With the goal of improving profitability through better decision-making and greater efficiencies in core functions, property/casualty insurance executives are counting on advanced technology to help them get the job done. Improvement initiatives range from data integration to investing in new technology for pricing, underwriting and claims, according to a survey by The Nolan Company.
Many survey respondents also are investing in mobile technology, but a surprisingly high percentage is not, according to survey results. That finding was somewhat unexpected because of the increasing market buzz around such tools. It would appear that some carriers may be planning a fast-follower approach.
Opportunity and Risk
Rapid technology evolution, which brings both opportunity and risk, is perceived by the survey respondents as a major disruptor in the property/casualty insurance industry. Yet competitive pressures and a focus on the bottom line are driving more and more technology investments in data management, analytics, process management and core administrative systems.
For example, integrating multiple data types from many different sources is becoming a basic requirement in the underwriting process. Insurers recognize this and are adopting new underwriting technology to improve both risk assessment and underwriting process efficiency. The expected payback is an improved underwriting profit. Similarly, claims loss costs and expenses significantly affect profitability, which is driving investments in claims technologies that improve claims results.
Top Technology Initiatives
Survey respondents were asked to indicate whether they were implementing or planning a variety of technology initiatives. About three-quarters — 72 percent — of the respondents reported they are expanding their usage of data warehouses, data marts and reporting tools. The data and analytics category continues to be a key area of investment in the insurance industry, as is the case in banking, health care and retail, among others.
Replacing legacy policy management systems was the second-most popular initiative, with 65 percent of respondents listing it as a top priority. Successful projects in this category are increasingly expensive and complex, yet replacing outdated policy admin systems is a competitive imperative. Failure rates for such projects remain alarmingly high — hovering around 25 percent — driven primarily by underestimation of effort, inadequate requirements and poor project management.
Among other initiatives that are underway or planned, three of them — replacing legacy claims systems, enabling web-based claims reporting and adopting cloud technology — are priorities for about one-third of the survey respondents.
Technology initiatives are not free of some stiff challenges, and the survey respondents pointed out several.
Evaluating and staying current on the array of solution choices represents the greatest challenge, according to 70 percent of respondents. Complicating this is the second-most significant challenge: budgetary constraints, according to 68 percent of the respondents. Limited budgets and a wide range of options put intense pressure on the decision-making process, which highlights the importance of aligning information technology and business goals; there is little room for error or waste.
Demographic changes and the large numbers of retiring baby boomers represent the third- greatest challenge, identified in responses to several related questions.
Respondents also identified internal IT capacity, the availability of qualified IT resources, the capacity of internal business resources and IT resource expertise as increasingly critical talent-management issues.
Company size is a significant issue for 14 percent of the respondents. Some executives believe their small organizations lack the necessary resources to fund an investment in technology. Perhaps more remarkable, others felt their organizations are so large that maintaining the agility required to successfully adapt to new technology is a genuine threat to successful implementations. In both examples, some combination of incremental investments, agile methods and selective outsourcing may be the best means of mitigating these concerns.
Many insurers now face difficult decisions in the technology arena. The potential benefits of new technology are undeniable. Insurers can improve their risk management effectiveness, distribution capability and customer experience while reducing infrastructure, operations and claims-related costs, including fraud. However, they can do all of this with chronic pressure on their combined ratios, capital and expense budgets that will remain under tremendous scrutiny. All of this underscores the necessity of thoughtful, thorough research and decisiveness regarding high-impact, near-term technology solutions.
Eugene Reagan is a principal consultant at The Nolan Company, a management consulting firm specializing in the insurance industry.
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