Insurers enter the new year at a crossroads in many ways. Technologies such as mobile that once were considered "emerging" or "curiosities" now are bleeding from the marketing department into the enterprise and have become table stakes in many cases. Further, legacy systems -- no longer seen as mere annoyances, but rather as inhibitors that prevent much-needed growth -- are spurring major investments in core systems replacement projects. And the environment in which all of this is taking place is itself in flux as new regulation and vendor and insurer consolidation reshape the status quo.
These developments raise many critical questions for insurance companies. While we may not get answers in 2012 to all of the questions facing the industry, we surely will see some clarity on many of them. I&T offers insights into 11 unknowns that are likely to shape the insurance industry in the coming year.
1. Which Core System Replacement Strategy Will Emerge?
The insurance industry is in the throes of modernization, and carriers are weighing their core system replacement options. "Carriers have swung from monolithic suites to best-of-breed systems, and now to best-of-breed suites," observes Chad Hersh, a partner in New York-based research and advisory firm Novarica. "Best-of-breed suites have emerged as a significant preference, as the majority of best-of-breed vendors have expanded their offerings to include billing and claims."
Carriers appreciate the reduced integration effort associated with best-of-breed suites, Hersh notes. But, "If history is any guide, we can expect another shift down the road," he cautions.
Insurers also face other technology sourcing questions, insists Celent insurance SVP Craig Weber, who says that for all but the smallest insurers, a hybrid approach combining elements of "buy" and "build" will emerge. "The buy piece will come from package vendors, which bring focused expertise, and also from platform vendors," Weber says. "The build piece will reflect carrier needs to leverage systems they have in place and also the need to provide a differentiated user experience." --Anthony O'Donnell
2. What's Next for Mobile App Development?
It's unlikely that there are any insurance companies that still don't see the pressing business need for mobile consumer portals that allow at least some policy servicing functionality. Forward-thinking insurers now are focusing on new opportunities to leverage mobile technology within the enterprise."Mobile apps don't replace everything we do on the PC, but we are going to be targeting things where it makes sense," says Kirsten Pedersen, VP of operations at life insurer Penn Mutual. "There are going to be places where it is appropriate to do the mobile app, such as making it possible for producers to get information on pending cases."
Customer-facing mobile strategies are evolving. Some insurers have found that because insurance transactions don't happen as often as transactions in other sectors, such as banking and retail, there's no guarantee that consumers will hold an insurance portal on their phones for the few times they'll use it. This has led several carriers to ramp up the service capabilities on their mobile-optimized websites and to look for other ways to engage customers via mobile apps.
AXA Equitable, for example, recently released an iPad app devoted strictly to its Athena Indexed Universal Life product. "We thought it would be a good way to bring to life the content so that people could see not only why they're going through the process, but also get a really good understanding of why you need our product," says AXA SVP of strategy and development Connie O'Brien. "It's an elegant, guided experience, whether you're with your adviser or alone." --Nathan Golia
3. Is 'Bring Your Own Device' the New Standard?
The major reason insurance companies are looking at enterprise-centric mobile development is due to the expectation of many of their employees that they will be able to use their preferred devices, whether smartphone or tablet, at work. While this may sound like a security headache, it is a fact to which insurance CIOs and CISOs will need to adapt, says Robert E. Nolan consultant Gerald Shields.
"You need to embrace it, figure out how they work in the environment, get device management software on there and develop policies," he says. "You are getting these digital natives coming into your workforce who are going to demand and figure out ways to do it on their personal devices, whether you like it or not."
Shields compares the current wave of tablets entering the workplace to the early adoption of the PC. Initially, IT leaders didn't think PCs were "work reliable," he says, and some ignored them. Now, though, insurers are bucking their reputation for being slow on the technology uptake and are proactively looking for ways to allow workers to use their preferred devices.
"I'm seeing a huge uptake of tablets, particularly the iPad, that's displacing expensive laptops and desktop services," says John Hancock CIO Allan Hackney. "Users are comfortable with it, and now we're on the cusp of beginning to pull laptops out of the environment." --N.G.
4. How Will Social Media Be Used Beyond Marketing?
Several industry consultants and analysts have pointed out that social media often contains public, unstructured data that insurers can use. While privacy and resource issues have prevented many carriers from looking too closely at the information, the industry enters 2012 with several software vendors offering products to help analyze unstructured social media data -- perhaps signaling an uptake in this kind of use.
"The industry will move slowly on it, but I think there's a lot of hype and education and awareness," says Strategy Meets Action founder Deb Smallwood. "It's amazing how many software companies are out there working on this."
Recent SMA research indicates that 24 percent of insurance companies are evaluating using social data in claims and 26 percent are evaluating it for underwriting. Celent (Boston) has been examining the phenomenon as well, and Celent insurance analyst Craig Beattie says it's important for insurers to tread carefully at first. "There's a risk here that if underwriters start using social to penalize people, they'll lock down all the data in social networking sites," he says.
Beattie recommends a reward-based approach to using social to establish a risk profile -- at least in the short term. "There's a generation of people coming up now who share everything with their friends," he notes. "The interesting challenge will be what service offering or what incentive will insurers have to offer to let them see what they're doing." --N.G.
5. Will Usage-Based Insurance Finally Take Hold?
Social media isn't the only way insurers have tried to get a more holistic view of their policyholders. For a decade or so, auto carriers (led most notably by Progressive) have tried to get telematics-powered, usage-based insurance to catch on. This year, while Progressive rolled out its Snapshot program in all 50 states, other major carriers -- including Allstate and State Farm -- launched their own versions of usage-based offerings, indicating that the industry sees this market poised for growth.
Robin Harbage, director for Towers Watson, says the time is right for usage-based insurance to gain traction. "It's just a question of enough choices out there for consumers that it starts to become ubiquitous," he says. "There are 18 states that have four or more usage-based insurance products available."
The most popular way for telematics data to be collected is still the insurer-provided proprietary device that plugs into a car's onboard computer. While there have been some rumblings that alternate means of collection might be employed -- either by using OEM services such as GM's OnStar or the always-on, location-aware smartphone -- those solutions are still a while off at best, Harbage says. "The reason it's developing with the proprietary device is largely because of the need for control of the data. If you're going with OnStar, you can only use what data they're willing to provide you in the way they're willing to provide it," he explains.
"Smartphone technology is clearly something people are interested in leveraging in order to do this," Harbage continues. "But it's just not always clear at this point how the vehicle is associated with the smartphone." --N.G.