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From Resource, May 2008
Technology:
What’s Next?
Everything’s changing.
Hear insights and advice from five of the industry’s top analysts on
how to thrive in the rapidly changing industry.
By Tammy J. McInturff
The life industry is changing
rapidly. Insurers today are facing a
number of challenges—everything from a slowing economy to a changing
workforce. Finding ways to stay
current and grow revenue in this volatile environment is no easy task.
Resource recently talked with five of the industry’s top analysts to
gain some insight into where the industry is today and where it is going
tomorrow. Our panel of analysts
included:
Matthew Josefowicz,
Director of Insurance Practice, Novarica
Craig Weber,
Senior Vice President, Celent, LLC
Barry Rabkin,
Senior Research Analyst,
Insurance, Financial Insights,
an IDC Company
David West,
Research Area Director, Insurance, TowerGroup, Inc.
Kimberly Harris-Ferrante,
Research Vice President,
Gartner Research
The analysts shared their insights on many of the hot topics in the industry
today, including outsourcing, economic issues, data security and SOA.
They also discussed the challenges that insurers are currently facing and
offered some advice for the future.
Challenges
Chances are, your company is
facing some of the same challenges and pressures today as most other life
insurance companies. We asked the
panel of analysts to identify what they saw as the greatest challenge that
insurers are facing today. Most of
the analysts mentioned two key challenges—a rapidly changing market and
finding ways to make the company more agile.
Resource: What do you think is
the biggest challenge facing life insurers today?
Josefowicz: From the technology
side, most life insurers have three main challenges: bring products to market
rapidly, support agents with real-time information and transactional capability,
and mine internal data to find pockets of opportunity in either product design
or market strategy. Unfortunately, legacy systems are an impediment to all three
of these needs. So insurers are taking various approaches, from total
replacement to replacement of components, to address these challenges.
Weber: I think growth is
probably the issue that is vexing most carriers.
Unit sales are flat or declining for most carriers and so the question is
how to find growth among your existing clients or to capture market share from
your competitors. I think that means
innovation in terms of product and in terms of service to get more market share.
Rabkin:
It’s really the same challenge life insurers have always faced. Their
biggest challenge is having the ability to recognize change, adapt quickly and
compete as a coherent single corporation in the face of a dynamically changing
external environment. Life insurers, just like most companies in other
industries, are blinded by their perpetual myopic focus on operational
excellence. When external events or trends reach a tipping point they are caught
by surprise. Well, surprise, life insurers should have already achieved a
world-class ability of managing asset de-accumulation. Surprise, life insurers
should have already achieved a world-class ability to provide customer service
for the growing diverse ethnicity of the
United States
. And, well, surprise, life insurers should already be well on their way to
support Gen Y in all of the technology variety this cohort is well-versed in.
West:
There are so many challenges facing life insurers.
The market for their products is changing rapidly.
Demographics are shifting around the world. Insurers
are seeing different demands from consumers and living up to those demands is a
key challenge for insurers. Another
key challenge is remaining agile or becoming agile in a market that has rapidly
changing needs. Life insurance
products that have been around for decades are constantly being modified by
innovative companies and if you keep trying to sell the product that you were
selling ten years ago chances are you are going to fall behind in the market.
So having an IT infrastructure that supports agility and rapid product
development is critical.
Harris-Ferrante: In my opinion
one of the biggest challenges is strategic visioning, including making judgments
on future industry needs and preparing for that change.
We are at a point now where the life insurance industry is changing very
quickly. The market and industry is
changing and it is becoming imperative that we anticipate and prepare for
emerging conditions that are very different from today, such as new customer
demands and product offerings. How
do we make investments today in our process and our technologies so that we can
be more flexible and agile to respond to today’s changes?
Hand in hand with strategic visioning, we need to make sure that our IT
infrastructures are flexible and agile enough to modify our business processes
to respond to shifting market demands, as well as adopt new business
philosophies that are more in line with innovation, change and change
management.
IT Budgets
Early reports seemed optimistic
about IT budgets for 2008, indicating budgets would rise slightly this year.
But now we are several months into the year and the economy is only
getting worse, are insurers taking a second look at their IT budgets?
