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Some Insurance IT Issues Just Won't Go Away

Matt Josefowicz | November 24, 2014

In the midst of the massive changes sweeping the economy driven by the rapid evolution of information technology, insurers’ IT plans for 2015 are mostly a continuation of current projects and priorities.

For a few insurers, this is a result of a willful blindness—a stubborn refusal to accept that information technology is changing everything including the insurance industry, and a fervent wish that it would all just go away. These insurers pine for life to get back to “normal,” when they communicated mainly by phone and mail, and business operated on a schedule based on human, not electronic rhythms.

Most insurers, though, recognize the importance of improving their operational agility and the ability to adapt and change as market and stakeholder expectations continue to evolve. However, even these insurers have a backlog of required capabilities to build and investments to make (many of which require multi-year projects) in order to be capable of adapting.

Legacy core systems, inflexible architectures, legacy development and management practices, and other challenges inhibit even those insurers who know that they need to be able to change more rapidly. These insurers have little alternative but to roll up their sleeves and continue to build for the future.

They are doing so in a traditional way. While Novarica research shows that most insurers plan modest budget increases, overall average spending ratios are up only slightly to 3.8 percent from 3.5 percent or 3.6 percent in previous years. This slight statistical increase is consistent with historical norms of 2-5 percent spending ratios rather than evidence of a significant shift in resource allocation within the industry.

Supporting growth continues to be the dominant strategic goal of insurance IT spending. Insurers are more likely to cite growth and operational effectiveness as the key drivers of their IT strategies than they are to cite expense reduction or even competitive parity.

Speed-to-market remains a top priority for business stakeholders across the board. For P&C insurers, business intelligence and analytics have surpassed distributor ease of doing business as the next most commonly requested capabilities, but for L/A/H insurers, there’s less demand for analytics and business intelligence and more for distributor ease of doing business.

Core policy admin remains is the most active area for replacement, with nearly 40 percent of insurers currently engaged in or are planning a policy administration system replacement in 2015. These replacements can vary from just core record keeping to full suite replacements that include billing, claims, and other elements as well. Business intelligence is the most active area for enhancement.

While few insurers are shopping for new BI environments, more than half are planning major enhancements in reporting, data repositories, and analytics capabilities. True “big data” initiatives are rare, but some insurers are starting to invest in big data tools like Hadoop or NoSQL to tackle their own enterprise data problems.

“Digital” is much discussed, but with little agreement on terms. For most insurers, digital strategy centers on agent and customer portals, as well as improved internal workflows in core processes like claims and underwriting. Mobile, social, and cloud are becoming less buzz-wordy and more mainstream. The majority of insurers have some experience with cloud at least in ancillary areas, and mobile (especially tablet) is rapidly becoming a core part of any communications strategy.

A few insurers who have already deployed modern core and communications infrastructures are able to focus their technology spending and strategies on other changes off on the horizon, changes that will be driven by the Internet of Things, wearables, and other pervasive computing and data that change the balance of power in information businesses across the economy. But for most insurers, 2015 will be a ground game of moving the ball forward in hard slog against legacy environments and attitudes.

(Matt Josefowicz is managing director of Novarica.)

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