Insurer IT Planning for 2018

After years of talk but little change, we may be starting to see some real evolution in insurer IT spending and planning.

I have tracked insurer IT budgeting and planning for more than a decade. During that time, there has been one major shift: Core systems replacement went mainstream as fear of inaction surpassed fear of change. Otherwise, I used to joke that I could republish a prior year’s study and no one would notice. This year, however, we may be starting to see some real evolution in insurer IT spending and planning. Security issues and innovation are breaking into the list of top concerns and challenges as multi-year core systems projects started in previous years are being completed. While average spending patterns haven’t yet changed significantly, there is a shift in priorities and challenges — and an increased variability in the sample of the nearly 100 insurers who participated in Novarica’s 10th annual study. Property/Casualty: Analytics and Speed to Market For property/casualty insurers, business intelligence and analytics are the most frequently cited areas of need; more than half of P/C insurers put it in their top three needs (followed by distributor ease of doing business and speed to market for product changes). Note that if the responses for speed to market for product changes are combined with the responses for speed to market for true new products, that becomes the most common area of priority for P/C leaders. Large P/C insurers are generally more optimistic about the capabilities of their key applications, except for CRM and portals. Core systems replacement activity is significantly lower this year than in previous years — partly because of variations in the sample, but also reflecting the effects of prior investments. Midsize P/C insurers are more conservative in their self-assessment than their larger peers, with more than 30% rating their own capabilities as “poor” or worse in customer portals, CRM, UW workbench, BI and predictive analytics. More than half are currently engaging in core policy administration system replacement or are planning to start a new replacement in 2018. See also: My 4 Ps for Investing in InsurTech   Life/Annuity: Digital For life/annuity insurers, the most commonly demanded business capabilities are digital marketing and customer engagement, surpassing even the combination of speed-to-market for product changes and true new products. Other common high-priority areas for life insurers include optimizing internal workflow (also a digital capability) and reducing operating expenses. In aggregate, large life/annuity insurers are most confident in their distribution and compensation management and CRM abilities and are least confident in their abilities in analytics, digital engagement, underwriter workflow and core policy administration. This correlates with significant replacement and enhancement activity in portals and core admin, as well as significant enhancement activity in analytics. Midsize life/annuity insurers judge their customer portal capabilities harshly, with half rating them “poor” or worse and 40% planning replacements for 2018. Additionally, 30% of the participants in this group are also engaged in core policy administration and claims replacement projects. Innovation and Insurtech While not as high priority as short-term needs, about 20% of respondents did note that the demand to support innovation and leverage insurtech was among their top three business priorities for the coming year. None had it as the business’s top priority, however. Tactical concerns continue to dominate. Security One significant change from last year is the increased citation of security as both a priority and a challenge, with 30-40% of insurers placing it in their top three compared to less than 20% in previous years. Although aggregate security spending levels haven’t changed significantly over the past year, remaining at close to 10% of total spending, security is consuming a much greater proportion of CIO mindshare than in previous years. One CIO said recently that the amount of time he spends on security issues has doubled every six months. More than 60% of insurers are planning to expand their capabilities in key security areas, including device security, application security, intrusion detection and data encryption. Similar numbers are also improving their audits and procedures. Insurers will need to continue to devote additional resources to security in 2018 and beyond. Unfortunately, taking those resources out of insurers’ traditional IT budgets of 3-4% of premiums would mean hamstringing their abilities to develop and deploy new capabilities. Insurers that have not already done so are likely going to create a real IT security organization and budget in addition to, not replacing, their current IT spending if they want to continue to move forward safely. See also: Security Training Gets Much-Needed Reboot   General Outlook Once again, the outlook for insurance IT in the coming year is very similar to the current year — with the notable exception of an increased focus on security. Business leaders are demanding additional capabilities in analytics, digital and speed to market; IT organizations are responding with enhancements of existing systems and replacements of legacy. While replacement activity is still significant, it seems to be ebbing somewhat among property/casualty insurers as the investments of the past decade are going into production. But overall, spending levels will remain essentially consistent, with some insurers spending slightly more, some holding steady and a smaller number making cuts. This consistency itself represents a risk. With security demands growing at the same time as business demands for digital and data capabilities, insurers are not going to be able to meet these concurrent demands within a traditional IT spending framework. Insurers need rethink their approach to IT budgeting. Rather than asking how little they can spend on IT next year, insurers should be asking themselves two key questions: What is the real price of maintaining a robust security program, and how much can I afford to invest in technology to remain competitive now and in the future?

Matthew Josefowicz

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Matthew Josefowicz

Matthew Josefowicz is the president and CEO of Novarica. He is a widely published and often-cited expert on insurance and financial services technology, operations and e-business issues who has presented his research and thought leadership at numerous industry conferences.


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