According to a few of our analysts, some insurers may already be
rethinking their 2008 IT budget. Most
of the analysts agreed that even if the softening economy does not affect IT
budgets this year, it will most likely affect spending in 2009.
Resource: What do IT budgets
look like this year? Will the
slowing economy affect IT spending in 2008?
Josefowicz: It depends how bad
the investment markets get. If investment markets get bad enough to put
significant pressure on reserves, then IT spending may pull back. But in
general, we see budgets increasing modestly but not aggressively.
Weber: I think IT budgets are
still rising slowly or may be flat. There
has been a lot of talk about the soft economy and how that affects IT spending.
My take is that it affects it, but only with a significant lag.
So today’s soft economy might affect the latter half of this year in
terms of IT spending but more likely it will kick in with the next budget cycle
starting next January.
West: It depends on who you
are. We thought that the insurance
industry was going to be somewhat unaffected, except in some very small
portions, by the current economic crisis but we are seeing now that that is not
the case. Whether it is a ripple
effect or a direct effect is inconsequential, there is an effect of this credit
crisis on most markets. While we do
continue to see growth in emerging markets—some Asian and
Eastern Europe
markets in particular, overall growth will not be at the rate that it has been.
And as a result there is some contraction in the IT spending arena; so
this is a pick and choose your opportunities carefully type of situation.
We have seen some companies who have already talked about revisiting the
budgets that they just set several months ago, with an eye towards reducing
costs. So overall, there is somewhat
of a contraction in IT budgets but there certainly are many exceptions to this
rule.
Harris-Ferrante: Unfortunately
budgets will be challenged in 2008 and 2009. Overall, there are more IT projects
and systems maintained than budget available for these projects. In most
instances, the majority of the IT budget is required to maintain the status quo,
including maintaining legacy systems. This normally leaves little budget left
for strategic, and more innovation, initiatives that are targeted at business
transformation or market differentiation. Furthermore,
as the
U.S.
insurance industry faces economic difficulties with the pending recession, it
will further challenge the IT budget and may lead insurers to focus more on cost
cutting than driving more value to the organization.
Outsourcing
Outsourcing has continued to
grow over the past several years. Companies
are now outsourcing more services than ever before.
Since outsourcing has helped some companies cut costs, it will be
interesting to see how the current economic situation affects outsourcing.
Will tightening budgets cause a surge in outsourcing growth?
Most of the analysts we talked with seemed to agree that outsourcing will
continue to grow but they had slightly different opinions on how the possible
recession might affect outsourcing.
Resource: If the
U.S.
is in a recession, what will it mean for IT outsourcing?
Josefowicz: Unless it’s
extremely prolonged and affects insurers’ top-line revenue dramatically, I
don’t think a recession will drive additional IT outsourcing since outsourcing
is more of a strategic decision than a cost decision. Many of the insurers who
ran towards outsourcing because of pure cost in 2001-2002 have pulled back
somewhat.
Weber: I think the business
case for outsourcing is still strong and there is a significant opportunity for
carriers to leverage different sourcing models not just offshore but also near
shore. Having said that, the
softening
U.S.
economy also dulls the business case for the offshore piece a little because
the dollar has been weak relative to other world currencies.
It used to be much easier to point to the massive differences in wages
paid to staff overseas and use that as a lever to justify an outsourcing
program. It’s still there but to a
lesser degree. So if anything the
soft economy will maybe get people thinking about outsourcing more but it also
takes the business case down a notch.
West: If we are in a recession
then we are going to have to look for ways of doing things more cost effectively
and that is the whole reason behind outsourcing.
You don’t outsource just because it is a nifty thing to do.
You outsource because it is going to lower your overhead.
So I think regardless of a recession there will be continued interest in
outsourcing. A recession may
increase the attention that the industry places on outsourcing and may
accelerate it to a certain degree. I
think a recession will also cause some political attention on outsourcing and
people may look for scapegoats and that may cause some negative impact on
outsourcing. Overall, I think
outsourcing will continue to grow.
Harris-Ferrante:
The impact of the economic shift on outsourcing is unclear right now. As
more insurers look to reduce costs, many may identify outsourcing, particularly
offshore outsourcing, as a means to reduce costs and find some labor arbitrage.
