April 15, 2008

In the not too distant past, it was reasonable to question whether senior insurance executives adequately appreciated the difference that forward-looking technology investment could make in corporate performance. While that appreciation may remain imperfect -- at least to the mind of most insurance CIOs -- a sign that progress has been made may be discerned in some very interesting findings of a recent Accenture study of the opinions of equity analysts. The short version is that these guys are not only aware of the importance of technology to insurers' success but they rate technology investment as one of the best ways an insurer can put its capital to use.Accenture tapped Institutional Investor Market Research Group to ask 108 insurance equity analysts in 14 markets globally about their opinions on a variety of topics, including capital utilization priorities, critical industry challenges and profit and growth strategies.

Among the fairly unsurprising results were that P&C analysts predict increased M&A but look more favorably upon organic growth; and that life insurance analysts are keen on expansion into emerging markets. Among the survey's surprising findings were P&C and life insurance analysts' bullishness on operational efficiency or "transformational" programs - which at 77 percent ranked only slightly behind share buybacks (83%) and well ahead of product and service innovations (56%) in respondents' identification of important uses of capital.

Also striking was analysts focus on the legacy systems problem, for both life and P&C. Eighty-five percent of P&C analysts identified "aging technology systems/modernizing IT" as among the most important issues and challenges facing insurers in the next three years, behind climate change (89%) and ahead of new regulations and reforms (76%) and several other issues, such as cross-border competition, terrorism and geopolitical instability, and changing customer demographics. Life analysts expressed a similar opinion, ranking aging systems (92%) just below growing risk to investment portfolios.

The survey also found that:

The majority of analysts (57%) said that IT investment in areas such as policy administration, claims management, process optimization and call centers are "critical" to the insurance industry over the next three years, with another 34% describing such IT investments as important."

Commenting on the significance of the findings, Accenture's John Del Santo suggested the emergence of an awareness, not only among analysts but more generally, that insurance, like other financial services sectors, is essentially an information processing business.

"It's always been sort of known and expected that large, diverse financial services institutions are really, at their core, an information and data processing capability," Del Santo says. In the minds of many industry observers, he adds, "insurance companies are falling into that same space where the expectation is that they are going to have standardized, world-class information processing and data mining capabilities on the back end."

If insurance companies haven't traditionally lived up to such expectations, it's likely because technology has been considered more of an operational handmaid and service provider rather than a strategic driver -- even by company leaders. Clearly that has changed, especially in the upper echelon of the industry, where companies are placing bets on transformational technology investments.

Del Santo can't say when insurance equity analysts began to think this way, since this survey represents the first time Accenture has polled them collectively. However, it is clear that the analysts believe they need to move further down this road, as 82 percent of respondents acknowledged that the insurance analyst community would benefit from more education on new technologies and their role in business performance.

That ought to be reassuring for insurance technology executives aiming to persuade insurance CEOs, line-of-business heads and board members of the importance of realizing the "world-class" processing and data mining standard cited by Del Santo.Among the survey's surprising findings were P&C and life insurance analysts' bullishness on operational efficiency or "transformational" programs - which at 77 percent ranked only slightly behind share buybacks (83%) and well ahead of product and service innovations (56%) in respondents' identification of important uses of capital.

ABOUT THE AUTHOR
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 ...