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Predicts 2012: Cloud Computing, Social Media and Mobile Technologies Will Disrupt Insurers

Business and IT leaders of life and property and casualty insurers need to bridge the gap between legacy modernization and innovation. Emerging technologies such as cloud computing and media tablets will create opportunities and threats in both areas.

Overview

Global life and property and casualty (P&C) insurers are being forced to adapt to new technologies and changing customer behavior. Gartner has developed six key predictions to help insurers develop strategies to cope with these challenges.

Key Findings
  • Life and P&C insurers struggle to achieve the originally expected measurable organizational value during their legacy modernization projects because of their complexity and a lack of proper risk management.
  • Cloud computing is becoming an increasingly attractive option for life and P&C insurers to improve automation, increase operating expenditure (opex) spending ratios and speed up legacy modernization projects.
  • Consumers in many insurance markets have developed a strong preference for direct sales and service channels, leading to the erosion of traditional face-to-face interactions between intermediaries and consumers and to the increased usage of video and other virtual technologies.
  • North American life insurance agents and brokers are making significant investments in media tablets and smartphones because they believe that these devices are easier to use than laptops when presenting and selling life insurance to consumers.
Recommendations
  • Enhance traditional IT investment metrics, such as ROI, by adding the expected business value of your IT assets, such as the contribution to gross written premium growth.
  • Develop an assessment framework for evaluating the cloud appropriateness of your IT applications. Criteria should be, for example, the need for scalability, the degree of integration with other systems and the risk of moving a certain application into the cloud.
  • Assess the potential impact of social media on your business model and conduct a strength, weakness, opportunity and threat (SWOT) assessment for your organization.
Strategic Planning Assumptions

By year-end 2014, only half of global insurers' legacy modernization programs will generate the originally expected measurable organizational value.

By year-end 2013, the percentage of the IT budget of insurers allocated to cloud computing will grow from less than 5% today to 25%.

By year-end 2014, 25% of face-to-face sales and service interactions by insurance agents will migrate to video, phone and electronic channels.

By year-end 2015, personal lines P&C insurers that do not offer online and mobile transaction capabilities will lose 25% of their current market share.

By 2015, more than 80% of North American life insurance agents will use media tablets or smartphones for insurance sales.

By year-end 2014, at least one social network provider will become an insurance sales channel.

Analysis
What You Need to Know

The current technology environment is creating more business opportunities and challenges for life and P&C insurers than ever before. New IT options such as cloud computing, media tablets and social media present many opportunities for insurers to adapt their current value chains, thereby driving more customer value. Investments in innovation and new technology are more important than ever. CIOs and IT managers need to carefully assess the business impact of these technologies and develop appropriate IT strategies for their business peers. One of their primary challenges is to further modernize their existing legacy IT landscapes without taking too many risks or missing interesting business opportunities. Cloud computing, social media and other technologies will allow insurers to act with more agility and respond to changing customer expectations. However, they will also cause the disruption of traditional business and IT models, leading to a more level playing field and allowing new competitors to enter the market. The tension between the painful and time-consuming realities of legacy modernization and the urgent need for agility and innovation were the driving forces behind Gartner's six Strategic Planning Assumptions in this research.

Strategic Planning Assumptions

Strategic Planning Assumption: By year-end 2014, only half of global insurers' legacy modernization programs will generate the originally expected measurable organizational value.

Analysis By: Juergen Weiss

Key Findings:

