It’s no secret the “credit crunch” has affected all lines of business within the insurance industry. And according to economic experts, the recovery will be a long and slow one, with the likely scenario of 2010 and 2011 being challenging ones in terms of investment performance and increases in premiums, followed by a gradual acceleration and return to growth.
So how are insurers faring? And how are they preparing for the ultimate turnaround? A new report from Celent sheds some light on economic recovery, and the industry’s plan to shore up IT investments.
This is
Overall, according to the survey results, insurers surveyed said they remain confident that their companies are doing the right things to provide jobs, compete effectively, deliver on strategies, and succeed in both the long and short terms.
"The concern over job security in Q2 has evaporated," says Catherine Stagg-Macey, senior insurance analyst based in the UK with Celent's Insurance Group and coauthor of the report. "When asked about competing for new business, changes over Q2 were very noticeable, with significantly more confidence in this area."
Key findings of the report include:
• As the year progresses, insurers are becoming increasingly optimistic about the next quarter and also the view a year out, with 80% of survey respondents expecting their companies to be doing somewhat better or considerably better a year from now. Insurers remain bullish about their own companies' strategies.
• IT investment projects have been impacted through 2009, but the impact seems to be lessening. Cuts and reprioritisations have been made, and the view is that the impact is now only moderate or low. The focus has returned to delivery.
• Areas attracting increased investment include claims, infrastructure and data mining. These categories reflect increased regulatory focus and the importance of cost containment. Consolidating data centers and hardware, and increasing the use of outsource services, all contribute to lowering the run rate of IT.
"Claims and enterprise technologies are attracting higher levels of investment than a year ago," adds Craig Weber, SVP of Celent's Insurance Group and coauthor of the report. "It is clear that the insurance industry generates an IT fashion cycle that reflects perceived areas of weakness and opportunity, and the availability of technology solutions that can improve operational results."
Other encouraging signs that insurers are moving forward include respondents’ view that their companies are doing the right things to provide jobs, deliver on strategies and succeed. The concern over job security in Q2 has evaporated, and respondents are much more confident in having a job in a year's time. When asked about competing for new business, changes over Q2 were very noticeable, with significantly more confidence in this area.
Further, freezes on nonessential travel and discretionary spending are largely complete at most insurers. Changes to staff or salaries were a strategy aggressively undertaken earlier this year, and there is a noticeable drop in these actions from Q2 to Q3.
A good portion (82%) of survey respondents also noted that streamlining of processes is their top area of focus and is already under way or completed. Insurers who launched a new product in Q3 doubled over Q2. Many insurers have also launched in a new geography-double those over Q2.
And core systems replacement is still high on insurers’ radar, with replacement of policy admin remaining a common initiative; more than half of survey respondents have this on their action list, but its prioritization has dropped since 2008.
Celent proposes that CIOs consider the investments that are required, and how the timing of these projects might align with economic recovery. If the years 2010 and 2011 are difficult ones in terms of investment performance and increases in premiums, it is worth thinking through major investments and when they are likely to return benefits and expand significantly on current capabilities, notes Celent.
For example, large IT investments such as policy administration or claims system replacements can take between three to five years, depending on size and complexity of the project. Starting such a project in 2010, an insurer could expect to see some return to the business by 2013, or within three years, with much of the return in 2014 or 2015. The project will only look to complete in 2015, hopefully in a more benign economic environment.
After Q4 2009, Celent will produce the final report in this series. It will look back on 2009, reflecting on how IT priorities and investments have been impacted by the global economic crisis. If current trends are any indication, insurers will be actively preparing for a flurry of investments in 2010, with an eye toward meeting future challenges.
For a copy of the “Economic Recovery and Future IT Investment? Update on Q3 Insurance Industry Expectations and Strategies,” report, click
