already done to enable real-time transactions and information through the Web.

“The interface or delivery layer may differ, but all the investments done to enable that real time, outside-the-firewalls delivery can be leveraged in mobile,” he says.

The ability to leverage those real-time capabilities is seen in the low percentage of IT budgets being spent on mobile in 2011. Josefowicz estimates the number at just two percent of IT budgets being spent on these initiatives, and that includes mobile-enabling their internal staff.

Carriers will continue to focus on consumer smartphone apps, but Josefowicz predicts a lot of productivity enhancements and benefits will come from enabling company staff—whether it is marketing, claims adjusters, or others—with tablet devices and other mobile platforms.

Core Solutions

Novarica’s research found more than half of property/casualty carriers and more than 30 percent of life/annuity companies list policy admin projects among their top three priorities for 2011. Some may be full replacement projects and others may be enhancements, according to Josefowicz, but it continues to be a major focus.

“One of the interesting things about our survey was how diverse the top three priorities are,” says Josefowicz. “There are very few areas that show up as the top three for more than a quarter of the companies at any given time. Core systems, distributor systems, and business intelligence generally are the top three priorities for the industry, but any given company may have solved two of those and are working on another two things.”

“Continuity and focus on solving core problems and delivering core business capabilities continue to be the focus,” says Josefowicz. “We don’t see anybody running off in one direction chasing something at the end of the hype cycle. The problems are well known and the solutions aren’t easy. People are working on them.”

Spending levels for most of Gartner’s clients are projected to go up in 2011, according to Harris-Ferrante, as they put the bad economy behind them.

“We are seeing more optimism and investing in growth,” she says.

Carriers do have concerns, though, particularly those saddled with legacy systems.

“At [the Gartner] conference the number one question was around legacy modernization and what you can do with the old legacy systems,” says Harris-Ferrante.

The demands of legacy systems range from getting more visibility into the data, making the system more flexible when it comes to workflow, and getting products to market quicker.

“It’s getting harder and harder to work with the legacy systems,” admits Harris-Ferrante. “[Carriers] are asking how they can reduce the cost of running these big, bulky systems. A couple of years back they were asking about the mainframe. Now, it’s how do they get the data out of the systems and make the systems perform better. It’s turning from a hardware situation to a systems application situation.”

Harris-Ferrante sees continuing interest in core insurance systems. Still another big spike—almost a 30 percent increase—is in business intelligence and data initiatives.

“People tell us they have a lot of data but don’t know if they are getting the maximum value from it,” she says. “Investment is going up drastically this year as companies say they have more data than they possibly need and wonder how they get the value from it. It’s through mining and making sure they have everything they need.”

IT Research

Carney feels insurers are investing less in research and development and are spending more time picking the vendors’ brains. Tier-one insurers are more likely to have some type of innovation group in place, either within the IT group, within the business, or both. She maintains insurers must think about the future of consumer technology because it will have implications on how policyholders and the supply chain are going to want to engage the carrier.

“There will be more embedded technology that will help them as insurance carriers, on the claims side, underwriting side, risk side, or wherever,” says Carney. “There’s a shift to roles that may be deemed more important. It’s being done at the business analyst level or they are going to use their vendors for this.”

Forrester hasn’t seen any increase in head count in the insurance field, even in the face of a better economy.

“[Carriers] are just not replacing people,” says Carney. “They are buying technology to do that. They are replacing those people costs with technology and using it for better underwriting and better claims processing. If people go to another job or retire, they just are not getting replaced.”

Smallwood doesn’t believe insurers look at technology as the only way to grow but feels they understand the competitive advantage technology offers and how that translates to growth.

“CEOs are more mindful of what’s going on in the industry and figuring out how far behind or at the pace of the pack they want to be,” says Smallwood. “There are other ways to grow without technology because they have grown without things like analytics, but they are seeing technology could be a differentiator.”

Featured Video

Most Recent Videos

Video Library ››

Top Story

A dozen ways to prevent theft during the holidays

It's the most wonderful time of the year — not just for you and your family, but for thieves, too.

Top Story

10 tips for a safe and successful fundraising campaign this holiday season

Travelers’ non-profit D&O product manager Tom Herendeen offers 10 tips for non-profit organizations to keep in mind during this season of giving.

More Resources


eNewsletter Sign Up

Agent & Broker Insider eNewsletter

Proven success tips and essential information to help agents and brokers grow their practice – FREE. Sign Up Now!

Mobile Phone

Advertisement. Closing in 15 seconds.