  • Gartner estimates that more than two-thirds of global life and P&C insurers still rely on legacy systems to a significant degree to manage their core insurance business processes. Some organizations run more than 50% of their core insurance applications, such as policy administration or claims management, on systems that date back to the 1970s or 1980s. These systems are generally integrated via custom-made interfaces into insurers' IT landscape.
  • There are multiple internal and external drivers for legacy modernization within the insurance industry. Important internal aspects are risk mitigation and high maintenance costs for existing IT applications, their failure to address changing business requirements (such as faster time to market) and a shortage of skills for managing legacy IT environments. External factors are the inability to comply with new regulations (such as the EU's Solvency II) and a change in customer behavior, resulting in greater demand for personalization, collaboration and online availability.
  • Global life and P&C insurers are increasingly investing in legacy modernization, as observed from the large volume of inquiries Gartner has received during the past two years. Insurers are typically pursuing a number of strategic approaches ranging from simplification and standardization of IT assets, to re-engineering of business processes and complete replacement of legacy systems.
  • Insurance legacy system modernization projects are generally very complex, time-consuming and risky. It's common for these types of projects to involve many different parties, to run for several years and to lead to significant change within an organization. In addition to project planning and coordination challenges, many insurers underestimate the change management efforts and fail to anticipate the level of resistance among their employees. Organizations often don't calculate costs and benefits beyond a range of three to five years, or fail to project the total cost of ownership (TCO) of their projects into the future.

Market Implications:

  • Insurance executives will take a stronger leadership role and start to devote much more resources to the risk management aspects of legacy modernization projects. This includes more sophisticated project management methodologies and a tighter vendor selection process.
  • Purchasing cycles for core insurance systems are already in the range of 12 to 24 months, and will likely continue to lengthen because insurers are becoming more cautious in their vendor selection and are requesting more profound business cases. Buying centers from insurers and IT service providers will have to become more creative in calculating the measurable organizational value of legacy modernization projects.
  • To mitigate the risk of legacy modernization, insurers will break down their initiatives into smaller, more manageable pieces, embed metrics at key milestones and use agile project methodologies for better control of the desired outcome.
  • Insurance procurement departments will exert more pressure on IT providers by consolidating vendor relationships, negotiating better commercial terms or looking for shared risks by requesting, for example, outcome-based pricing models.
  • The purchasing behavior of insurance IT departments is already changing. Many insurers are interested in avoiding high upfront license fees and are considering alternative, cloud-based deployment scenarios (where applications are leased) to decrease their upfront IT costs.

Recommendations:

  • Improve your internal capabilities around the definition of measurable organizational project values. Enhance traditional IT investment metrics, such as ROI, by adding the expected business value of your IT assets, such as the contribution to gross written premium growth.
  • Develop a long-term IT strategy that is closely aligned with the business objectives of your organization. Link the IT contribution to business success in different areas, such as regulatory requirements, customer management or channel support.
  • Use Gartner's IT application management methodologies, such as tolerate, innovate, migrate and eliminate (TIME), or the pace-layered model, to prioritize and appraise your legacy modernization initiatives.
  • Benchmark the performance of your organization against those of your peers to assess areas for improvement, identify quantifiable benefits of legacy modernization and gain an unbiased foundation for your business case.
  • Secure strong and visible executive support at the C-level for each stage of your legacy modernization initiative to support change management and help overcome the challenge of internal resistance.

Strategic Planning Assumption: By year-end 2013, the percentage of the IT budget of insurers allocated to cloud computing will grow from less than 5% today to 25%.

Analysis By: Juergen Weiss

Key Findings:

  • There is a growing demand for an interest in cloud computing among life and P&C insurers. Cloud computing and virtualization are ranked as the top two priorities for insurance CIOs based on Gartner's annual CIO Survey.
  • Global life and P&C insurers are increasingly looking for alternative deployment options because of their desire to improve automation, increase opex spending ratios and speed up legacy modernization projects (see the first Strategic Planning Assumption in this research). Tight IT budgets are also a challenge for many organizations. According to Gartner research, more than 60% of annual IT budgets are being used for running operational systems, and aren't available for growth or business transformation.
  • Gartner estimates that less than 5% of all insurance IT applications are running in the cloud today. According to the Gartner CIO Survey, this will change considerably during the next five years. Thirty-eight percent of the surveyed insurers expect to run more than half of their transactions on a cloud infrastructure before the end of 2015, and 31% of the respondents estimate that more than half of their transactions will be based on software as a service (SaaS) applications by then.
  • Gartner has forecast that the global enterprise application market for SaaS will see a 16.3% compound annual growth rate (CAGR) through 2015, while the five-year CAGR for cloud computing is estimated to be 18.9%.
  • Vendors of core insurance solutions are ramping up their cloud computing capabilities, While on-premises is the most common deployment model today, more than 75% of North American P&C policy administration vendors are planning to expand their cloud computing and SaaS services. In Europe, more than 50% of policy administration vendors are planning similar initiatives.
  • On the other hand, there are several inhibitors for wider cloud computing adoption within the insurance industry. Data privacy and security concerns are an important factor that keeps insurers holding back. Another issue is that existing IT application landscapes are generally not cloud-mature. They often lack service-oriented architectures and are built on legacy IT platforms, which will essentially rule out a business case for cloud computing. In addition, there are also challenges to integrate cloud solutions with traditional on-premises IT systems
.

