Insurance IT strategy primarily is concerned with known issues, such as speed-to-market for products and product changes, providing better agent and policyholder experience and driving better performance through data management and analytics. The challenges are well-known: legacy transformation, incorporating new assets into application architectures, data quality, and marshaling time and money to address the highest impact issues first, without ignoring small issues that have potential to grow.

At the same time, IT leaders also need a vision that accounts for tomorrow's issues. We surveyed more than 80 insurance CIOs, asking them to look five years out and consider the biggest potential disrupters to their businesses and what steps they are taking to prepare. The five most common issues were regulatory changes, shifting market needs and expectations, the financial environment, increased catastrophes and the emergence of big data.

Regulatory changes were most frequently cited by life/annuity/health insurers and the second most by P&C insurers. Most were concerned about the implementation of the Affordable Care Act and the Consumer Financial Protection Bureau, but insurers also are concerned about increasingly assertive state regulators and the possibility insurers could be seen as potential revenue sources in a tight economy.

More than anything, insurers are concerned about how various regulations would be implemented. Will regulators extend the minimums on medical-loss ratios to other types of loss ratios? What impact would that have on distribution models? How would state privacy regulations affect insurers' abilities to use big data in underwriting and claims? Given this uncertainty, IT leaders are focusing on systems agility to make sure products and practices can be aligned quickly with any new regulations.

For P&C insurers, shifting market needs and expectations were most frequently cited as potential disrupters. IT leaders are looking at the potential growth of usage-based insurance, simplified products and underwriting processes, channel proliferation and consumers' intolerance for complexity in communications and products. Insurers also expect more direct-to-consumer sales over the next five years.

To operate in this environment, insurers need to understand and incorporate telematics and third-party data into their modeling. They will need to refocus on the customer experience in mobile, tablets and social media, and balance regulatory risk with customer preferences. And they need to rethink traditional sales and underwriting processes in a world of diminished tolerance for delay and complexity. IT leaders are preparing by investing in channels and data/analytics capabilities, and helping their companies rethink processes from a customer experience point-of-view.

Changes in the financial environment were another potentially major disrupter cited, especially by life/annuity insurers. Persistently low interest rates have challenged the traditional model of gathering funds through underwriting and making profits on investment returns, and continued wrangling over the tax code in Washington also has the potential to disrupt the value of many tax-advantaged life/annuities products. Again, insurers are preparing for change by investing in the agility of their systems, but they also are refocusing on underwriting-profitability initiatives through better analytics and use of data.

Increasing catastrophe losses and climate change also were listed as potentially major disrupters by P&C insurers, which are revisiting their models and investing in systems to improve their understanding of their current exposures.

Big data, which plays a role in many of the other issues, also was specifically cited as a disrupter. Dealing with massive volumes of structured and unstructured data is a considerable challenge most insurers' infrastructures were not designed for. But the emergence of big data could reshape the industry by shifting the locus of competition from gathering better information to better processing information. Ubiquitous data means underwriting and loss adjusting could be completely transformed. What does it mean to operating models when it's possible to know everything about an applicant or claimant from third-party data sources? While IT leaders are considering how to build their data infrastructures and analytical capabilities to operate in a big data world, they also need to work with their business leaders to help them understand how universal commercial access to high-quality comprehensive data is poised to make many of their current practices irrelevant.

As Yogi Berra famously said, "It's hard to make predictions, especially about the future." But for insurers, a highly probable future has more regulations, more demanding consumers, more challenging investment markets, more catastrophe losses, and much more data to be consumed, managed, and analyzed effectively. To meet these challenges, insurance IT leaders are doing their best to build agility into their systems, so they can help their firms "skate to where the puck will be, not where it is."

INNsight is exclusive commentary from Novarica. Matthew Josefowicz is partner and managing director at Novarica. This column was adapted from a recent Novarica report.

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