Life Insurers Joining the Technology Spending Party
Robert Regis Hyle | June 03, 2014
Celent is in the business of analyzing the insurance industry with a strong focus on technology. Its report on global spending (IT Spending in Insurance: A Global Perspective) looks at life and annuity spending in comparison to the property & casualty world.
“We try to match apples to apples,” says Karen Monks, an analyst in Celent’s North American insurance practice. “We try to determine what we think sector growth is going to be. Looking at the past, it has shown, especially from 2011 into 2012—other than a little blip in 2013—about a five percent growth in premiums across the board with a little bit higher percentages in P&C some years.”
Using those premium growth projections, Celent posed the question to CIOs and some 40 responded with their own premium growth estimates. Celent determined IT spending has increased for both life and annuity and P&C, according to Monks.
“In the past estimates of premium growth were less than four percent, but the numbers for both sides are actually up to four percent for both sectors,” she says. “If you take the estimate of five percent growth in premium, it does equate to quite a big increase for IT spending.”
Celent tested the numbers against some of the things their analysts see in their field-trends report and core systems report.
“There’s growth in the economy, which means there is growth in internal spending limits and much of that is for hiring,” says Monks. “It may be a bit aggressive, but we try to figure out all the components before we say where we think the industry is going.”
There is some growth associated with certain aspects of the annuities market, but insurers themselves are seeing growth in life insurance, which is a positive in comparison to what analysts have seen in the past, explains Monks.
“As the economy improves and people have more disposable income, there are increasing options for the middle class to buy insurance,” she says.
Monks mentioned MetLife as one of Celent’s model insurers and reports their directive is to reach out directly to potential customers through mailings and the carrier indicated they are pleased with recent activity.
“A lot of insurers believe the complexity of life insurance has to change and if it does they may move into the middle market,” says Monks. “There have been changes in the product mix in terms of what is offered to the public in order to increase life insurance ownership, but I also believe there is a huge push toward group and voluntary insurance that is going to come into play.”
Monks explains these are the trends Celent hears from insurers and each of the last three years the analysts have seen a distinctive change in the technology life insurers are investing in.
“They are looking to reduce the cost of their front end—new technology—things like illustrations and electronic apps so the cost of doing those things is not so burdensome,” she says. “If you put it all together there are more than a few options.”
Growth for Life
The P&C sector has spent a great deal of money on their core systems in the past decade, so they are much further along in this area than life insurers, points out Monks. The problem is “nearly every single life insurer I know is sitting with 30-year-old legacy systems and they are coming to a point where they believe they can’t work with them anymore and need to find a way to replace them.”
One of the Celent findings is that IT services for life insurers is directly related to the products, which Monks explains she hasn’t seen before.
“If an insurer can’t work with their legacy systems and puts out a product in 12 to 18 months instead of three to six months, they have to figure out a way to change that, so there is a bit of an uptick related to IT services,” says Monks.
Life insurers need to hire people to find a way to deal with their legacy systems or they are going to end up purchasing expensive modern systems.
“Everyone is trying to figure out the nirvana of straight-through processing and the only way to do it is through technology,” says Monks. “Life insurers are starting to realize they haven’t concentrated on the back office as much as the market told them to. It is a competitive pressure for them to figure out how to introduce new technology in the most efficient way. The P&C world did that 10 years ago and the life insurance industry is just doing that now.”
The priorities Celent found for life insurers center around the acquisition of new business—distribution, the front end, and getting the underwriting to the point where the data is coming into the policy administration system in a standardized, digitally format.
Claims is not yet a priority for life insurers like it is in the P&C world, points out Monks, because of the long tail to life claims.
“A few carriers are buying an individual claims system, but the majority are building their own or it is embedded in their policy administration system,” she says. “If they are going to buy package software they are going to buy something that will expedite and improve the new business side of their house.”
Life insurers continue to struggle with the use of predictive analytics, adds Monks.
“When we asked CIOs about analytics, business intelligence, and Big Data, about nine percent showed an interest in spending on analytics and 6.5 percent on big data,” she says. “When you compare that to P&C, those carriers are way up there with almost 50 percent spending on analytics. Sales and distribution, policy administration, product management is where life insurers are spending—anything to help them sell.”
Life insurers are still grappling with the fact their policyholders are not their customers and that the agents are their customers, explains Monks.
“As long as you have an intermediary, there is still a question on how well you can do analytics,” she says. “Getting the 360 degree look at the customer is difficult. They are doing the best they can but they are not reaching that level until they get agents to agree to share data. Also, how easy is it to get data out of 40-year-old systems, be able to read it, and get it in a format that is useable? P&C vendors have been spending money on this in the last 10 years and life insurers have not.”
Monks points out there is plenty of information for life insurers if they are doing the full life cycle of a policy and solution providers report it is just beginning to creep into discussions.
“IT service providers are beginning to figure out what to offer in analytics services to life insurers,” she says. “Three years ago it wasn’t even in the discussion. They were still working on service level agreements. It’s coming, but it is not coming as fast for life insurers.”
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