Market Implications:

  • Wider adoption of cloud computing will lower barriers to entry and create a more level playing field for the providers of insurance IT solutions. Smaller vendors embracing cloud computing will be able to compete with larger vendors without having to build out a noteworthy infrastructure in the form of running/owning offices/data centers or partnerships with system integrators.
  • Life and P&C insurers will benefit from a wider choice of solution offerings, and can expect traditional licensing metrics based on named users or gross written premiums to be replaced with more usage-based metrics, such as the number of policies managed within a system. In the midterm, this will also put pressure on existing price levels.
  • Cloud computing and SaaS will generally increase the complexity of today's IT landscape for the vast majority of insurers. A common scenario will be a hybrid cloud environment in which on-premises and off-premises IT assets coexist. Integrating that wide variety of deployment scenarios and securing the operations of applications will be a challenge for many organizations.
  • Insurance IT organizations will need to acquire additional skills to manage their relationships with cloud computing providers. These skills include the management of cloud service-level agreements, as well as the design and implementation of strategies for data breach disclosure practices.
  • Smaller insurance firms, which today have insufficient IT budgets to purchase solutions from leading vendors, will be given the opportunity to buy based on consumption, thereby giving them the ability to better compete in the market.

Recommendations:

  • Make your current IT landscape cloud-ready by driving the virtualization of IT assets, standardizing business processes or consolidating systems. Cloud computing is most suitable for highly industrialized IT requirements.
  • Develop an assessment framework for evaluating the cloud appropriateness of your IT applications. Criteria should, for example, be the need for scalability, the integration with other systems and the risk of moving a certain application into the cloud.
  • Evaluate which cloud model (in the continuum between private and public clouds) will best fit your needs. Consider which communities (that is, customers or intermediaries) should have access to your cloud environment.
  • Establish unambiguous criteria when comparing different vendor offerings. Your TCO calculations need to include all operational aspects and should ideally extend to a horizon of more than five years.
  • Start practicing cloud computing with applications that are not mission-critical, but does not focus on purely opportunistic and tactical steps. Develop a long-term and holistic cloud computing strategy for your IT landscape.

Strategic Planning Assumption: By year-end 2014, 25% of face-to-face sales and service interactions by insurance agents will migrate to video, phone and electronic channels.

Analysis By: Kimberly Harris-Ferrante

Key Findings:

  • Consumers in many countries, including the U.K., France and the U.S., have already shifted buying preferences for simple, commodity products (such as automobile insurance) from agent/broker channels to direct channels, such as the Web and the call center. Interest in leveraging the Web more aggressively to drive sales and customer service activities is growing in mature and emerging countries as a means of improving customer interaction.
  • Many P&C and life insurance product lines, including life insurance and commercial P&C insurance, continue to be sold and serviced "face to face," with the seller and the buyer in the same physical location. This model requires a large geographic footprint of facilities and salespeople, which makes it expensive to operate.
  • As consumer electronics and video technologies evolve, they will be adopted by consumers in a multitude of ways, such as the primary communication channel with their business providers. Use of video on smartphones and webcams provides easy, live communication capabilities to consumers at a relatively low cost.
  • The use of Internet phone services is high in some countries, such as the U.S. Many of these services, such as Skype, include video capabilities in addition to voice. According to a press release in March 2011, Skype reported a total of 663 million registered users.
  • Complex and high-value product lines will continue to need advisory services, and consumers will still want to talk to someone to ask last-minute questions and confirm that they have made the right product selection. Having access to a live representative ranks high among consumers, even in conducting direct sales interactions.
  • These interactions can happen through the call center or through new electronic channels via video on demand, shared screens and videoconferencing from a home PC/smartphone with a company representative/agent.
  • Even with the growth of direct and video interactions, insurance agents/brokers will not be eliminated. There will still be a need for agent/brokers for certain customer segments and highly complex product sales that prefer and/or require a more traditional face-to-face sales model. Furthermore, agents may also want to leverage video capabilities to interact with their customers, and they need to build out the technology platform to do so.

Market Implications:

  • As direct channels erode the number of agent-oriented face-to-face interactions, it is projected that agent business (and, therefore, revenue) will decline over time, especially for commodity and simple insurance products.
  • The call center will emerge as a central hub for technology-enabled interactions, leading to more traffic coming into the call center, a greater need for additional staff in the center and new skill sets (including licensed sales agents in the call center). The call center will mirror the centers operated by direct insurers in many ways, including improved technology platforms for the customer service representatives, video capabilities and acting as a profit center.
  • Insurance websites will have to be redone, including adding more interactive capabilities (for example, chat) and video on demand.
  • Insurers will need to significantly invest in building a video and interactive technology platform to support real-time interactions with customers. This includes the mobile platform.
  • Fewer agent offices will be required, especially in rural areas, due to the reduction in interactions that will be occurring among agents/brokers. In-depth analysis of office and agent profitability will be required to determine the right footprint of resources and facilities.
  • In addition to video, insurers will need to use email, e-applications, e-signatures, application sharing and other digital techniques to support the sales and customer service process. Incorporating direct capabilities into the traditional sales process will help insurers ensure customer satisfaction throughout the sales and service transaction.
  • Many agent offices will not have the IT budget or skill sets to build video capabilities, and will require assistance from the insurers they represent.

Recommendations:

  • Enhance website functionality to support chat and other interactive capabilities to improve direct interactions with customers, and allow customers easier access to company representatives.
  • Identify the video technologies that best fit your sales and customer service strategy, including support for the Web, mobile and call center channels.
  • Determine the video call options relevant to your customer segment and geography. Some insurers are already giving customers the ability to call them using Skype, for instance.
  • Evaluate the licensing, staffing and technology requirements for the call center to determine the investments needed to support this model. Invest in building out improved staffing models with sales licenses and skills to enable this transformation.
  • Identify key target customer segments that will be first to move to video-based interactions, and start pilots with them to identify their preferred technology and transaction requirements.
  • Establish video capabilities in the offices of the most profitable agents. Use agent segmentation to identify the profitable, loyal and technology-savvy agents who would benefit from having video and interactive capabilities with their customers. Have them test video capabilities with customers as a pilot, and to manage change among agent populations.

Strategic Planning Assumption: By year-end 2015, personal lines P&C insurers that do not offer online and mobile transaction capabilities will lose 25% of their current market share.

Analysis By: Kimberly Harris-Ferrante and Jeff Haner

Key Findings:

  • Insurance consumers in many countries are already going online to purchase products (for example, automobile insurance). Many consider these products to be commodities. The rate of online buying of insurance is expected to rise in mature countries and emerge around the globe, even in countries where Internet use is low. In these geographies, mobile devices will take precedence with consumers using smartphones to buy and service their insurance policies.
  • The proliferation of insurance information, aggregation sites and content is making insurance content easier to compare and prices more transparent to the buyer.
  • Quality of customer service, including claims handling, is the most powerful influence of customer renewal and retention in P&C insurance. Slow processing speed, lack of personalized communications and low payment for the loss are all factors in consumer dissatisfaction.
  • Social media is becoming a consumer complaint channel. Dissatisfied customers are sharing negative experiences on the Web and on social media sites. This information can influence future buyers of insurance as consumers increasingly use social media to identify insurers.
  • A high percentage of customers are considering switching their general insurance providers, as evidenced by two Accenture surveys that showed as many as 20% to 50% of respondents who were ready to switch insurers.
  • A large percentage of insurance customers, especially from Generation Y, are interacting with their insurers online and through mobile devices. A Gartner survey found that one-third of all customers were extremely likely to choose an insurer based its online e-service capabilities.
  • As insurers introduce and improve their online and mobile e-service capabilities, they are facilitating the ability of prospective customers to more easily switch from their existing insurers. With little perceived differentiation in the insurance products that are being sold, price and convenience will be the primary factors driving consumer purchases.
  • Most P&C insurers are not customer-centric and fail to provide channels and processes that meet customer demands. The gap between what is delivered and what consumers want will only widen with advancements in consumer electronics and with demographic shifts over the next five years.
  • Direct insurers have already emerged and are gaining traction as they win online business from traditional insurers that lack an online presence.
  • Some insurers are still operating from legacy systems that are failing to keep pace with consumer expectations from online and mobile device services. These companies will be at an increasingly significant disadvantage as customers find them less convenient to do business with.
  • Some companies are implementing new systems to replace their legacy systems, but have made the mistake of focusing solely on updating their back-office operations while neglecting customer-facing capabilities. While valuable, these back-office improvements are less obvious to external customers.

Market Implications:

  • Traditional insurers that rely on agent/broker-based business models will find it increasingly difficult to compete with direct insurers without expanding channels to include Internet and mobile capabilities.
  • Some insurers are introducing new online features and support for mobile devices to address convenience – a key factor driving consumer purchases. In many cases, these capabilities are being introduced with new core systems replacing older, more maintenance-intensive legacy systems and manual processes. These new systems not only support convenient services, such as the ability to submit claims, view and change policy information, and make payments, but also enable insurers to operate more efficiently and compete more effectively on price.
  • As new channels are launched, insurers will need to establish a multichannel integration platform to coordinate and connect the channels to help with information and process consistency.
  • As the number of consumers expecting online and mobile device support increases, along with their willingness to switch insurers to access those services, insurers that fall behind in meeting such customer expectations will experience erosion in their market share over the next three years. However, insurers that can provide compelling online services and mobile support stand to reap significant benefits.
  • As traditional insurers fail to provide optimal experiences for personal lines P&C customers, the door will open for new, technology-savvy market entrants to win those dissatisfied customers. This could be a retailer, bank or technology service provider that has a solid Web-based platform and a recognized name in the consumer market.

Recommendations:

  • Determine the business plan for customer-facing interaction and direct capabilities. Conduct a risk assessment of launching direct online and mobile channels – including the risks of channel conflict if developed versus the risks associated with losing market share if channels are not developed.
  • Conduct a critical capability assessment of the current Web and mobile platform to identify opportunities and gaps. Ensure that straight-through processing (STP) and full transaction capabilities are supported, as well as a good user interface that is based on consumer behavior patterns.
  • Ensure that back-office systems can support electronic channel transaction requirements, including those for sales and customer service (such as claims). Evaluate real-time transaction processing capabilities as well as performance related to the number of customers that would be using the service once it was deployed.
  • Build out a direct-to-consumer infrastructure for basic personal-lines products. Traditional agent/broker-based companies will experience market erosion against direct companies during the next five years and will need direct capabilities to maintain their market position.

Strategic Planning Assumption: By 2015, more than 80% of North American life insurance agents will use media tablets or smartphones for insurance sales.

Analysis By: Steven Leigh

Key Findings:

