Life insurance IT budgets are on the rise
Life insurers have upped the ante on technology investment compared to previous years, according to a new report from Celent.
IT budgets in the sector are expected to rise six percent this year, with a lot of those dollars going to innovation efforts, according to the "Life Insurance CIO Pressures and Priorities 2018: North American Edition" study, authored by Karen Monks and Tom Scales. About a quarter of insurers surveyed are piloting technologies with insurtech startups; 18% say they have deployed a product and an additional 12% have made investments.
Some of that investment in insurtech is through venture capital arms whose budgets are separate from IT, often eclipsing hundreds of millions of dollars.
“Carriers are focusing on growth, and digital is the buzzword to do it,” says Scales, who is head of life and health research in the Americas at Celent. “There’s still room to grow, but insurers have the fire lit under them, and it’s good to see.“
Driving this change is a desire among life insurers to cut operating costs and break into the younger consumer market. Celent finds life carriers’ IT and innovation strategies are shifting from investing in core systems and back-office operations, to a focus on user experience for agents and policyholders through automation. The study’s conclusions are based on more than 350 calls with clients in the past year and a recent survey of CIOs from small to large-sized life companies conducted by the firm. The exact number of participants was not disclosed.
“You have to wow agents with your experience so that they can sell your product," Scales says. Life insurers are widely upgrading agent and customer portals, he explains, coinciding with an industry goal of making information transmitted between agents to clients all or mostly digital by the end of 2018. Other initiatives of note for carriers this year are also making the underwriting process digital and leveraging data analytics to automate rating decisions, according to the report.
“Carriers have access to publicly available data from more than 10,000 sources to create individual mortality scores,” said Scales. “This method is largely considered more effective than making decisions based on fluid (medical) testing.”
Heading into 2018, more than half of life insurance companies reported already having technology initiatives underway in areas such as digitalization, IT operations, legacy modernization and artificial intelligence. More telling is the impact of digital in innovation strategy, as every carrier surveyed has begun digital initiatives of some sort, Celent notes. In 2017 and 2016, respectively, roughly 10% of companies were still not considering it. A similar trend is present in AI, where ongoing company projects hovered around 10% in 2017, but reached almost 60% in 2018.
But this still represents a lag compared to other industries, Scales notes. Insurers spend roughly one percent of revenue dollars on research and development (R&D), according to data gathered by Celent last fall. By comparison, Alphabet generated $111 billion in revenue last year and spent 10% on R&D. A closer comparison also shows that JP Morgan Chase invests 10% of revenue on technology.
“A vast majority of tech spending by life insurers is still to keep the lights on; staffing and core. That’s why they are focusing on automation,” he says. “Most are still running on older systems.”