However, Gartner has not seen a significant increase in companies inquiring
about outsourcing as a result of this problem.
Data Security
Data security is always a
looming concern for CIOs and IT executives.
It only takes one data breach to ruin a company’s image and reputation.
The good news is most of the analysts we spoke with thought insurers were
doing a good job of securing their
information.
Resource: In general, do you
think most life insurance companies are where they need to be in terms of
securing their data and infrastructure?
Josefowicz: In general,
insurers are doing a pretty good job in this area. While data security is always
an important need, this has moved into a “cost of doing business” category
for most insurers, rather than something they urgently need to improve.
Weber: I think most top tier
insurers have done a very good job implementing data security where they need
it. I think the problem arises with
smaller companies that don’t necessarily have the infrastructure or the
dedicated resources to throw at this problem.
There you might have for example, more reliance on paper files and less
reliance on imaging that presents some data security issues that are just
inherent in the use of paper. So I
think small companies have in a sense a bigger problem here.
West: I think by and large
insurance data is very safe. You do
have the occasional situation where companies report that an employee may have
copied things to a CD but that is truly the exception.
Information security is always a concern, but I think life insurers are
doing a good job of protecting their data at this point.
Harris-Ferrante: Security is a
major concern among life insurers, however often an area of under-investment. In
Gartner studies, we continually see that
U.S.
life insurers identify security and authentication, for example, as one of the
primary challenges in their projects and initiatives to improve distribution and
new business processing. As insurers
move to electronic communications, there are issues with security breaches, data
security, password protection and authenticating online users, for example.
While investments in traditional security methods, such a firewalls, have
remained high, authentication remains an issue and will challenge life insurers
in the next few years as more transactions move to the agent portal and customer
self-service sites.
Resource: What is the biggest
security issue that life insurers have today?
Weber: I think the knee-jerk
response to that question is that exterior forces that are looking to hack their
systems or steal customer data is the biggest issue.
I think in reality a threat is more likely to come from within the
carrier—an insider or a contractor perhaps who already has access to data.
So there are certain elements of data security that can’t stop those
kinds of incidents because you have to let people internally have access to data
or they can’t do their work.
West:
The biggest challenge is preventing unauthorized or inappropriate access
to data. You have a constantly
shifting technology environment and an increasingly sophisticated workforce.
There are a lot of ways to get information out of systems but there are
also a lot of ways to keep track of people’s activities, like setting up
alerts to prevent unauthorized or inappropriate access to data.
Harris-Ferrante:
Authentication is the biggest concern we are hearing within the industry.
For example, a Gartner study conducted in 2007 with a sample of
U.S.
life insurers found that 68 percent of life insurers identified authentication
as the major concern for distribution. This out-ranked in importance information
access, IT budget and funding issues, and data standards to support
straight-through-processing.
Technology Challenges
Life insurers have a number of
technology challenges on their plate. Companies
are still wrestling with how to resolve their legacy system issues.
Year-over-year the majority of an insurance company’s IT budget is
still going towards maintenance. The
analysts discussed the biggest IT challenges that life insurers are facing and
where the early technology adopters are spending their money.
Resource: What do you see as
the biggest technology challenge for life insurers in 2008?
Weber: The biggest challenge is
addressing long- term vision while getting short-term benefits.
The move toward SOA and use of Web services is very much afoot but it is
hard to make those investments with a less than stellar short term business
case. You have to make some
investments and get benefits from subsequent uses of those investments
sometimes. So for example building
an SOA infrastructure is expensive and it may be hard to justify as a one time
business case, the real value comes when you can leverage that infrastructure
multiple times over multiple systems.
Rabkin:
Having the infrastructure—writ large—to grow organically while
operating as a coherent integrated organization. That means having the portfolio
of technology applications that make it easier not only for their producers to
do business with them but also their policyholders (individual life insurers)
and plan participants (group life insurers) and prospects. And easier also means
faster because life insurers can take it to the bank (no pun intended) that
investment firms will continue to hone their capabilities to provide answers as
quickly as their clients want or expect. And that infrastructure includes having
the ability to support data flows—from events, from producer and policyholder
and prospect requests—in either real-time or near real-time. P&C insurers
may have the luxury of not having to worry that much about the real-time pace of
the marketplace (actually not true there either, sorry) but life insurers
don’t have that luxury. For life insurers, the pace of expectations will
continue to quicken.
West:
It depends on the size of the company.
If you are a 100-year-old company, that started using mainframes in the
1960s, then you are probably hampered by your legacy systems.
Legacy systems are a key challenge for companies that still have the same
systems that they had 15 years ago. I
think overall the key challenge is providing a nimble infrastructure that
supports rapid product development.
Harris-Ferrante: Legacy systems
are by far the biggest challenge for life insurers.
While we have seen a number of tier 1 life insurers replace their policy
administration systems, most continue to struggle with old, outdated legacy
systems which are becoming increasingly hard and expensive to maintain.
Resources may be scarce internally to maintain the system, and the skill
set difficult to find in the job market. While the migration to a new system
might seem like a good alternative, these projects are often high risk,
multi-year and expensive. It is critical that insurers undertake a cost-benefit
analysis and determine the total cost of ownership for their legacy systems, as
well as assess each system’s ability to match the business demands on the
future, including faster time to market with new insurance products, business
rule flexibility to allow business users to alter workflow, and improved data
use for underwriting. Even if you replace a system, it is most likely that
companies will also have other legacy systems to integrate with and maintain in
parallel. Legacy modernization tools, including legacy wrapping and SOA
enablement, are key to improving business functionality and controlling IT
risks.
Resource: In general, where are
the majority of life insurers focusing their IT dollars?
Josefowicz: Well, most IT
dollars are still spent on maintenance. But strategic IT investments are
generally focused on product design/development, distribution, and data
analytics.
Weber:
Carriers are all over the map depending on their starting point.
I think some carriers have gotten ahead of the game in terms of building
an SOA infrastructure, building out Web services, implementing new integration
tools and for those carriers they have the luxury of focusing on business
solutions in a very specific subvertical like claims or underwriting.
Other carriers have not yet made those investments so they have to look
at things like server consolidation or the building out of XML hubs for
integration between systems. They
probably are not going to get to as many of those server specific insurance
solutions just because no company can do everything at once. So you have to
focus your energy in a prioritized fashion.
West:
This varies according to the size of the company.
Companies that have a strong legacy environment will probably devote a
significant portion to legacy maintenance and legacy patching.
The vast majority of IT budgets are spent on maintenance of core systems,
in most cases new development is less than 1/4th of the IT budget.
Harris-Ferrante: Most of the IT
budget is going to system and application maintenance. Application acquisition
and strategic projects are jeopardized by this.
Companies should rethink their IT budget and technology prioritization.
If insurers continue to spend the majority of their IT budget solely for
maintenance without doing strategic projects, they will be challenged long-term.
Resource: Where are the
innovators or technology early adopters focusing their IT dollars?
Josefowicz: The most
forward-looking insurers are looking at data analytics aggressively. This means
investing in data quality initiatives, data repositories, and next-generation
analytic tools.
Weber: The focus continues to
be improving user experience and improving the agent experience and this gets at
the broader question of where you are going to find growth.
You are most likely going to find it at the expense of your competitors
and in order to beat them out you’ve got to differentiate your service and
your product and your price but mostly your service.
West:
Some early adopters are focusing on product configurators, things that
enable rapid product development and rapid product deployment.
Other early adopters are looking at analytical CRM solutions, things that
integrate their marketing applications with their back office so that they can
make the most appropriate offer to the consumer.
Early adopters are also looking at agency portal development and
collaborative underwriting applications that could help improve ease of doing
business from the agents prospective by reducing the barriers to a sale and
streamlining
the process.
Rabkin:
The innovators are focusing their bets on ways to compete both more
effectively and more efficiently. They are creating paths to potential success
by investing in software as a service (SaaS), in collaborative applications, in
the Semantic Web and in Web 2.0 technologies. Those Web 2.0 technologies
encompass more than Web services but also Second Life, blogs and wikis and the
rest of the social communications and collaborative applications. Will
Rogers
once said ‘you may be on the right track, but you’ll still get run over if
you just sit there.’ Sticking with legacy systems and refusing to experiment
with newer technology applications is a great way to get run over. There may be
‘not much there, there’ when it comes to Second Life and other virtual
worlds but those life insurers who experiment with branding or marketing
strategies will have a leg up on insurers who merely continually streamline
existing processes. Life insurers who are early adopters of collaborative
technologies between home office staff and their producers or between home
office staff and plan benefit managers will be the ones quicker to market with
increased market buy-in.
