The Insurance Industry's New Normal: Driver of Change or Complacency?

Deloitte's 2012 Global Insurance Outlook says technology must be at the center of any insurer's strategies for coping with the current market conditions. But have we heard this before?

In the wake of the 2008 global financial crisis there was talk in the insurance industry about coping with a "new normal" of economic weakness, dimmer growth prospects and regulatory restrictions. Now, more than three years after the crisis broke, these conditions clearly are business as usual. Add to that the factors that can affect insurers' financial performance, such as weather and natural catastrophes, over which companies have no control, and you're looking at an environment that could cause the management at many organizations to conclude that they will be fortunate to just stay in a holding pattern.

Obviously that is not a strategy that will satisfy the stakeholders of both public and mutual insurance companies. Growth and profitability have to be on the agenda -- the question is how. Many of the 2012 forecasts and priority lists coming out of the industry are completely unsurprising, emphasizing obvious strategies such as "know your customers," "prepare for more regulation," "improve efficiency" and "be more flexible and responsive." Anyone still needs to be informed of these trends doesn't deserve to be running an insurance company.

Deloitte's 2012 Global Insurance Outlook does include its share of these "new normal" observations, but also distinguishes itself from some of the forecasts I've read in that it doesn't hedge in placing innovation and technology prowess smack in the center of what insurance companies need to do to flourish in the current market. Whether it involves distribution, risk management or product development, it's not going to happen without a robust and valued IT organization, the Deloitte forecast suggests. In a press release related to the 2012 Global Insurance Outlook, Deloitte vice chairman and insurance sector leader Rebecca Amoroso noted,

"Insurers must keep transforming their operations to improve margins and drive more profit to the bottom line by adopting new technologies and management strategies to squeeze unnecessary costs out of the system, as well as employ their people and capital more productively."

The key technologies identified in the Deloitte report include analytics, social media , mobile, and cloud computing . For example, in terms of distribution strategies, Deloitte doesn't see the agent channel going away, but suggests that carriers will shift from an "emotional" (relationship-based) approach to one that is more "scientific" -- "basing their distribution decisions on analytics by delving into what kind of business an agent is producing (and more importantly, what they are likely to produce going forward," according to the Outlook, which adds:

"Those carriers that are able to better integrate data-based analytical considerations to objectively assess their sales force while delivering a multi-channel experience for both producers and consumers will likely be more successful in achieving long-term growth and retention."

Similarly, Deloitte views implementation of enterprise risk management a key step in achieving operational excellence, not just regulatory compliance -- "spreading ownership of risk into each facet of the carrier's strategic decision making process," according to the 2012 Outlook."Such work goes beyond the creation of quantitative models, with more emphasis being placed on governance, infrastructure and disclosure."

With technology ever more central to an insurance company's success, the role of the CIO will continue its evolution out of the back room. But it's not just about gaining stature -- in fact, the Deloitte report suggests that CIOs will have to be internal provocateurs who force their organizations to confront and embrace change:

"As high-level strategists, CIOs will perhaps become 'revolutionaries' within their companies as they are increasingly called upon to suggest how insurers can break out of traditional ways of thinking and operating."

It all sounds good and is exciting to see the roles of the CIO and IT organizations being validated in this way. I just hope this doesn't become empty rhetoric.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio