Is the glass half empty, or is it half full? By many measures the insurance industry has had the worst couple of years in a long time—and yet the industry, particularly property/casualty, rode a mild hurricane season, redundant reserves, and the nondiscretionary nature of its business to an encouraging conclusion in 2009. A weakened but still strong insurance vertical is poised for growth in 2010 and beyond, assuming the “green shoots” keep sprouting and growing.
Where would growth come from? Any general uptick in economic activity will generate a larger insurable pie. But insurance is a mature industry marked by slow growth and low profit margins. Many of its products are regarded by the purchasing public as commodities that are bought (and sold) largely on price. How can the IT shop of an insurance carrier help position the company for growth? There are a couple of obvious levers IT can help to pull in combination with its business partners.
First, there is growth. Given the maturity referred to above, growth for most insurers can come only at the expense of other carriers—either by acquiring business from other companies or by acquiring the companies themselves. The well-established trend regarding building and deploying high-performing agent portals is recognition (by carriers with independent agency distribution channels) that most new business will be another carrier’s old business. Our firm has seen firsthand the leverage of an easy-to-use quote and new-business capability deployed to an independent agency carrier’s sales force. In two instances during the current recession, carriers we work with have driven higher submissions, better quote-to-issue ratios, and enjoyed more profitable pricing through agent portals supported by automated underwriting, predictive analytics, and straight-through processing. This business, by definition, came almost exclusively from the competition.
In terms of acquiring the competition, the leaner, more rationale, and modern the core systems environment, the better placed the carrier is to absorb the IT requirements of an acquired company. Difficult and time-consuming as it is, it is critically important for carriers to rationalize the IT technical and applications portfolio following an acquisition in order to retain agility and responsiveness to the business. Our firm also has been involved with a carrier that over the past four years finally has rationalized the irrational results of 20 years of growth by acquisition. That carrier, which currently has only two policy administration systems (down from six), is now active again in the M&A market.
Second, there is expense reduction. The less costly the day-to-day operation, the more the carrier can spend on growth strategies, including returning premium dollars to the customer. There are cost-savings opportunities in the underwriting and policy processing world, but the single biggest financial fact of all is insurers spend 70 cents of each dollar on claims. While only 10 to 12 cents is spent on claims administration, rather than claims payments, this still is a target-rich environment for savings. Carrier IT departments should be actively involved in replacing core claims administration systems that can reduce indemnity as well as expense dollars. One of our clients estimates annual savings of more than $2 million in reduced rental reimbursement alone from faster claim settlement. For those carriers that have made the move to a modern claims administration system, there are multiple second-tier applications that should be investigated. These include fraud analytics, checkless payment systems (especially for workers’ comp), adjuster scheduling (for larger auto insurers), and the integration of event data recorder (EDR) data into auto-crash investigations. These tier-two applications can have significant and rapid ROI and place the carrier in a better position to reallocate resources to support growth.
George Grieve is CEO of CastleBay Consulting and a regular contributor of Tech Decisions’ “Shop Talk” column. Previously a CIO and still an acting consultant, he has spent much of the past 25 years with property/casualty insurers, assisting them in the search, selection, negotiation, and implementation of mission-critical, core insurance processing systems. He can be reached at 512-329-2619.
To learn more about “2010: The Road to Recovery” and to hear George Grieve expand on how to position IT for the coming business push, register for the Web seminar sponsored by Tech Decisions. Click here for more information: http://www.tech-decisions.com/webSeminars/2010RoadtoRecovery/Pages/default.aspx?pc=TDseriesSite