Harris-Ferrante: The innovators
are focusing on areas which will give them competitive advantage and
differentiate themselves in the market. One example includes the use of product
configurators to support new product development. Gartner has seen a greater
number of requests among life insurers who want to improve their product
lifecycle management and find a way to create and introduce new products to the
market faster than they can in the past. We are also seeing rising investment in
call centers as a way to improve customer service delivery and customer
integration. Lastly, we are seeing increased interest in stand-alone claims
applications to support life insurance, including disability, long term care,
and critical illness lines of business. The overall shift to customer-centricity
and focus on improving customer satisfaction is driving all three of these types
of projects.
Resource: Where are insurers in
terms of legacy system issues?
Josefowicz: Most insurers are
still grappling with this. Because of the long tails of life policies, legacy
conversion is a much more difficult issue for life insurers than it is in
P&C.
Weber: Insurers are all over
the map; there have been some legacy system replacements and we see a pretty
full pipeline in terms of major system replacements like policy admin systems.
But probably at least half the market is still scratching its head
wondering how in the world they are ever going to justify a major policy admin
system replacement. So those legacy
systems have a very long shelf life. The
word legacy will be
dogging us for years to come.
Business and IT Alignment
Analysts have been recommending
that companies work on building better business and IT alignment for years now.
Having two groups that do not always speak the same language work
effectively together can be a challenge. According
to the analysts we spoke with, insurance companies realize that these two groups
need to be better aligned but still many companies aren’t going about it as
effectively as they could.
Resource: In terms of business
and IT alignment, have insurers finally gotten the message?
Josefowicz: Yes and no.
Business has now accepted IT as a strategic partner in most cases, but IT still
struggles to communicate with business in its own language. IT needs to be able
to
measure and communicate its value in real financial terms, rather than focusing
on meeting cost or performance goals.
Weber: I think so. Insurers
have wrestled with making a business case and getting the value out of their IT
that they intended to get but most insurers I talk to have decided that a close
partnership between business and IT is essential to getting that value.
In other words having a good business plan supported by a good technology
plan is the only way to get value out of your technology spending and that
requires alignment; it by definition means that the CIOs and CTOs and CEOs are
all planning in a cooperative way. I
would say most carriers I work with are fairly effective at getting business and
IT alignment. It requires a
discipline and the discipline has been evolving for the last decade but most
carriers have gotten beyond the politics and the bad relationships and are
figuring out how to make it work. It
will always be a work in progress the job is never done in terms of alignment
but when you compare where we are today to where we were a decade ago I think we
are a world better than we were.
West:
Everybody knows that business and IT need to be better aligned but not
everyone is doing it as effectively as some of the more adept companies.
One company that I have spoken with has a research department that
functions as a liaison between the business and IT and that is a great approach.
Other companies have created project management offices that are more in
touch with the business and seek out representation on projects from the
business that is a great way to go. Companies
that are engaged in creating SOA platforms absolutely must have alignment.
Companies that are just content to go along with business as usual are
going to ultimately be left behind.
Harris-Ferrante:
Life insurers have talked about business and IT alignment for years, but
Gartner research shows that this is still not accomplished. There continue to be
organizational silos and lack of business insight when preparing for and
understating future IT needs. In many cases, such as for BI projects, IT is
still pushing business rather than business driving new ideas and strategies.
This must change. Life insurers must begin to improve the alignment of business
and IT in order to build new strategies, ensure that IT investments match
long-term business demands, and that the impact of emerging technologies on the
business is recognized.
Vendor Consolidation
There has been quite a bit of
consolidation among technology vendors in the life insurance space over the past
few years. Is this good news or bad
news for companies looking for new technology solutions?
Resource: What does all of the
consolidation in the vendor market mean for life insurance companies?