  • Today, less than 5% of North American agents use media tablets or smartphones to sell life insurance products to consumers. The lack of software functionality built for these devices, along with insurers' immature usage policies, makes it extremely difficult to interact with consumers using these devices.
  • Insurance agents and brokers are eagerly buying media tablets because they believe that these devices are easier to use than laptops when presenting and selling life insurance to consumers. Mobile tablets have features that make them more interactive and similar to paper in the way agents sell, such as the ability to lay flat, display complex concepts visually through graphics, and be controlled by gestures. Also, smartphones are becoming the standard mobile phone device for agents to help them manage their calendars, find customer information and manage communications.
  • Business capabilities for agent users are relatively undeveloped today, with few steps in the sales value change supported for media tablets and smartphones. Insurers and software vendors are rapidly closing the gap, however, with basic sales functions such as insurance needs analysis, asset allocation, financial planning, illustrations, electronic forms and electronic signatures beginning to be deployed on mobile devices.
  • The limited functional capabilities that exist today for agents to sell and service customers are not well-integrated with agent portal functionality or adjacent functional capabilities that are already supported by mobile devices. These well-known gaps are beginning to be closed, however, because vendors and insurers are working aggressively to create end-to-end seamless workflows for agent tasks.
  • The average age of North American agents is between 55 and 60. This, combined with the higher incomes of established agents, suggests that large numbers will be retiring over the next five years. Their replacements will be much younger and accustomed to using mobile technologies in all aspects of their personal and work lives. These factors will drive insurers to provide more comprehensive mobile capabilities to their agents and brokers.
  • Much of the necessary infrastructure for STP and sales support has already been created and deployed on agent portals by insurers. The incremental work to bring many of these capabilities to mobile devices, while not inconsequential, represents a very achievable body of work for insurers and their technology providers over the next three years.

Market Implications:

  • Mobile devices will profoundly change life insurers' sales landscape by providing an end-to-end sales process on media tablets, including needs assessment, application completion and submissions to underwriting.
  • The use of media tablets will replace the use of paper and, in some cases, laptops for sales presentations, and for collaborating with clients during the sales process, along with electronic forms creation and submissions for new business. Salespeople will also have desktop computers for building sales presentations, building financial models for customers, conducting online meetings with customers and prospects, researching products and other content creation functions. Agents will ultimately use smartphones for generic productivity tasks such as calendar management, contact management, mapping functions to find appointments and sales activity tracking.
  • New business activities such as needs analysis, illustrations, electronic applications and electronic signatures will be the primary focus of mobile devices for life insurance.
  • Consumers will use smartphones to access policy information directly from the insurer, but increasingly they will rely on financial data aggregators, such as banks and broker-dealers, to combine all their financial data for look-up, management and planning.
  • Relevant information, such as client information, changes in status, sales opportunities and contact with the home office, will be pushed to agents' mobile devices at the right time to maximize the service experience and sales opportunities.
  • Smartphones will increasingly use context-aware computing to improve the user experience through GPS and brightness sensors.

Recommendations:

  • Make portal functionality available through browsers on all types of mobile devices that your agents are using.
  • Convert core functions such as illustrations, needs analysis, electronic apps and electronic signatures to mobile apps for agents to load onto their mobile devices.
  • Identify agents who are adept at using mobile technology and successful at selling, and invite them to provide ongoing feedback to enhance your mobile offerings.
  • Expect and encourage your existing vendors to deliver technical upgrades containing support for mobile devices.
  • Abandon many of the agent laptop projects and move directly to supporting mobile devices instead of laptops, keeping in mind that some agents will be slower to adopt mobile devices and will need continued support for their laptop functionality.
  • Measure and monitor the use, performance and problems of users with mobile devices to inform future projects and reduce risk.
  • Deploy flexible sales workflows that accommodate various selling locations, types of products, types of buyers, types of devices, experience of agents, selling techniques and connection types.

Strategic Planning Assumption: By year-end 2014, at least one social network provider will become an insurance sales channel.

Analysis By: Juergen Weiss

Key Findings:

  • Providers of social media websites are increasingly looking for additional revenue streams beyond advertising.
  • Offering financial services is one of the areas being explored by social media providers to strengthen client relationships. Examples are the social payments startup Twitpay, the virtual currency Facebook Credits or the price comparison service Google Advisor.
  • Facebook's recent announcement about its new Timeline feature indicates that the future direction of social media networks is encouraging their users to communicate more often about lifetime events. This information is critical for insurers to target consumers with dedicated offers for insurance, and to sell to specific needs correlated with certain life events, such as getting a new job, retiring, getting married or having a child.
  • Many life and P&C insurers are active on social media websites, but the vast majority fails to attract any significant user attention, or to effectively motivate consumers to take action and buy insurance. Gartner estimates that less than 10% of all insurers that are active on social media websites have developed a sophisticated social media strategy.
  • Offering insurance products to their communities would be a natural extension of social media providers' financial services strategies, and would also allow them to capitalize on the extensive information they constantly collect about their users.
  • Applying the principles of social networks would allow providers to offer insurance products and services such as peer-to-peer insurance models, where individuals could pool their insurance premiums and mutually agree to insure one another.
  • There are a wide range of options for social media providers that are considering how to actually offer insurance products to their users. These options range from alliances with traditional insurers, white labeling their products and the formation of their own intermediary business units.

