Gartner Research sees a continuing movement among p&c insurers toward policy system replacement in 2012 as the number of deals for core systems has increased each year for the past two years.
"Companies are facing legacy problems and the heritage of bad systems," says Kimberly Harris-Ferrante, vice president and distinguished analyst for Gartner. "It's not the majority, but it's more and more each year. A lot of money is being invested in policy, pricing engines, rating engines, claims systems, and even billing systems. That's definitely on the upswing."
Harris-Ferrante credits part of this movement to the technology progression in the industry, particularly the advancements made by vendors to offer free-standing policy or claims systems that allow carriers to purchase a single portion of the core, such as policy administration, and not have to buy billing and claims systems at the same time.
"Look at the progress carriers have made to go to one vendor and buy three different modules, implement them in separate years, and have a common integration with one single vendor," she says. "It allows carriers to have the vision of a big replacement, but the ability to do it incrementally. All of that is coming from the maturity of the vendors themselves."
Harris-Ferrante also sees significant increases in mobility as carriers work with existing internal applications to make them mobile friendly or actually purchase new devices,
"The world is becoming more mobile with agents and consumer-facing applications," she says. "There's a big hike in spending there."
Customer-centric projects will be a major area of focus for some insurers in 2012. The CRM era of the 1990s was universally panned, but Harris-Ferrante points out things have changed since then. To that end, a number of Gartner's larger clients have begun strategic initiatives around customer experience management, she adds.
"The next wave of CRM or customer centricity involves looking at the experience customers can have," she says. "It includes devices, transactions, multi-channel integration, changing the various processes that make them more customer-friendly, and asking the questions: What do customers want from us and do we have the right products they want to buy?"
Harris-Ferrante believes what is different today is carriers are looking inward to determine what customers want from their insurance company—products, processes, technology—experiences the carrier might be unable to offer today.
"How do [insurers] transform their company into something that is seen more positively by their customers?" she asks. "It's a cultural transformation that I've never seen before."
Harris-Ferrante believes this transformation arose from the traditional fear of customer turnover, but also the fears of stronger competitors, the ability to acquire new customers, and having the right products and prices for customers.
Some of these fears arose from the explosion in the social media world over the last 24 months, particularly the transparency and visibility of bad events. A decade ago, if a consumer had a bad claims experience, they might tell a few friends and family, but with the power of the Internet consumers can easily tell the whole world about their bad experience.
"There is a growing fear and recognition of the transparency of bad customer service," says Harris-Ferrante. "Not just how it tarnishes the brand, but how it affects existing customers and new customers. We've been tracking social media as a referral source for a couple of years now. Friends and family recognition is stronger in power when selecting insurance products than even brand or broker/agent recommendations. That's changing the playing field for companies."
Vendor acquisition
Harris-Ferrante is fearful of the current trend of vendor consolidation within the industry, which she believes is being driven partly by insurance companies. Carriers want to deal with a single vendor if possible.
"My fear is we are moving to more of a collector model," she says. "The vendor buys a complementary technology company and says they have one in this bucket and one in another bucket. The beauty of going with a single-vendor best-of-breed model is if you buy multiple applications from a single vendor carriers are not just getting a discount for buying multiple products, but the technology is compatible with the same foundation, architecture, and data model."
But Harris-Ferrante points out what sometimes happens, though, is a vendor acquires a company and decides against making changes to the guts of the system they just bought because that would cause problems for existing users. But if a carrier buys two applications from a single vendor and the productsdon't have the same technical foundation or data model, it means the carrier needs to have duplicate skill sets to maintain the products, they have to deal with two architectures, and also will have to make the data models work together.
"It's not simple," she says. "There's no synthesis in the technology foundation with some of these applications. It might be better than dealing with two vendors from a vendor relationship management point of view, but from a technical integration, cost of ownership, and maintenance point of view, it's not helping a lot."
Cybersecurity
Another worry that Harris-Ferrante has involves cybersecurity. As insurance companies become more digital, cybersecurity and risk management are not always top of mind for companies.
"Insurers are focusing on moving to digital, but not focusing on protection of the digital assets," she says. "We need to move to an all-electronic content—digital records and digital data and accessing it to portal technology for customers, partners and agents—but you have to make sure it is safe and secure."
When there is a blunder and one of their competitors is on the news they all want to know how it can keep from happening to them, but up until then it's what Harris-Ferrante refers to as "Ignorance is bliss. I fear we may have a big insurance problem with cybersecurity. Unfortunately it will be too late for the first person it happens to."
Change management
Carriers will continue to march forward in 2012 with big initiatives—customer centricity, digitalization—but Harris-Ferrante worries that insurers underestimate change management and the culture within their companies.
"They want to talk about the technology and the vendors, but not with how they are dealing with things like the call center and the skill sets of the people working there," she says. "Is it going to be a low-pay, high-turnover job? Call center is an important channel, but many hire low-end people."
Insurers forget how the culture of the company has to change to facilitate the experience that comes with using the new technology appropriately.
"It's not just buying technology and voila you are modern and doing fancy things," says Harris-Ferrante. "When you focus on how you are going to do things differently you have to be sure the employees, the culture, even the incentive and compensation are driving the behavior you want. Otherwise the technology won't do anything for you. You can't just wake uptomorrow and do something different. You have to deal with training, employee retention, change management, employee education. If youdon't take a strong look at the role of people and process, and change management from an organizational point of view, you can't be successful."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.