Policy-administration systemreplacement remains a top priority for insurers in 2012,particularly for large and midsize carriers, according to MattJosefowicz. However, it is less of a priority for smallercarriers.

“That’s partly because small insurers have fewer systems and maynot feel like they can afford a newer system,” says Josefowicz,partner and managing director in the insurance practice atNovarica.

There aren’t that many policy-admin solutions available thataren’t a huge drain on a smaller carrier’s budget.

“If you are a $50 million insurance company, you may have atotal IT budget of $4 million,” says Josefowicz. “If you are goingto try to replace a policy-admin system, the cost might take upyour total IT budget for the next two years.”

Smaller carriers instead tend to focus on issues that are moretactical—at least until their policy-admin-system issues become toopressing.

In its report on U.S. insurer IT budgets and projects for 2012,Novarica found many carriers rated their systems as being poor inquality. Josefowicz believes carriers in turn are looking at wherethey can obtain the greatest improvements in these systems on ashort-term basis, such as enhancements. Such a plan may be bothless expensive, Josefowicz says, and advantageous from arisk-management perspective.

“It’s generally viewed as lower risk to enhance something that’salready in place rather than to go through the transition ofreplacing a system,” he notes.

He explains it is difficult to lump all insurers into aparticular bag, because the marketplace is diverse in terms of thestate of capabilities at different insurers.

“Carriers may see different areas as core, but if you look atthe business drivers—growth, operational effectiveness, competitiveparity—and look at the business capabilities, which mostly arearound speed-to-market, distributor service and businessintelligence, that’s how those goals translate totechnology-enabled capabilities,” he says.

When Novarica asked insurers to cite their top project areas for2012, predictive analytics was one of the lowest rated on both thelife & annuity side and the P&C side—no matter the size ofthe insurer.

“It’s not in the top three for most insurers because being ableto implement a predictive-analytics model depends on strong rating,policy-processing and transaction-processing capabilities,” saysJosefowicz. “But that doesn’t mean insurers aren’t doing analytics.I would hazard a guess it is a driver for policy-admin projectsthat include rating and underwriting systems so the additionalpredictive models can be implemented. The need to supportpredictive analytics is one of the things that drives other largerprojects.”

Josefowicz doesn’t like to make bold predictions about what liesahead in insurance IT because he sees the industry dealing morewith incremental change, as opposed to massive change.

“I think the problems are well known, the challenges areestablished, and the solutions, in most cases, are understood,” hesays. “People are engaged daily in the struggle. It’s notglamorous, but it’s absolutely necessary.”

Josefowicz believes that is why issues such as social media andmobile technology got so much attention in 2011.

“Those pieces of technology are not necessarily expensive. A lotof what is going on in those areas relates to leveraginginvestments that were made for real-time Web,” he adds. “On theother hand, having an inflexible administration system, ratingengine, agent portal or claims environment that doesn’t allow youto do new things is going to hold you back from being able toleverage the value of mobile and social media.”