Market Implications:

  • The entry of social media providers into the insurance market would be a disruptive factor for the insurance industry. Traditional insurers with limited online and mobile device support are already running the risk of losing an entire generation of consumers, and would face significant challenges to defend their market positions.
  • Life and P&C insurers need to find better ways to explain and sell their products and services to consumers, who are increasingly becoming brand-neutral and are turning to the Internet for a better understanding of insurance and the value proposition that it delivers.
  • Insurance markets such as the U.K. have already witnessed a significant degree of disintermediation between insurers and consumers because of the growing importance of aggregator websites. The market entry of social media websites would be a logical evolution of this development.
  • The commoditization of insurance products is likely to accelerate. Many insurance products, such as household or motor insurance, have already turned into commodities for which price and convenience to buy are consumers' primary selection criteria. We will see a similar development for simple life and pension insurance products that don't require a lot of advice as a consequence of new regulations, such as the Retail Distribution Review in the U.K.
  • Insurers will need to develop more mature e-service capabilities and less complex product offerings to be able to build out their online presence and meet changing customer expectations.
  • Insurance regulators will have to closely monitor the activities of noninsurance entities to protect consumers. The U.K. regulator FSA (Financial Services Authority) recently issued a warning to aggregators, requesting that they check whether they are obeying existing regulations.

Recommendations:

  • Analyze customer adoption of your current e-service and online channel activities to identify areas for improvement. Map your business processes to the pathways customers are using to get information on your brand, products or services.
  • Assess the potential impact of social media on your business model and conduct a SWOT assessment for your organization.
  • Analyze the strategic fit of your current product and service portfolio to support your future multichannel strategy.
  • Develop strategies for how you may form and use alliances with social network providers to further expand your business.
A Look Back

In response to your requests, we are taking a look back at some key predictions from previous years. We have intentionally selected predictions from opposite ends of the scale – one where we were wholly or largely on target, as well as one we missed.

On Target: 2011 Prediction – By year-end 2012, at least 25% of European insurers won't have concluded their Solvency II IT preparations.

The European Parliament and the European Commission recently agreed to implement transitional rules that would give insurers and national regulators another year, until 1 January 2014, before supervisors would automatically intervene if companies do not fulfill Solvency II criteria. While the regulation is not formally delayed, the new compromise will give many insurers more time to adapt their IT systems and business processes to the new framework.

Gartner continues to see a lack of preparation in many insurance organizations. The efforts to comply with Solvency II have often been underestimated, and current implementations have revealed a number of IT and business challenges, such as insufficient data quality and the challenge to exert change within organizations. Many insurers have just begun to select IT solutions for the new regulation.

Missed: 2009 Prediction – By 2012, insurer risk management and regulatory compliance IT investments will double the 2008 levels. Gartner has seen an increase in IT investments for regulatory compliance during the past three years, but not at the anticipated level due to a number of reasons. Important regulations, such as Solvency II or the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act, have been delayed or are still unclear in their scope. Many insurers have also been slow in addressing emerging regulations and are postponing their IT investments. In addition, the financial crisis led to significant IT budget cuts in 2008 and 2009.

We are still convinced that IT investments in compliance and risk management will continue to grow and absorb an increasing portion of annual IT budgets. Many IT managers have told us about their efforts to establish an IT portfolio that goes beyond a mere check-box exercise and to generate positive business outcomes from their compliance investments. Realizing synergies and supporting strategic business objectives with their risk management efforts will, in our opinion, become the fundamental challenge because many insurers are facing a wave of new regulations.

Source: Gartner Research G00219214, Juergen Weiss, Kimberly Harris-Ferrante, Jeff Haner and Steve Leigh,

16 November 2011