As the insurance industry continues to focus broadly on growth, cost containment and risk management, new research has identified several strategic initiatives that might provide traction to insurers as they endeavor to improve their businesses.The final segment in a series of six "2004 Perspectives" formulated by Needham, Mass.-based research and consulting firm TowerGroup examines critical business and technology issues and trends that the firm expects will impact financial services.

"To help reach their 2004 objectives relative to growth, cost containment and risk management, insurers will place significant emphasis on leveraging existing technology investments," explains Deborah Smallwood, insurance practice leader, TowerGroup and author of the research.

"IT spending will slightly increase compared to 2003, but those new dollars will be limited and carefully directed. Ultimately, those insurers that effectively integrate business and IT strategies while flawlessly executing these strategic initiatives will be best positioned competitively," she adds.

P&C recovery

Smallwood notes that the life and annuity market continues to endure financial duress, while the property/casualty sector is just beginning to recover following one of the worst three-year operating periods in history, according to Smallwood.

Despite differences in the core issues facing these two sectors, TowerGroup believes the U.S. insurance industry will be exposed to similar challenges in 2004 in the areas of customer service, distribution, operational efficiency and technology decisions.

The group formulated seven strategic initiatives to serve as an advisory "to do" list for insurers:

* Distribution channels: Expanding market share. Insurers must maintain a competitive distribution edge with their agents, and in the future will focus development efforts on front-office applications to improve services and increase sales revenue. Ultimately, insurers should prioritize distribution initiatives based on their ability to shift distribution from a cost of doing business to a profitable growth engine.

* Customer service: Building a single view of customers. Insurers' ultimate goal should be building a single view of customers regardless of the access medium. To take advantage of present opportunities, insurers must continue moving in 2004 toward a truly customer-focused advice and service model.

* Core systems: Developing a legacy system strategy. For insurers to advance operations and remain competitive with other financial services institutions, they must begin to make tough decisions about their legacy systems-starting with the core question of whether to re-engineer, replace or leave legacy systems in their present conditions.

* Data integration: Leveraging data as a corporate asset. Changes in the present business environment demand that insurers become more knowledgeable about their customers and distribution partners. "A well-orchestrated network of data gathering and information analysis will help steer development and execution of highly competitive short- and long-term initiatives," the report states.

* Sourcing: Evaluating options. Outsourcing of financial services IT and business processes is presently considered a strategic way of doing business. This year, TowerGroup suggests, insurers should conduct sourcing assessments that focus on "best-fit" solutions to include a hybrid of in-sourcing, outsourcing, off-shoring and "right-shoring," and should evaluate the "outsource-ability" of their organizations.

* Regulation: Leveraging as a competitive weapon. In the coming year, visionary insurers will view compliance with new federal mandates (from USA Patriot Act to Sarbanes-Oxley) not simply as a cost of doing business but as a way to differentiate from competitors.

* Operational resilience: Recovering from the "Great Blackout" of 2003. The Great Blackout of 2003 reminded insurers that current business continuity plans are not foolproof, especially when it comes to people and processes. Going forward, there will be significant emphasis among insurers on building operational resilience, the report concludes.

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