To say that 2003 is a critical year for the insurance industry understates the challenges that insurance executives currently are facing. Although the industry last year experienced the most dramatic acceleration in net written premium growth since 1986, the continued erosion in underwriting performance and premium growth during that 16-year gap, coupled with hardened markets and the economic impact of Sept. 11, gave insurers no other choice but to substantially raise premiums in 2002.Earnings season is in full swing, and most carriers are expected to report substantially stronger earnings from a year ago. For starters, the industry's combined ratio, which measures the ratio of losses and expenses to premiums, improved last year to 106.3, compared with 115.7 in 2001, according to estimates by the Insurance Information Institute, New York. What's more, due in large part to a forecasted 12.3% increase in net written premium for 2003, the industry's combined ratio is expected to improve to 103.3, the best performance since 1997 and the second-best performance over the last 18 years.
While this is all welcome news to financially stressed CEOs, the bottom line is: Carriers are still paying out $1.03 for every $1 they take in. And, with the stock market showing little sign of emerging from its three-year slide, insurance executives will need to develop fiscally sound business plans that don't rely on price increases to stabilize their businesses.
The implications for IT planning are clear: Too often in the past, carriers implemented certain technologies because they were deemed essential tools for automating their operations. Unfortunately, many carriers are still waiting for the ROI from these implementations. And, given the financial constraints of today's market, executives need to make better decisions about how to allocate their technology budgets.
In this month's issue, Jim Devoe, an executive with The Hartford's property/casualty e-business unit, describes how all insurers should gauge technology. "When we undertake large information technology projects, we make sure the technology tail doesn't wag the business dog," Devoe says in the article titled "Agents Are the Crux of Hartford's Web Strategy" (page 29). I highly recommend reading how The Hartford's business strategies drive technology purchases and the carrier's four objectives for IT spending: profitable growth, ease of doing business, speed to market, and building a positive relationship with distributors.
Insurance executives are in the hot seat overseeing some tough business choices this year-decisions that will have ramifications for many years to come.
