Insurance Technology In 2001:

Adoption Was Slow And Slower

Even before the horrific attacks of September 11, the economy was heading south, and nowhere was this more evident than in the technology sector, where hardware and storage systems in particular were hard hit.

As slow as things were overall, however, the insurance industry in 2001 lived up to its reputation, lagging even farther behind in adopting technology initiatives.

The economic malaise in technology was obvious at Fall Comdex 2001, the computer industrys premier technology conference. According to Needham, Mass.-based Key3Media, the organization that runs Comdex, attendance was off by 30% from the 200,000 who were there in 2000. The consensus of those who did attend, however, was that the drop was more like 50%.

At a press briefing during Comdex, which was held in November in Las Vegas, a researcher for Framingham, Mass.-based IDC, said that before September 11, “things were slipping” in the information technology market, but it was “not that bad.

“By 2002, IT budgets would start growing again, we thought,” said Crawford DelPrete, senior vice president, hardware research, for IDC. After September 11, he noted, “we assumed a new worst case scenario.”

DelPrete cited lower consumer and business confidence as key factors that would stifle growth until “after the second quarter of 2002.”

Storage systems were among the hardest hit sectors of the IT market, said DelPrete, forecasting a 20% drop in sales for 2001, versus a 15% growth for 2000. This trend, he noted, was “not so much affected by 9/11.”

Hardware sales overall were expected to be down by more than 9% in 2001 and by about 1% in 2002, with a recovery in growth expected in 2003, said DelPrete.

Software sales, which had been up 12% in 2000, were expected to show a 6% growth in 2001, with larger gains in 2002, DelPrete added. Total IT spending is also expected to increase in 2002.

To the credit of technology experts in the insurance industry, these overall trends in IT spending were anticipated for 2001.

As early as January, experts in National Underwriter were advising agents and brokers to update systems and to move to new, cost-effective technologies while funding was still available.

Experts such as Bruce Hill, partner in Hillcomp LLC, a systems integrator based in Greenwood Village, Colo., also recommended outsourcing technology-related tasks as a way to save money, since other companies can often perform such tasks for less than an in-house department.

Hill also pointed out that obtaining software and associated services may be less expensive via an application service provider model. With an ASP, the software is hosted and maintained by an outside firm and provided to the customer through the Internet or an intranet.

National Underwriter reported in June that outsourcing IT in insurance was gaining favor with carriers. We also reported in October, however, that life insurance agents and brokers in particular werent buying it, despite an obviously ailing economy. Agents we interviewed acknowledged that they might be able to get IT services for less money elsewhere, but expressed a comfort level with getting such services from the main carriers with whom they do business.

When it comes to technology, said Ann Purr, second vice president at Atlanta-based LOMA, carriers and agents “have a relationship thats tried and true. If anything goes wrong, [the agents] know exactly who to call.”

Meanwhile, at Comdex, DelPrete said that CRM would remain an active area of IT spending, but that projects might come in “smaller chunks.”

Unfortunately, 2001 also saw the insurance industry lagging behind other industries in its use of customer relationship management software to manage customer information.

In a January 22 article in National Underwriter, Chuck Johnston, vice president and director of insurance information strategies at the Meta Group, Stamford, Conn., said insurance companies “are trying to figure things out. Theyre struggling with how to get better at managing customers Its going to be kind of a slow road.”

Still, the industry seemed to recognize the value of CRM in 2001. National Underwriter reported in January that experts believe the results of CRMbeing able to offer near-perfect products for individualswill promote customer retention, repeat sales, referrals and customer loyalty.

CRM products were also prominent at a number of insurance industry technology expositionsincluding LOMA and IASAthroughout the year.

A somewhat optimistic note for 2001 was seen in a September 3 National Underwriter article in which a study revealed that despite the slowdown in the technology market, insurers and financial services companies, among others, were advancing their Internet technology projects.

According to DiamondCluster International Inc. of Chicago, which conducted the survey, 61% of financial services executives with ties to the insurance industry believe e-commerce will have a significant impact on their businesses.

Looking forward, security technologyespecially following September 11is attracting a lot of attention in the marketplace. The Comdex product offerings were dominated by security-related devices and services, including biometric devices for better personal identification. Such products should see increased exposure at industry trade events.


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 24, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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