Slow Growth, Regulation Driving Insurer Focus on Tech-Driven Operational Improvements, KPMG Survey

Insurance executives expect to focus much of their time and energy during the next two years on improving their organization's operational processes, navigating through regulatory changes, and enhancing technological capabilities in response to continued slow growth in the insurance sector, according to KPMG LLP (New York). Conducted in May 2012, the audit, tax, and advisory firm's 2012 Insurance Industry Outlook survey polled 102 senior insurance executives.

Twenty-two percent of the respondents cited process improvement and related technology among their top initiatives, and 21 percent identified responses to significant regulatory changes. Focus on regulatory changes has spiked from 12 percent in last year's survey responses, which is paralleled by a drop in organic growth related investment from 20 percent in 2011 to 15 percent in 2012.

Based on revenue in the most recent fiscal year, 27 percent of respondents work for institutions with annual revenues exceeding $10 billion, 41 percent with annual revenues in the $1 billion to $10 billion range, and 31 percent with revenues in the $100 million to $1 billion range, according to KPMG.

"Executives more clearly understand what a tough environment they are in and what it demands in terms of attention," comments Laura Hay, national leader, insurance practice, KPMG LLP. "It isn't that they aren't also focused on growth, but in an environment of slow growth and tough pricing, insurers must focus on value creation through efficiency, innovation and client centricity."

In responding to a question on identifying the most significant growth barriers in the next year, 47 percent said pricing pressures, down from 59 percent in 2011, and 47 percent said regulatory and legislative pressures, up from 41 percent last year, according to KPMG.

Seventy percent of insurance executives say their companies have significant cash on the balance sheet, and that they plan to put use it, KPMG reports. The firm adds that 55 percent of its respondents say they will increase capital spending. The majority of the respondents' investments will be devoted to information technology, with 64 percent affirming that IT would be the focus, up from 49 percent in 2011.

The three biggest technology areas respondents said would be funded were IT infrastructure, by far the largest, followed by customer growth or service, and data warehouses, KPMG says. Respondents said that they would focus use digital/social/mobile technologies on external brand promotion, for recruiting and for customer insight. Executives identified strong opportunity to implement mobile technology, the thrust of which would be used for customer-facing mobile applications, the researcher reports.

Other notable areas for investment include increased spending in new products/services at 41 percent, up from 34 percent, and 32 percent say the acquisition of a business, according to KPMG. Supporting the investment in acquisition findings, nearly half of the executives (48 percent) say their companies will likely be involved in a merger/acquisition as a buyer in the next two years.

"What we're seeing are firms focusing on their core strengths, divesting of certain assets or markets that don't fit those strengths and more aggressive M&A strategies," KPMG's Hay says.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio