NU Online News Service, Feb. 29, 3:58 p.m.EST

Faced with the daunting task of improving margins in aneconomically strained environment, insurers are finding ways toincrease efficiency, and many see policy administration as an areawhere technology can accomplish that goal, according to a recentreport.

This week, the consulting firm Capgemini and Efma (EuropeanFinancial Marketing Association), a bank and insurance industryassociation, both based in Paris, released their World Insurance Report 2012. The report saysthat as investment income has declined, the property and casualtyinsurance industry is “forced to concentrate on improving thebuilding blocks of underwriting performance: claims, andoperational and acquisition ratios.”

As a result, the industry is seeking to improve the efficiencyof processing claims, operations and distribution of insurance tolower costs and enhance profitability.

In a survey of 71 insurance executives covering 17insurance markets that include the United States, Europe and Asia,the report says that most of the world's P&C insurers have“experienced gains in profitability” over the past two years asthey have seen some recovering in investment income after thefinancial crisis of 2008. However, the continued weak economy hastaught them that they cannot rely on investment income alone toshore up profitability.

Raising prices in not an answer because the competitiveinsurance marketplace means customers can easily turn elsewherewhen it is a question of price, the report notes.

Pursuing greater efficiency in underwriting performance byminimizing their “claims, acquisition [acquiring customers] andother operational costs” while continuing to grow their business isan increasing focus of carriers.

One major area of improvement is policy administration, whichinsurers consider to be the next priority to achieving “cost andoperation efficiency.” Insurers are increasingly turning toinformation-technology solutions to achieve that goal.

In the survey, over the next two years, 93 percent of insuranceexecutives in Europe say that policy administration improvements,or transformation, is a priority for them, with 67 percent sayingit is a very high priority.

In North America, 67 percent of executives called it a very highpriority, while 33 percent did not consider it a priority.

For Asia-Pacific carriers, the number drops to 36 percent, with9 percent saying it is a very high priority.

The survey points out that a major reason for the lower concernin the Asia-Pacific region has to do with the relative newness ofinsurance in that region that allowed them to incorporate newertechnology.

One of the major issues for Europe and North America carriers isthat they are still working with inefficient legacy systems. Thisaffects rolling out new products and inhibits their ability to“compete in a customer-centric market.”

The report says that transforming their policy administrationsystem carriers would reduce their operational costs by reducingcost per policy by 30 percent. They would also reduce business andtechnology process inefficiency by 30 percent.

“By transforming these systems, insurers can better managecurrent market challenges including regulatory-compliance issues,customers and intermediary satisfaction, aging and inflexiblesystems, and protracted product launches by increasing the speed tomarket by up to 60 percent.

Keith Gage, vice president, Capgemini Financial Services, toldNational Underwriter that for the first time in a decadewhen it comes to upgrading policy-administration technology, thereare off-the-shelf solutions and the tools available for insurers tobuild the system from scratch. Dealing with the legacy-issuequestions, he says these systems can “go right after theconstraints” that have kept insurers “in a straightjacket” fromachieving efficiencies.

With those efficiencies, he says carriers have seen where theroll out of a new product that once to nine months can then take acouple of weeks.

“It gives them a lot more agility and the ability to move fasterto introduce product, deal with regulatory issues and make ratechanges,” says Gage.

What is often holding back insurers is the time and cost to makethe changes, he says. It is not unusual for a changeover to takethree to five years, and could cost in excess of $30 million, butthat all depends on the size of the carrier, using $30 million as abenchmark figure, he notes.

However, making the changes can have substantial impact on aninsurer's bottom line, both producing efficiencies that save moneyand in allowing the carrier to grow market share with theircustomers and improve the delivery of the product to both insuranceagents and the customer.

“It is one of the few areas where a carrier can get cost benefitand gain customers,” says Gage.