Few question the big changes in the business and economic landscape, considering the chronically low interest rates, cautious consumers and changing tax code and regulatory environment. Careful and conservative approaches have been taken to rebalance risk and investment portfolios and seek additional operational efficiencies. Many leading insurers are rethinking their products, distribution, and value proposition to customers. IT has a key role to play as insurers make changes across the value chain to address the current environment and capitalize on new opportunities. 

Trending toward optimism

Insurers are natural optimists, in spite of being in an industry that was born as a result of bad things happening. As an industry, insurers understand that there are ups and downs, that tragic events occur and that recessions and economic booms come and go. The industry exists to help individuals and businesses plan for and manage through the cycles of good and bad times.

Lately, there seems to be even more optimism among insurance professionals. This optimism is reflected by their assessments of the current condition of their companies. When asked how they view the current mode of their companies, 80 percent said their companies are transforming or growing. The remaining 20 percent that are sustaining or are in survival mode primarily represent companies that are under $500M in premiums.

Business drivers and IT spending

Insurers identified the primary business drivers that are triggering their technology investments. Cost containment and expense reduction, growth in current lines/markets/geographies, business optimization, customer service and regulatory issues are cited as the top five reasons for IT investment in 2013.

Research from Strategy Meets Action (SMA) indicates that IT budgets for life and annuity (L&A) insurers have increased by about 2 percent over last year, which results in total projected spending for 2013 of approximately $27 billion US dollars for North American L&A insurers. This year, 15 percent of insurers are decreasing budgets and about one-third of the respondents are maintaining their budgets at 2012 levels. Over half said that their budgets are increasing (51 percent). The majority of those expect 1 to 4 percent increases (45 percent), while larger increases are anticipated by 6 percent. The plans become more optimistic when the three-year time horizon is evaluated. 

Business areas and technology spending

When asked about their investment plans for each area of the insurance value chain, L&A insurers said that distribution/sales management is the top business area for increased IT investment in 2013, with 50 percent planning budget increases. Other key areas include the following, with the percent of insurers increasing their budgets in parenthesis:

  • Marketing/product development (46 percent): The urgent need to create additional demand and provide more advanced capabilities for producers is driving many technology projects in these areas.
  • Policy/member servicing (46 percent): Legacy policy systems often slow the completion of new business. Even if other advanced systems are in place, they ultimately need to interface with the old policy system to record transactions and issue policies. Since many insurers operate with multiple policy systems, significant investments are needed to modernize, consolidate or replace aging systems.
  • New Business/Underwriting (43 percent): Many life insurers are investing in new or enhanced technology for new business/underwriting processes that improve efficiency, speed and underwriting decision-making. These upgrades help to attract business from producers and increase new business from existing customers and prospects. 

Project priorities

In any given year, only a small number of the hundreds of potential IT projects are funded. The SMA survey separated projects into two categories: business applications directly supporting one capability area (such as marketing or distribution), and technology projects, which may support one or more areas (such as mobility or security).

The number one area for IT business application projects is policy administration. Very few L&A insurers are planning new systems as replacements for legacy systems, but almost half are planning significant enhancements to their existing systems. New business/underwriting and portal projects are still hot. Both producer and insured self-service portals are receiving focus and funding in 2013.

In the technology project arena, a mix of project types are underway – some data oriented, some tools oriented, and some that leverage an emerging technology. But the number one technology project area for L&A insurers is business intelligence.

Master data management/data warehousing projects are a vital prerequisite to enabling a wide variety of high value business intelligence and analytics opportunities. Mobile technology is gaining greater prominence, with sophisticated mobile apps for prospects, customers, and producers. Insurers are now seeking to create enterprise-wide user experience platforms — on our top five list for the first time.

Challenges and opportunities

A number of challenges and issues must be considered as CIOs determine project priorities. Forty-five percent of insurers cite limited budget as an issue; 37 percent of insurers say that aging systems cause a severe strain on technology investments. The struggle with alignment of business and IT strategies was cited by 32 percent of respondents. 

The opportunities to apply technology for business advantage are many and varied. The challenges are real and the current economic and business climates are strongly influencing plans for 2013. So, how should insurers plan to capitalize on the opportunities? SMA recommends the following steps to gain maximum leverage:

  • Align the business and IT strategy. The business strategy usually drives the IT strategy, but the technology itself may present new business opportunities. The key is to keep an ongoing dialogue and strong relationships throughout the business to promote alignment.
  • Strengthen the governance model and be disciplined in its usage. Prioritizing among project opportunities and making the best use of limited resources and talent requires a formal process and buy-in from all involved parties. Good governance supports the planning process and extends through the design and implementation of the systems. 
  • Think big but start small. Visions and roadmaps are vital. The big picture is critical to success, but it is important to design projects that are achievable in scope. Even the largest projects can be organized into a series of smaller projects that provide earlier return on investment.

This approach will enable insurers to invest for advantage, and succeed in the current environment. 

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