Emerging technologies like social, mobile and big data may beckon with promises of competitive advantage and new engagement models.  But IT spending among insurance companies remains constrained and highly focused on traditional investments.

Those are among the findings of a newly completed survey of 88 insurance company CIOs by Boston-based industry research firm Novarica.  The survey revealed that enhancement and/or replacement of policy administration systems are the top priority for insurance CIOs, with more than 60 percent citing PAS projects as one of their top three projects for 2015.  Among large P&C companies, that number rose to 80 percent.

A fairly distant second on the list is business intelligence, with well under 40 percent of respondents giving it the same priority — although more than half have significant enhancements planned for reporting, data repositories and analytics.

Those analytics, however, are primarily focused on existing enterprise data and traditional insurance industry information sources.  In fact, less than 10 percent of CIOs claim to have expanded their analytics beyond those sources into big data roll-outs to any extensive degree.  And less than 20 percent say they’re dipping their toe into the big data waters at all.

Evolution, Not Revolution

Similar numbers hold true for mobile, social and cloud.  While almost half of the CIOs surveyed are at least piloting mobile capabilities for customer, for example, less than 10 percent here too assert extensive deployment in production.  This aligns with the fact that relatively few insurance CIOs view digital engagement with customers as an urgent “must-have”—despite the mobile/social revolution going on in the world around them.

Insight into existing business activity, optimized internal workflows and the ability to quickly modify existing products, in stark contrast, are highly valued.  Thus the emphasis on PAS and BI.

That said, CIOs don’t seem to be in denial about the current state of their companies’ technology.  Less than a quarter rate themselves as “strong” or “very strong” in customer-facing systems such as customer portals and CRM, reflecting their relative lack of investment in digital engagement.  Most, on the other hand, give themselves high marks in areas where they have invested heavily, such as financials and security.

And, to be fair, most CIOs don’t have enough resources to address every possible technology opportunity.  IT budgets overall are projected to grow slightly next year from 3.5 percent of premium revenue on average to about 3.8 percent.  But, given how radically the world at large is being transformed by technology, that increase in funding is nowhere near proportional to the IT-related challenges at hand.

 

“When it comes to technology, insurers tend to focus more on trying to hold the line on the cost of supply rather than on trying to meet rising levels of demand,” observes Novarica Managing Director Matthew Josefowicz, the report’s co-author.  “This tendency is likely to inhibit their ability to take full advantage of the new opportunities opening up in the market.”

Different Paths

Of course, IT strategies vary significantly between market segments.  Almost 70 percent of life & annuity companies, for example, are planning to invest in agent-facing systems next year.  Only around 40 percent of mid-to-small P&C insurers have similar plans.

Conversely, about a quarter of large P&C insurers are actively in the process of replacing their claims systems while only about 10 percent of L&A companies are doing so.

These dissimilar IT investments reflect the differences in their respective markets.  Nearly 60 percent of L&A CIOs have among their top three delivery objectives making it easier for their agent partners to write business.  Only about 10 percent of their counterparts at large P&Cs have any such concern.

Josefowicz emphasizes that, while the survey he and Novarica Research Manager Steven Kaye produced provides good insight into industry trends, many companies out- and under-perform those industry averages.  Indeed, the reticence of so many insurers to aggressively embrace IT-enabled business innovation makes it that much more likely that those who take the less-traveled path will more clearly differentiate themselves in the market.

“We see a widening separation between companies that ‘get it’ when it comes to technology and those that don’t,” he says.  “We believe that separation is positioning innovators for better long-term success, in addition to providing better near-term outcomes.”

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