Policy administration system replacement remains a top priorityfor insurers in 2012, particularly for large and midsize carriers,according to Matt Josefowicz. It is less of a priority for smallercarriers, though.

"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.

For a small carrier there aren't that many policy administrationsolutions available that aren't a huge drain on a smaller carrier'sbudget.

"If you are a $50 million insurance company, you may have atotal IT budget of  $4 million," says Josefowicz. "If youare going to try to replace a policy admin system, the cost mighttake up your total IT budget for the next two years."

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

"If [smaller carriers] wait long enough, a more cost-effectiveSaaS option might rear its head with a lower total cost ofownership," says Josefowicz. "We're already starting to see thosekinds of options on the market."

In its report onU.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. Although such a plan may beconsidered less expensive, Josefowicz regards it as a riskmanagement issue.

"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 says.

Josefowicz points out it is difficult to lump all insurers intoa particular 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.

Josefowicz includes among those capabilities bringing newproducts to market faster, serving agents more effectively, usingtechnology to improve the agent/underwriter relationship and speedof transaction, and leveraging internal and external data throughbetter business intelligence.

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 property & casualty side—nomatter the size of the 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 administrationprojects that include rating and underwriting systems so theadditional predictive models can be implemented. The need tosupport predictive analytics is one of the things that drive otherlarger projects."

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."

He believes that helps to explain why issues such as socialmedia and mobile technology grabbed 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," says Josefowicz. "Onthe other hand, having a an inflexible administration system,rating engine, agent portal, or claims environment that doesn'tallow you to do new things is going to hold you back from beingable to leverage the value of mobile and social media."