While the raw cost of technology decreases every year, insurer IT budgets have not declined; they have remained stubbornly in the 2-5 percent-of-premium range for more than a decade, prompting execs to ask why.
The answer is that while the raw cost of deploying the same IT capability decreases slightly each year, the demand for new capabilities increases dramatically. In other words, the cost of a "unit" of IT may be declining, but exactly what a "unit" consists of has expanded dramatically. This expansion also creates additional complexity, which adds additional cost.
Amazingly, while the average level of IT-enabled business capabilities at U.S. insurers have increased more than 150% since 2004, the average IT spending ratio has increased only 20%.
Looking broadly across the industry, there are dozens of IT-enabled capabilities that are directly relevant to business users or agent and customer experience that increasingly seem like competitive necessities (See "IT-Enabled Capabilities/Necessities below").
Over the last seven years, these and other IT-enabled capabilities have proliferated among insurers. Capabilities used by only a small minority of insurers in 2004 are now much more common. For each of the capabilities below, more than half of insurers in a recent Novarica survey had it deployed. Compare that to 2004, where only three capabilities (support for remote employees, informational agent portals, and flexible commissions and distribution management) were deployed by more than half of the group.
In addition this proliferation, the use and embrace of these capabilities inside insurers has also expanded. Many companies that had some of these capabilities deployed in only one line of business in 2004 have expanded them across the entire enterprise.
All in all, insurers are getting a lot more bang for not much more buck when it comes to information technology-enabled capabilities than they did just a few years ago.
IT-Enabled Capabilities/Necessities
* Informational agent portal displays policy, commissions, marketing or other information to agents and distributors
* Transactional agent portal does all of the above plus enables agents/distributors to submit new business
* Informational and transactional customer portals offer the same capabilities directly to customers
* Flexible commissions and distribution management enables insurers to easily modify and set complex commission structures and manage distribution relationships
* Configurable rating/pricing/product engine reduces time-to-market, enables more complexity and variability in product offerings
* Paperless internal underwriting workflow/straight-through processing reduces time and cost in underwriting
* Data calls to gather underwriting requirements enables insurers to easily incorporate third-party data into underwriting decisions
* Automated underwriting decisioning reduces processing costs, improves consistency
* Paperless internal claims workflow speeds processing, allows for easier collaboration on claims handling
* Fraud detection and/or anti-money laundering protects insurers from fraud losses or illegal activities and regulatory risk
* Predictive analytics for claims or underwriting (sophisticated analytics and rich data sets) improves claims and underwriting results
* Electronic bill presentment and payment offers policyholders and/or intermediaries to review and pay their bills online
* Multichannel electronic document delivery expands from paper mailings to online, e-mail, PDF, SMS and other channels
* Common customer view/customer relationship management enables service, marketing and other functions to see a full customer relationship across channels and product types
* Enterprise data consolidation for business intelligence enables reporting and data mining across functional and product areas
* Richly functional intranet and/or social media supports internal collaboration and knowledge sharing
* Voice Over IP Telephony enables companies to easily re-route calls and is an important baseline capability for skills-based routing and location-independent teams.
* Support for remote employees involves many different areas but also remote access to document management systems and core systems such as claims or underwriting
* Mobile devices enable different roles-agents, field marketing staff, claims adjusters, senior executives-to remain connected
