Should Anthem and Cigna manage to accomplish their proposed $48 billion merger, senior IT management will have plenty to do, and headcount and budgets likely would increase, at least in the short term, according to industry experts.
Economies of scale are cited as a major driver of insurance M&A, and consolidation is a means of gaining access quickly to robust technology resources, as described in Swiss Re’s March 2015 Sigma report on M&A activity in insurance.
“Although still nascent, a number of recent M&A transactions in insurance highlight the growing influence of technology as a motivating factor. Insurers have been active as either acquirers of technology companies or as targets, especially where digital applications offer enhanced insights about customer needs, wants and behaviours,” Swiss Re said in the report.
However, combining the operations of two insurance giants likely would require months of research, plus strategy and planning before the consolidation of technology assets could begin.
“It’s a huge effort to evaluate every aspect of IT to ensure the right combination of best-of-breed technology, cost management and, most important, that your best people are still a part of your future,” said Tom Scales, research director, life, annuity and health at Celent, an insurance research and technology firm.
“Considering the magnitude of this merger, concerns would be: getting the scope of both IT worlds, quickly developing the first 100-days game plan to keep the lights on, then moving the company forward and keeping customers and employees happy,” said Deb Smallwood, founder of insurance technology consultancy Strategy Meets Action. “Initially the spending will be higher, but overtime, the sum will be less than two independent companies.”
After the consolidation effort, Smallwood said the next phase would be to continue strategic investments around innovation, and addressing opportunities such as bringing wearable technologies into the product offering and managed care space.
All agreed that customer care concerns also will quickly emerge as make or break issues.
“The most important thing to consider for IT, and the rest of the company, is the impact on the customer,” Scales said. “A smart CIO finds a way to make it work, focusing on what’s best for the company and the customer. How do we make the transition seamless, simple and not intrusive? In a best case, how can we improve the overall experience for everyone? It’s tough, but they need to put their personal goals aside through the transition.”
To compete against giant and increasingly larger insurers, the trend toward consolidation in the health insurance space is likely to accelerate.
“This is moving as I had predicted a couple of years ago,” said John Sarich, a 25-year veteran in the insurance technology space and VP of corporate strategy at VUE Software, an insurance technology company. “The whole of Obamacare was designed to be a single payer, similar to Medicare. The insurance companies like selling supplementary coverage to Medicare -- Medicare Advantage -- where they are not stuck with mega medical bills. There is sufficient margin in Medicare Advantage, but with the ACA there is no single payer yet. The market is devolving into just a few carriers that will divide the entire market. This is what is happening now.”
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