The economy has tempered IT spending within the insurance industry in recent years, as many carriers reigned in their project development to concentrate on essential projects. This year, spending appears to be bouncing back somewhat, according to the findings of Insurance Networking News' recent survey of 95 carriers, agents, brokers and services firms.For starters, insurers' spending on packaged applications and software development appears to be on the upswing for the remainder of 2003. Carriers have budgeted an average of $1.4 million for packaged software for 2003, up by more than 14% from what they spent in 2002, the survey reveals (See chart, page 19).
However, carriers' planned spending on internal software development is declining this year. Last year, carriers, on average, planned to spend almost $4 million on internal development; instead, they indicated that they spent on average about $2.8 million. This year, however, plans are to spend an average of $3.2 million-a 15% increase over 2002 numbers, but less than previous budgets.
In recent years, insurance carriers have narrowed their range of new application implementations, focusing on fewer projects that deliver the greatest value to day-to-day operations, such as financial reporting and agency management.
During the past 12 months, agency management systems have been the software area of most interest among carriers, the survey finds. In fact, 45% of insurance carriers indicate that they have deployed these systems over the past year.
Ranking the top five system development initiatives, policy administration is second (42% of respondents), followed by developing systems for document workflow management (40%), financial reporting (40%) and business-to-business e-commerce (32%).
Among insurers' top development priorities for the coming year are Web-enabling applications for agent/customer access (60%) and extending or automating business processes (60%). For many carriers, making data and policy information available to agents through an extranet is the next step in a Web services strategy.
Information technology developers at Haulers Insurance Co., based in Columbia, Tenn., have been concentrating on building an agent Web interface over the past year.
"We want our independent agents to have more features with the Web site," says Cliff Walker, IT manager for Haulers. "Our ultimate goal is enabling the agents to upload and download everything. We want to get past just having online application forms, and being able to do endorsements online. We're testing that system right now."
Extending legacy applications
Nearly one-half of the carriers participating in the survey intend to extend or reface their legacy applications to support Web access, reflecting the prevalence of proprietary-and usually custom-developed-environments.
The survey indicates that insurance companies spend about twice as much on in-house development than on packaged applications.
Some respondents point out that the integrated functionality they require for their particular businesses just isn't available from packaged software products.
"Most of our software has been developed in-house over the last 25 years," remarked the IT director for a medium-sized life/health carrier, who declined to be identified.
"Our system has been able to handle policy administration from new business to claims and all the accounting in between. It also handles reporting for valuation and investments," the executve says. "The flow of the package fits in with everyday office procedures and practices and vice versa. I have yet to see a package that combines everything together, or enough individual packages that work well together, that can replace the current package."
Many carriers are in specialized niches, and therefore find it difficult to take advantage of packaged, standardized applications.
"We're a niche insurer, in the business property and casualty market," explains Troy Smith, director of information technology for Illinois Casualty Co., based in Rock Island, Ill. "We have a home-grown application for our policy and claims management system, and we are still adding bits and pieces to it to automate our internal processes."
By a wide margin, carriers have been building or buying applications to run within Microsoft Windows platforms (see chart, page 18).
Indeed, more than eight out of ten carriers report deploying on Windows NT or 2000, while more than half build on client-side Windows systems, such as XP or 2000 Professional.
Close to a third of the carriers surveyed-29%-have large back-end systems such as mainframes. Commercial Unix can be found at one out of five sites, and 16% of carriers have adopted Linux is some capacity.
The IT director for a major Midwest-based carrier-with annual net written premium exceeding $1 billion-reports that his company is "moving applications and application development to the Linux environment across all hardware platforms."
A cautious attitude toward IT spending prevails among agencies and brokers participating in the survey.
Agents are cautious
Between 2001 and 2002, agencies and brokers planned to dramatically increase spending on packaged applications, increasing their average budgets from $44,000 to $126,000. Actual spending for 2002 was in line with the projected budget, averaging about $117,000 (see chart, page 19).
However, spending for packaged software in 2003 has declined by about 11%, slowing down to about $104,000.
Agencies and brokers report channeling more funding to in-house development efforts. On average, these firms spent $188,000 on in-house developed software in 2002-in line with the amount originally budgeted, but well below the $292,000 spent in 2001 and $451,000 in 2000. However, it appears spending is on the upswing, with agencies/brokers budgeting an average of $344,000 for internal development for the calendar year 2003.
Many agencies report that they pressed forward with pending projects, undeterred by the economy.
"We've done what we needed to do when we've needed to do it," says Laura Burk, systems administrator at Fort Wayne, Ind.-based Huff and Campbell. "We've added to our agency management system, and added a scanning program to scan all our paper files. Hopefully, we'll be without file cabinets one of these days."
As with carriers, agencies and brokers appear to have consolidated their IT spending over the past year on fewer, critical projects. Indeed, the study's finding show most agencies have cut back on wide-scale, multi-application deployments.
At Global Marine, based in Traverse City, Mich., a new extranet Web site for partner agents was an urgent priority. The agency recently made its ratings engine available online through XML-based access.
"We really struggled with doing quotes on the Web," says Mike Smith, president of Global Marine, based in Traverse City, Mich. "We had to go though an onerous process of filling out a quote request form, sending it in, printing it out in e-mail fashion, and distributing it."
Not surprisingly, the largest segment of agencies and brokers, 54%, are focusing on application development of agency management systems-also a top priority among carriers.
Moreover, 35% of agencies and brokers are concentrating on financial reporting systems-a level consistent with last year's survey. Another 31% of agencies and brokers are building document workflow management systems, down from 51% last year.
Building e-commerce capability remains a strong impetus among agencies/brokers. Twenty-seven percent of agencies/brokers have been developing business-to-business capabilities, down somewhat from 32% in previous surveys. Twenty-three percent have built business-to-consumer systems, down from 34% last year.
Agencies operating within specialized niches of the industry also are running into the same issues as their carrier counterparts in terms of general software support. For example, Global Marine has had to develop its own system to move to XML-based interactions with partner agents.
"Yachts have no standard ACORD format," says Smith. "Most of the agents that specialize in yachts have their own applications, and the companies accept those applications. When it comes to specialty lines, marine, jewelry stores, aircraft, you don't have that standardization out there. These specialty lines are a smaller niche market."
Still, some agencies and brokers report that they make do with systems and processes cobbled together with basic desktop tools, such as Microsoft Office. Some smaller agencies even claim they can do just as good a job with simple tools, such as spreadsheets, as with more sophisticated, and expensive, systems.
"They haven't put out a product that's affordable," says Louis Coletti, an independent agent based in the Albany, N.Y. area. "Monthly subscription charges for a management and quoting system are a lot of money for a small agency."
Over the next year, Web-enablement of systems is a top priority, cited by almost two out of three agencies and brokers. Nearly one-half of the respondents also intend to concentrate on continued automation of business processes. And, more than one-third intend to pursue e-commerce rollouts.
Joseph McKendrick is a freelance writer based in Doylestown, Pa.
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