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.
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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.