Following a year of low discretionary spending, we're seeing promising signs of increased investment for both "transformation" IT projects as well investments that deliver more customer-centric IT capabilities.
Looking ahead, 2011 is shaping up to be a period of "catch-up" for those firms that survived in lock-down, cost-containment mode and, as a result, are saddled with outdated legacy infrastructure. These industry laggards are desperately in need of IT transformation to bring their cost structures down in order to remain competitive and improve time to market. As a result, a significant percentage of the industry's total IT spend in the coming year (and particularly so for the life insurance sector) will be on accelerating operational and employee efficiencies by addressing the problems inherent in operating and maintaining outmoded legacy systems.
One option for firms overdue for a core system technology refresh is business process outsourcing. By using BPO, laggards can leap-frog several missed evolutionary cycles and take advantage of cutting-edge application functionality without the disruptive fork-lift style upgrades needed to bring existing capabilities up to speed. Along with increased BPO demand, we also anticipate a shift toward service vendor consolidation as insurers continue to streamline their operations with more efficient end-to-end seamless capabilities to simplify their sourcing partner relationships.
On the other hand are the innovator firms (particularly in the property/casualty sector) that have already invested in enterprise 2.0 transformations. These firms are poised to gain new efficiencies in Web-enabled processes, collaboration and information sharing driven by robust analytics that position them well with the agility to rapidly deploy new technology innovations that will deliver competitive advantage.
TECHNOLOGY OPTIONS
On the front burner for insurance industry innovations in 2011 the focus includes: business analytics and data warehousing, cloud-enabled software-as-a-service (SaaS) and new mobility solutions.
Business analytics can be harnessed to create a powerful front-end platform on top of data warehouses. This capability improves fit-of-risk by getting as close as possible to the true, underlying risk characteristics of the policyholder. Such powerful analytic tools are gaining significant traction in the marketplace, including new tools for mining geographic information, accelerometers, global positioning, proximity detectors and various "black box" methods to offset "driving while distracted." While regulatory hurdles to refined pricing will always present a challenge, sequential analysis of risk factors will let the most alert insurers gain pricing advantage, introducing the tools one at a time.
Because the nature of insurance necessitates readily accessible data at any given time or place, entering the cloud is the logical next step.
As insurers look to free up IT dollars devoted to maintaining legacy systems and improve business agility, forward-thinking CIOs will consider cloud-enabled SaaS. Already, SaaS CRM is quickly well established among leading insurers. Maintaining traditional data centers incurs a significant cost that is easily reduced and redirected by off-loading to the cloud. That said, insurers must become comfortable with shifting from physical ownership of IT assets to co-ownership between business and partner. Thus, transitioning to the cloud will be determined by how much risk companies are willing to take, as they must make a significant investment in design shifts.
Leading insurers also are expanding their mobility offerings as they play an increasingly vital role in augmenting their value proposition to agents and customers. According to TowerGroup Research, mobile technology spending in the insurance industry is growing at a compound annual rate of 18%-a clear indication of the potential value of mobility in the insurance space. Indeed, interest in the iPhone and Android has only served to accelerate implementation of new mobile "apps" for bill-pay, claims processing, sales force automation, customer relationship management and marketing. Insurers need to be mindful of the real-time information needs in supporting these apps.
The fundamental issues in insurance IT are, and will remain, the need to deal with ever-increasing amounts of data with speed and accuracy, while continually wringing costs out of the process.
The real way to drive competitive advantage is to exploit the full range of data-driven new methods made possible by IT transformation. 2011 is shaping up to be a breakout year for innovative firms that can quickly evolve and leverage their overall IT transformation investment along with their willingness to embrace a systematic approach to aligning business processes, IT systems and structures.
Michael Scunziano is head of major markets, insurance, Robert Arvanitis, senior industry consultant, and Syama Sundar, global client director, insurance, all at TCS NA, New York.
