It’s that time of year for reports on IT investments in the insurance industry. As would be expected, core systems, portals, and business intelligence again rank as the top three spending initiatives. While most studies provide extremely useful information about where major investments are being made, there are many initiatives thatdon’t necessarily involve the largest budgets, but still have significant business impact and alignment to strategies.
This year, SMA’s annual ECO System Series survey on IT spending, business drivers, and priorities opened the aperture to expose a wider perspective of industry investment insights—giving additional detail about how and where investments are being directed. SMA looked at 30 investment initiatives (in both vertical business application and horizontal software project areas) and compared areas where insurers are replacing existing systems or adding entirely new ones, to areas where insurers are investing in major enhancements to existing systems. The insights are quite fascinating and point out some emerging trends that might ordinarily get lost behind the big-spend stories.
New View Surrounding Business Applications
Insurers are clearly focused on growth and technology investments in the front office—looking for ease of doing business, expansion of distribution channels, and improvement in time-to-market. Figure 1 demonstrates how insurers are approaching the expenditure of IT investment dollars in a variety of vertical business application areas. More than a third of insurers report they have major project plans in the following areas: new business/underwriting systems, agent upload/download, and rating engines.
At the top of the list for replacement and additional new projects sits rating engines. Rating engines were the first ‘component’ of policy administration system capabilities to be externalized in the mid-1980s. It is amazing to see that insurers are continuing to leverage the componentization concept, taking advantage of the software that is currently available in the marketplace.
Insurers are striving to extend the function of both direct and agent portals and are using externalized rating to help do this. Rating engines are taking on a new level of importance in the success equation. They form an integral part of delivering value by helping insurers provide a rapid response to users, and improving time to market. They make it easier to change rates, rules, and formulas. Rating engines are proving to be instrumental in enabling straight-through processing, comparative rating, and even point of sale quotations.
The second highest ranking projects that insurers are addressing with a replacement or add approach are policy and claims administration systems. However, in both the policy and claims areas, more insurers are making investments in enhancing existing systems than replacing or adding new systems.
Major Enhancement Projects
Insurers say that new business/underwriting systems rank as the top priority for enhancement projects. Following closely are agent upload/download projects. These results are not surprising, given the multitude of new ways for clients and partners to reach and interact with insurance companies.
Many insurers have already invested in software for real-time upload/download and are now working on the next lines of business. And many have upgraded their policy administration systems and are now addressing additional lines or extended capabilities for underwriting automation.
Not far behind new business/underwriting systems and agent upload/download, are projects aimed at improving the product development and management capabilities for the organization. It is interesting to note that for these two areas, most insurers are enhancing the applications they already have in place rather than adding new systems or completely replacing existing software solutions. Product management projects continue to be a focus area for insurers as they seek novel ways to beat the competition with innovative and responsive products, highly efficient processes, and effective linkages to rating engines and product configurators.
Insurers continue to strive for cost containment, business process improvements, workflow management, and gaining new insights with data and analytics. Figure 2 illustrates how insurers are approaching projects that relate to horizontal software IT investments. At least a third of insurers report that they have major project plans in the following areas: Business Intelligence (BI), Business Process Management (BPM), Master Data Management (MDM), predictive analytics, workflow systems, and cloud computing. Collectively, these technologies bring efficiency, effectiveness, and transparency to the operations of the business.
Regarding horizontal application plans, insurers place BPM first for the replacement of systems or the addition of new software. It is clear that the drive for efficiencies has not diminished. Following closely in ranking are BI, MDM, and mobility applications. Insurers are exploring options using BPM technologies that complement their business applications (especially underwriting and claims).
The project plans involving master data management and business intelligence indicate that many insurers are investing in software and tools that will take their business applications to the next level. In the area of mobility, many insurers are moving beyond setting strategy to buying technologies that support the platform, security, and insurance business applications.
Major Enhancements Projects
The top two project areas for enhancement projects are predictive analytics and BI. The importance of this area is understandable given the highly competitive nature of the business and the fundamental importance of data and insights to drive profit. But, what is interesting is the high percentage of insurers that say they are enhancing existing systems rather than replacing or adding new systems. Most insurers have already made investments in the software for BI and predictive analytics and are now continuing to invest in applying them to new areas of the business, or additional lines, or just more granular levels of data and analytics.
Looking Beyond Core
Typically, in the insurance industry, most of the attention on IT investments focuses on core systems replacement. That is appropriate because that is where the mega deals and mega projects are taking place. In truth, for most insurers, it is the most significant worry point, because these systems are so critical to the day-to-day functioning of the business.
SMA’s 2012 Insurance Ecosystem Research data does not contradict this focus, but it does shift the light to other important parts of the picture. The project emphasis on enhancing systems that address the automation of underwriting, improvement of business processes, and better workflow management all point to the changing competitive landscape. Tomorrow’s leverage will require an agile, responsive organization capable of meeting rapidly changing customer needs and demands. Cost containment projects will need to be complemented with investments that deliver profitable growth.
New approaches and new tools are making it easier to enhance and add function to existing systems—even tired legacy systems. The investments are returning significant rewards for business operations and delivering results without the traditional mammoth budget hits and multi-year project timeframes.
Bottomline? It is exciting news for the industry. Insurers are demonstrating maturity and the ability to capitalize on past investments to reap additional business value. The full ECO System Series report, “Insurer Technology Spending, Drivers, and Projects,” will be available on the SMA Website this month.
About the Author
Deb Smallwood, the Founder of SMA, is recognized for her expertise in deciphering how IT spending trends influence competitive advantage in the insurance industry. She offers a fresh perspective on how business capabilities can be enabled to meet strategic goals. Exclusively serving the insurance industry, Strategy Meets Action blends unbiased research findings with expertise and experience to deliver business and technology insights, research, and advice to insurers and IT solution providers. She can be reached at firstname.lastname@example.org.