Josefowicz: Most life insurers
view consolidation in the vendor market as a positive, since it addresses some
of the organizational risk that they perceive in doing business with small
vendors. Most of the recent consolidation was aimed at acquiring assets rather
than sun-setting them. However, some smaller insurers do worry that a favorite
small vendor may no longer regard them as a strategic client after being
purchased by a larger peer.
Weber: I think it is a good
news / bad news situation. The good
news is that stronger vendors make better partners.
So as small companies get rolled up and they start to show the benefits
of financial stability that their acquiring companies have that is a very good
thing for life insurers. The bad
news is that as companies get larger and as their client lists get longer that
can reduce the focus that the company has on any one client.
West:
There is always consolidation in the vendor market.
If you are talking specifically about consolidation in the Business
Intelligence (BI) market where IBM has bought a BI vendor and SAP has bought a
BI vendor, I think it strengthens the offerings that the acquiring companies
have at least in the short term. In
many cases, however, acquisitions can lead to slower development of the acquired
product line and that may hurt.
Harris-Ferrante: We have seen a
number of vendors consolidate during the last few years, leaving few vendors to
choose. However, these vendors are often larger in their product portfolio. If
all
solutions were on a complimentary platform and plug-and-play, it would be
optimal for buyers. However, most of the vendors have not yet fulfilled their
technology vision to create a common technology platform for all their
applications to enable easy integration. For most companies, this is a work in
progress which causes integration challenges for the users. The promises of
having one vendor supply a larger number of applications is not felt today due
to the technology limitations of the market and will not be a reality until 2009
or beyond for most vendors.
Generation Y
Generation Y employees will
soon be entering the workforce and the common perception is that this generation
has different work ethics than the current workforce.
These Digital Natives, as they are often called, are going to be
replacing the retiring Baby Boomers and it is no secret that Generation Y
contains less people than the huge Boomer generation.
Finding ways to attract the best talent among Generation Y employees is
something that insurers will have to tackle in the coming years.
According to our analysts, most insurers have not given it much thought
yet, but that may be changing.
Resource: As the Baby Boomers
edge closer to retirement are insurance companies starting to think about the
next generation of employees that will we entering the workforce?
What, if anything, are insurers doing to prepare for Generation Y
employees?
Josefowicz: Some insurers are
experimenting with telecommuting, especially in IT.
But in general, I think the life insurance industry is behind other
industries in making itself attractive to Gen Y employees.
Weber: I think people are
thinking about it. I don’t think
it has gotten to the point where any drastic change of direction is necessary.
Knowledge workers today have a different set of expectations than
knowledge workers a decade ago and that is very clear but I would also argue
that people in their 40s, 50s, 60s who have been in the workforce a while are
also coming along in their understanding of how work should happen.
So someone who is in midlife or later probably is comfortable using
e-mail today. They may be
comfortable using chat today; they probably have a cell phone.
They are consumers themselves. So
I think the picture of older insurance staff being out of touch is overblown.
People are really starting to get it in their own lives and they bring
that with them to work.
West:
There are a lot of things that companies are doing.
There are seminars now that companies are attending to learn how to deal
with Generation Y people. The
perception is that Generation Y people don’t want to work long hours, expect
to be promoted after their first week on the job and expect all of the benefits
that executives have without ever having earned them and to a certain extent
that perception is reality. Companies
are trying to learn what they can about the attitudes and expectations of
Generation Y. Some companies are
also changing their environment and in some cases it is correct to do it in
other cases it is wrong. To start
giving offices to a 22-year-old straight out of college just because they expect
to have an office is a ridiculous expense; some companies are doing it though it
is not as common. Some companies are
looking at changing the IT environment. Most
people don’t go to college so that they can work for an insurance company; it
is not the glamorous job that they are thinking about when they are sitting in
class. If you give a prospective
employee a tour of your office and they see your employees sitting in a cubical
looking at a black or green screen that is not very attractive especially to
Generation Y. However,
companies are seeing that some of these new service oriented architecture type
applications are much more attractive to Generation Y.
Right now some companies are trying to learn what the different demands
and expectations are and they are trying to make adjustments where appropriate.
