If IT spend is any indication of insurers' intentions, consider the planned major strategic projects such as core system replacements or enhancements proof that modernization is a continuous process.
"Despite the increased prevalence of mobile, social media and cloud, the story of insurer IT budgets and projects for 2012 is one of continuity rather than discontinuity," notes Matthew Josefowicz, partner and managing director at Novarica.
Spend is indeed up. With the exception of large life/annuity insurers, who are expected to hold steady or decrease their IT spend, the majority of property/casualty insurers expects to increase their IT budgets in 2012, with average IT spending ratios holding steady in the 2.5-percent to 5-percent range, Novarica.
The results of a survey conducted in September by Novarica of 132 members of its Technology Research Council confirm that investments in core systems will continue by design, as insurance IT departments make good on commitments to deliver the business capabilities needed to support growth, achieve competitive parity and improve operational effectiveness.
Approaches in Play
While some carriers are focused on core system replacement, others are still modernizing existing systems with a "wrap/extend" approach, which assumes some re-usable legacy code that is wrapped and exposed to an enterprise service bus.
"Expectations of surround/contain vs. modern system replacement point to certain benefit areas, which helps explain why both approaches are still very much in play," says Craig Weber, SVP, Insurance Group at Celent, noting that the difficulties in hiring qualified IT staff with the necessary skills to support legacy platforms are very real. "Most insurers expect this issue to get worse."
The well publicized continued modernization efforts of Philadelphia Insurance, Mutual of Omaha, Harleysville, FBL Financial, Jewelers Mutual, Travelers, Vermont Mutual and XL Insurance Group, to name a few, point to a strategy that's been in play for the past five years at Great American Insurance. The subsidiary of American Financial Group Inc. has completed a total replacement of the property/casualty insurer's core systems, with policy administration taking the lead.
Great American continues to live out its long-term goal-to create a technology backbone that enables continuous innovation in the back office and enable the fruits of its modernization efforts to play forward to the rest of the enterprise and channel.
Great American is not alone. Novarica reports that more than one-third of respondents report being either in the middle of a core policy administration replacement or are planning one for 2012. Claims and billing systems have similar levels of planned activity followed closely by agent portal and business intelligence.
"Like everyone, agents are looking for ways to be more efficient," says Piyush Singh, SVP and CIO at Great American. "They want ease of use, self-service and they don't want to work on systems that are archaic. So, we want to push a lot of this service to the agent because at the end of the day you want to add value to the business."
Insurers' business case for legacy modernization should support incremental improvements such as above, which can ultimately play out as hard benefits, but also enable the strategic flexibility that will allow insurers to compete more effectively, notes Celent.
"You need a plan that articulates what needs to be changed, how those changes will be measured, and the concrete steps that will be taken to give the evolution momentum beyond what the passive players in the market are experiencing," Weber says.
In its interview of 86 insurers in May and June, the research and consulting firm found that the secret to long-term modernization success lies in explicitly addressing culture, core systems platforms, and vendor relationships.
During the past five years, says Singh, Great American's corporate culture ultimately embraced the changes necessary to push its continuous innovation forward. "To me, we make what the culture is, and it behooves us as leaders to educate, and find the optimum players willing to be change agents. Now everyone wants that change to take place," says Singh.
As insurers continue on their respective modernization quests, their motivation may vary widely by size and sector of company, Josefowicz notes. Nevertheless, he predicts that supporting business intelligence and data analytics, reducing operating expenses, increasing speed to market and improving distributor ease of doing business will be top priorities.
"While there is significant planned activity in the areas of mobile, tablets, social media and cloud, most of these are ancillary to the major strategic projects that consume IT budgets and management bandwidth at insurers," says Josefowicz.
Vendors Also in a Continuous Mode
Core technology solution providers such as CSC, which recently inked a deal with Microsoft to extend Integral, one of CSC's global insurance administration software suites, to Microsoft Windows Server 2008 R2 and SQL Server 2008 R2, are making it easier for insurers to update their age-old systems. Like many vendors, CSC's goal is to appeal to a broader set of insurers on a continuous modernization path.
Having just completed a mobile initiative for its commercial transportation business unit that includes a free iPhone app that lets truckers submit claims, check the latest trucking news, find a nearby truckstop, locate repair shops and make payments, Great American's Singh admits that his company will remain in continuous modernization mode, planning and revisiting the company's IT strategy every six to nine months. "We will stay on the continuous innovation path, because there is no end-game to modernization," Singh says.
