A new report, “Is Today the New Normal for the U.S. Insurance Industry?” challenges insurers’ traditional thinking about their growth strategies. The report, published today by Celent, a Boston-based financial research and consulting firm, uses the term "New Normal" to mean an economic and insurance industry environment with an extended period of flat, minimal, or negative economic growth; persistent high unemployment; very low interest rates; lackluster equity returns; and reluctance by businesses and consumers to make major purchases and investments regardless of prevailing interest rates.

"If the industry is operating in a new normal environment, then insurers should rethink their corporate objectives and strategies for size and growth, expense control, getting smarter, and solidity and risk management," says Donald Light, senior analyst with Celent's Insurance Group and author of the report. "Celent's prime directive for insurance technology continues to be the context for technology strategy decisions."

Celent looks at the factors that have driven insurance industry performance in recent years and identifies the strategic choices available to insurers in new normal times, and what those choices mean for insurance technology groups.

For example, for several years, from a financial point of view, most of the industry has been getting smaller—a pattern that actually begins earlier than the official December 2007 starting date of the Great Recession. The fundamental cause, notes Celent, is that the fortunes of the industry have followed the hard times in the national economy (e.g., household income and wealth, purchases of new vehicles, and the disappointing performance of the equity markets).

In each of the last three years, notes Celent, the property/casualty industry has become smaller (which is unprecedented in the past 23 years).

And in the past two years, key sectors of the life industry have also been contracting. Life insurance premiums have had two consecutive years of decline-possibly with growth restored in 2010. In this market Celent projects the decline continuing in 2010. ·

If the industry is operating in a New Normal environment, then insurers should rethink their corporate objectives and strategies for size and growth, expense control, getting smarter, and solidity and risk management.

In both New Normal and Old Normal times, the prime directive for an insurance IT group is the same: provide solutions and support that enable the insurer's business strategies and operations (that execute those strategies) to achieve the insurer's corporate objectives. ·An insurance IT group should recalibrate its IT strategy stack (governance, organization, resources, infrastructure, applications) to reflect New Normal corporate strategies and objectives.

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