Harris-Ferrante: Companies are
just now starting to question what Generation Y is going to mean to their
business practices long term, but Gartner is just beginning to see strategies
being
developed targeted at employee retention and acquisition. Gartner is noticing a
staffing problem, where insurers are facing a staffing shortage in areas like
agents, IT professionals and even underwriters. As new and younger employees
enter the job market, they will have different work life expectations and
technology use. For example, they are using more tools like Web 2.0 and social
networking to connect with employers and find jobs. Insurers must embrace these
new channels. Insurers must also work to change the image of the industry. Today
insurance, as a whole, is viewed as old fashioned, using old technologies and
not an attractive industry to work in. Companies must engage in Internet
marketing, participate in social networking, and other tactics to reach
potential employees and change that image.
Business Priorities
According to the analysts the
top business priority for companies this year is revenue growth.
Resource: What is the top
business priority for most life insurers in 2008?
Josefowicz: Grow revenue,
retain customers, and attract and retain
productive agents.
Weber: I think it is growth and
figuring out how to achieve growth in a cost effective way. It is remaining
competitive or capturing market share from competitors.
Rabkin:
Growth! And not acquisitive growth. Not unless that acquisitive growth
meets existing customer needs in better ways or new ways. Not unless that
acquisitive growth identifies new customer needs and meets those new needs in
exciting ways. Acquisitive growth is a defensive tactic: it puts off the day of
reckoning. And investment firms and capital market firms are not going to wait.
International players correctly see
U.S.
life insurers as relatively (relatively?!) inexpensive assets to fatten up
their own acquisitive growth objectives. No, growth must be organic. And
fortunately, that isn’t easy. It takes thought to figure out what new markets
to develop or identify or which new products or services should be brought to
market quickly. It takes a vision, a strategy to innovate. And that innovation
imperative will only work if insurers realize they must attack their markets as
an enterprise. Sub-optimizing one or two departments while ignoring the other
areas won't cut it. Enterprise-wide thought, culture, collaboration, ... none of
that is easy. But life insurers who don't grow organically will soon only have
the challenge of getting an optimum price for their company as they are bought
up by the winners.
West: Top line revenue growth.
It is a perpetual driver.
Harris-Ferrante: Gartner
conducted a study at year-end 2007 with a sample of life insurers and found that
the top business priority was data and information management. New focus on data
mining, predictive modeling and improving underwriting profitability has drawn
increased focus on data among life insurers and annuity providers. Other top
business priorities were improving call center interaction with customers to
help drive improved customer satisfaction and product development.
Looking to the Future
With so many market variables
today, it is hard to predict how the industry will change in the next five
years. Resource asked the analysts to identify some of the changes they see
happening in the next five years.
Resource: What industry changes
do you see coming in the next five years?
Weber: I think the bar will be
raised on service. The bar will be
raised on technology delivering value. It
used to be that it took a 100 million dollar investment to transform an
organization and I think vendors are starting to realize that that price point
was artificial and perhaps needs to be looked at.
So some of the modern core systems vendors out there are proving that new
technology that runs differently that is architected differently can deliver
great value at a fraction of the costs. The
best example of that is the movement toward configurability rather than coding
within systems. As more systems
become configurable and rules driven that should drastically change the game in
terms of the value that systems can provide.
Harris-Ferrante:
Gartner is expecting major changes in the next five years in regard to
shifting consumer demands. Younger generations have different product needs, as
well as channel usage. It is critical that life insurers know product coverage
needs of their target market, create new products to cover life stage and
behavioral preferences for these groups, leverage existing channels to match
their interaction needs, as well as deploy new channels and devices to reach
these individuals. The use of new technologies, such as Web 2.0 and social
networking sites on the Internet is key to reaching and selling to these
consumer segments, for example. Improved use of customer segmentation also is
needed to support more in-depth customer insight, channel integration to link
channels on a common platform, and use of SOA to connect portals to legacy
systems to support new business and service processing in real-time.
Service Oriented Architecture
SOA has been a buzz word in the
insurance industry for several years now. The
good news is insurance companies seem to have come along way in their
understanding and adoption of SOA. While
a lot of companies have adopted service oriented architecture, some are having
more success with it than others. Resource
asked the analysts not only where the industry is now with SOA adoption but also
what the future holds for SOA.
Resource: We have been talking
about SOA for several years now, where are insurers in terms of SOA adoption?
