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 in 2007, but it's still better than other industries in terms of spending,” she says.

Carney maintains spending increases will continue in 2011. One of the things she bases this on is the nature of the inquiries Forrester received from insurance carriers during the course of the downturn.

“We had a thousand more 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.”

Premiums rising

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.”

Growing the business

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.

Priorities

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.”

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

Changing landscape

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 a lot of strategy sessions is if there is a mix of business people and IT people in the audience 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 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.”

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 insurance consumer technology because it will have implication 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 or it's being done at the business analyst level or they are going to use their vendors for this.”

Special Reports /

Budget Busters: IT Spending in 2011 Part 2

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