Filed Under:Agent Broker, Agency Technology

Budgets Broaden, But Priorities Remain Unchanged in IT

As premiums have grown, so have insurers’ IT budgets. But despite all the buzz around newer technologies, the three big areas of investment for insurers continue to be traditional areas of legacy system replacement, business intelligence and portals.

Insurers’ IT departments contended with some lean times in recent years. However, the picture has brightened considerably going into 2014. 

“If you go back into the mid to late 2000s, there were either constrictions or a ‘marking time’ mentality to IT budgets,” says John Dunbar, CIO, Atlantic American Corporation. “Over the last two to three years, things have loosed up a little bit just as business has improved.”

“We are going to be investing more aggressively in 2014,” says Shawn O’Rourke, CIO, Amerisure.

O’Rourke reports close to a 10% increase in the company’s overall IT investment, which is above the anticipated industry average. In a Novarica study of 95 U.S. insurers, nearly 60% of respondents reported 2014 budgets greater than 2013, with the average increase in the 3.5% range. Globally, Ovum forecasts that insurance IT budgets will grow at a 6.5% compound annual growth rate through 2017.

Core Focus
“Many IT budgets are tied to a percentage of direct written premium, so as the P&C market has hardened and underwriting pricing has risen, IT budgets have risen with them,” says Frank Petersmark, CIO advocate for IT consultancy X By 2.

“Core system transformation and legacy modernization efforts still top the priority lists irrespective of the size and market presence of the insurer—the variable is how aggressively they can pursue it given their size and market presence,” he adds. “At least for our clients, the rest of the priority list is some form of data effort—advanced analytics, predictive modeling, and so on.”

Novarica reported that core system replacement is the No. 1 priority for insurers, with more than one-third replacing policy admin systems and one-fourth replacing claims, billing, rating, or underwriting platforms. Other items among the top three budget priorities include investments in business intelligence and portals.

Amerisure’s project priorities align perfectly with Novarica’s findings. The company will complete  an overhaul of an internally developed legacy policy administration system this year. “The modernization was specifically targeted at our customers—making our service platform more efficient, automating manual processes, improving compliance,” O’Rourke says.

Amerisure is in the initial stages of a claims system modernization that will see it migrate off an internally developed system, with the company currently evaluating several vendor platforms.   

At more than 15 years old, Amerisure’s existing claim system was due for an upgrade. However, business priorities led to the budget increase and allowed the company to attack the modernization project ahead of schedule.

“The business was looking for a modern platform to increase efficiency,” O’Rourke says. “Additionally, we believe with the more rich data we’ll be able to collect with the new system, we can find ways to expand on the already excellent claim service we provide by processing claims more efficiently and making better business decisions with more detailed and more timely data. It became a compelling argument for replacement now.”

Amerisure will continue to expand on its SureConnect portal, originally launched in 2009, to agencies and their customers. The most recent enhancement to the portal is a dashboard that allows an agency to evaluate its book of business and compare it to both peer and benchmark data.

“It’s in our mutual best interest to write business that generates good returns,” O’Rourke says.

One enhancement planned for 2014 is an alert capability for agents around loss control activity. “We wanted to provide agents information about loss control visits to their accounts so that they can know when an inspection has taken place, gain insight into the inspection, access updated reports, and so on,” O’Rourke says.

Amerisure also will focus on building out business intelligence. “We’ve always had solid capabilities in what we see as the ‘middle layer’ of business intelligence, but we haven’t had high-end capabilities or self-service capabilities,” O’Rourke says.

Although the company is still evaluating tools, the chosen platform will need to allow users to create their own ad-hoc reports and conduct analysis on discrete data fields or data from multiple external and internal sources, while also providing the high-end analytics desired by power users and management.

Investment Without Increases
Although budgets are increasing on average at insurers, there are companies at either end of the spending spectrum. However, even companies that are dealing with less-than-average increases are undertaking new initiatives by reallocating resources.

Atlantic American is an example of that. Despite a relatively stable budget, infrastructure improvements made in 2013 allow the insurer to expand its app development in 2014. Infrastructure projects completed include co-locating servers, virtualization, and VoIP. The company also  has pushed some application development to the cloud as a cost-saving measure, experimenting with platform-as-a-service through Microsoft Windows Azure and Amazon Web Services. 

A top project priority for Atlantic American in 2014 is expanding its portal capabilities, including increasing the availability of electronic applications.

“We want to allow agents and policyholders to do more over the internet as opposed to printing out forms, signing them, sending them in,”Dunbar says. “We are focused on self-service via the portal by providing customers more information online.”

Midwest Employers Casualty Co.(MECC), a member company of the W.R. Berkley Corp., also has a stable budget in 2014. 

“We don’t make major swings in our IT investment when the market hardens or softens,” says Michael Foerst, MECC’s vice president of information technology. “Instead, we constantly analyze where we're spending and reallocate it to maximize return on the efforts that are most important to the business.

The company’s investment focus will include business intelligence. MECC looks to bring more data into its analytic platform from third party providers and from working with policyholders and TPAs.

“We want to move on to the next level of analytics in our data models through a dynamic data environment that incorporates hundreds of data sources,” Foerst says.

The objective is to obtain greater insight into claims earlier in the process.

“Just as fraud detection looks at claims activity to detect patterns, we want to use analytics to identify patterns of service or usage, injury types, treatment changes, or any unusual activity that would indicate the potential for claim severity,” Foerst says.

That effort will require not just analytic technology, but customer outreach. Because MECC provides excess workers’ compensation insurance, the company often isn’t notified of a loss by a customer until it is clear that payment will exceed self-insured retentions. 

“Getting data early in the process, along with overall data quality, are the two biggest ongoing challenges we face,” Foerst says. “We need to stress to policyholders and TPAs that there is value to them when we identify severe claims early on. That includes not just better identification of catastrophic losses where it is likely from the outset that a worker will need long-term care, but also on ‘migrating’ claims—injuries that start off as a $10,000 claim and become a $1 million claim. 

MECC looks to combine its portal with business intelligence tools to convince customers of the value of sharing data.

“We are getting ready to begin the next iteration of our analytic environment that will leverage our portal to deliver information to customers not just as static reports, but as a set of dynamic tools that they can use to manage claims as well,” Foerst says. “Helping everyone involved in the claim understand the nature of the serious-injury lifecycle will not only help our customers who are self-insured or who have high retentions manage their programs, but will also help improve the treatment outcomes for injured workers.”

Other Investment Areas
Although longstanding priorities of core processing, business intelligence, and portals will dominate budgets in 2014, insurers have increased their investment in other areas as well. One area of anticipated investment growth is in mobile technology 

“It was interesting to see a higher level of mobile activity among midsize P&C insurers,” says Matthew Josefowicz, managing director at Novarica.

Most carriers can identify mobile initiatives they are undertaking. Amerisure is working on providing more information to field employees by enabling secure BYOD access to additional data sources.

“There are clear areas where we can leverage mobile to help our field employees,” O’Rourke says. “For instance, we can provide apps to loss control consultants to help them obtain or collect information more easily while they are on an inspection.”

The good news for insurers’ IT departments is that the trend of spending increase will continue.

“2015 will probably be more similar than different [from 2014],” Josefowicz says.

“I think the scarcest resource for insurers isn’t money, it’s business partner bandwidth,” he adds. “Insurer CIOs need committed time from business resources in order to design and deploy most systems effectively.

O’Rourke agrees. “If I had an unlimited budget I’d need an unlimited business capacity,” he says. “The fact is that we can’t move any faster in development than we as an organization can consume that development.”

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