Josefowicz: SOA practices are
in wide use in the industry today. But few insurers have totally converted their
architectures to one that is purely services-oriented. Most insurers are taking
a practical approach, enabling services for highly reusable functions and
look-ups, but not redesigning their entire architectures to meet some abstract
goal of SOA.
Weber: SOA adoption is ramping
up steadily and most insurers, particularly larger insurers have a lot of
experience and a lot of reusable components in play particularly for things like
new business. In virtually every
product line carriers have services ready to go that can be leveraged across
business lines, that is very good news. We’ve
gotten beyond the point where SOA is a internal systems integration tool to the
point now where there are cooperative networks of vendors and carriers who are
sharing data and a whose systems are talking to each other readily.
If I had to put a number on it I would say we probably gotten 20 percent
of the value that we could get out of SOA so that is just a natural evolution
and it takes some time.
West: They are getting there,
interest is intense. A few years ago
nobody knew what they were talking about; people know what it is now.
IT departments understand the concepts behind it.
They are very interested in doing it right.
Establishing solid IT governance is critical in SOA, without it
implementing SOA will be problematic. There
are some companies that have done a remarkably good job with SOA, they tend to
be smaller and newer companies; other companies are still getting there.
Harris-Ferrante:
SOA has become the most common architectural vision of life insurers. Due
to continued use of legacy systems, new tactics such as SOA are much needed. The
use of SOA to extend and improve processes which are housed in legacy systems,
as well as improve interoperability between applications is key. SOA coupled
with the use of the ACORD industry standards fills a gap which the industry has
struggled with for years.
Resource: What does the future
hold for SOA?
Josefowicz: Among life
insurers, I’d say cautious but steady progress towards service-enabling any
functions that would benefit from it. I’d say few insurers are likely to
totally re-architect their systems to match their business processes in the near
future.
Weber: It is more of the same.
It is expanding on the use of the services that are out there.
It is developing new ones. I
think vendors will have to adapt to this new world and support services
increasingly because carriers are demanding that kind of flexibility from their
vendors and if a particular vendor does not play nicely in the SOA world
carriers are likely to turn to another vendor that does.
West:
SOA is a way of life for IT; it is a way of designing an IT environment.
There will be improvements on the design and I think that SOA is
essentially an improvement on previous designs like object oriented programming.
I think we are going to see more and more packaged services.
I think service oriented architecture will encourage vendors to create
applications that are more easily integrated with competitor applications.
It will ultimately make it easier for best of breed product delivery and
it will also make it easier to select the best parts out of a solution and build
mashups with the best parts of other companies’ solutions.
Harris-Ferrante:
Focus on SOA is expected to increase within the industry. While the term
is still ill-defined, building SOA strategies, questioning vendors of new
applications about if they are SOA enabled, and use of SOA tools to help with
services development is on the rise. The architectural vision of SOA will help
insurers overcome many of their current IT challenges and improve their
organization’s ability to meet business goals.
Advice
The analysts offered a broad
range of advice to IT executives.
Resource: With everything that
is going on in the industry today, what advice would you give to an IT
professional in the life insurance industry?
Josefowicz: Focus on business
value delivered above all else. If you can’t measure and communicate the
business value of a project, don’t do it.
Weber: I think the best advice
is round out your skill set. There
is a blurring of lines between business analysts and IT professionals.
So the most successful IT professionals will be the ones that understand
the businesses that they serve and will function not as a repository of IT
information but as a repository of business information sprinkled with IT
know-how.
West:
I would tell them if they are not happy doing what they are doing now, to
stick around because it is going to be different tomorrow.
Harris-Ferrante: The best
advice I could give would be to think outside of the box. The traditional nature
of the industry often limits our thinking and drives us to stick to technologies
and strategies which are familiar to us. As the industry changes and evolves,
new ways of thinking are needed. The market is changing, customers are changing,
and regulations are changing. Change is continual and unpredictable. In such an
environment, flexibility and agility is key, and improved IT operations
critical. Companies must deploy new technologies, modify their business
processes to meet market demands, manage staffing limitations, effectively use
outsourcing, and improve their use of their data assets. Successful life
insurers will use a combination of organizational change management, business
process re-engineering, and technology innovation in order to improve their
market position.
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