Insurers to Increase IT Budgets, Focus on Analytics, Agents and Speed to Market: Novarica

Most insurance companies plan to increase their IT budgets slightly in 2012, according to a Novarica (Boston) survey of 132 technology department heads, at both P&C and life/annuities carriers, titled "US Insurer IT Budgets and Projects for 2012."

Only life insurance companies with more than $1 billion in premium tended to forecast a slight drop in IT spending for the coming year, with small P&C carriers (those with less than $100 million in premium) on average reporting the highest IT budgets as a percentage of premium.

"IT certainly isn't recession-proof — when the company is under enough pressure IT feels that like anything else — but most companies see that in an information business, you're dependent on information capabilities to grow," Novarica partner and managing director Matt Josefowicz says. "Competitive advantage in the insurance industry comes from managing information better than your peers. If you stop investing, you're coming off a competitive track."

That situation is somewhat evident in the life and annuities sector, where IT budgets aren't forecast to rise as much. While Josefowicz notes that the sample size for those companies is smaller than the P&C sample — 25 vs. 107 — the wider economy affects life companies differently.

"The economic downturn hits them with a double whammy: Demand and attractiveness of their products is decreased, and at the same time their ability to generate investment income is decreased," he explains. "But while large life companies are more likely to look at IT as a place to trim if they have a need to trim expenses overall, there's no doubt that they need to invest in IT-enabled capabilities because it's being affected by increased demand for communications, business intelligence and speed to market. Consumers are comparing their life insurance experience to their broker or bank experience and expect a richer array of service."

Consumer expectations are driving many of the priorities at insurance companies, Josefowicz notes. Reported top business needs include business intelligence and analytics, speed to market and ease of doing business both for customers and agents. There's also view across the board that customer portals and CRM capabilities are subpar.

"There is a perceived need there, as customers expect to be able to access information more easily from service providers," Josefowicz says. "Agent companies in particular have been underinvested in these areas."

Those needs are driving more companies to take on large core systems replacement projects as well. One-third of respondents are either in the middle of a core policy administration system replacement or planning one for 2012, with claims and billing systems seeing similar levels of activity.

"I don't think we've ever seen this level of activity, Josefowicz says. "The need is becoming acute. If you want speed to market, distributor service, business intelligence and analytics capabilities, you can dance around the core systems in most places for a long time, but it does come down to what's happening there."

Mobile capabilities are still in "limited deployment" at insurance companies, Novarica found. However, as companies modernize their other systems, it will be easier to incorporate mobile into the enterprise, Josefowicz notes. Creating mobile and tablet capabilities for internal staff and agents top the list of mobile plans.

"As more mobile moves from smartphone to tablet, the line between mobile agent and web agent starts to blur because the portals will be optimized for tablet-based display," he explains.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio