Agenda for P&C and Life Insurance, 2012
Global life and property and casualty insurers will need to balance their business and IT initiatives in 2012 between two major areas: legacy modernization and transformation. Gartner's 2012 research agenda for the insurance industry will analyze various aspects of these two key initiatives.
- 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.
Insurance Agenda Overview
Source: Gartner (January 2012)
Global life and property and casualty (P&C) insurers need to operate in a business environment that is oscillating between growing compliance woes, rising client demand and an increasingly volatile and competitive market. Organizations must weigh the use of emerging technologies, such as mobile devices and cloud computing, against the need to adopt new business models, and to modernize core insurance systems, to remain competitive. The target constituencies of our insurance research include:
- CIOs, CTOs and chief risk officers
- Business unit heads: strategy and innovation, sales/marketing, claims, underwriting, e-commerce, application development, product management and development
- Enterprise architects
- Project managers
- IT infrastructure and operations professionals
- Application professionals
- Program and portfolio management professionals
- Sourcing professionals
- Marketing and competitive intelligence professionals
The constituencies to which we're writing belong to a wide range of enterprises, including life and P&C insurers, pension providers, banks or bancassurers, reinsurers, insurance brokers, supervisors, industry associations, and application and service providers.
In 2012, life and P&C insurers in established and advancing economies will face a number of business and IT challenges, including:
- Economic uncertainty: the euro crisis, U.S. fiscal crisis and slowing growth in emerging markets
- Regulatory uncertainty � leading to industry restructuring (for example, Solvency II, SMI, the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and so on)
- Consumerization, changing customer demand, retaining existing customers and attracting new ones
- Channel disintermediation and conflicts, collaboration with intermediaries, channel expansion, and competition with other financial services providers such as banks or investment management companies
- Internationalization, shared-service centers and insurance factories
- IT legacy, transformation of architectures and business processes
- Limited IT budgets and build-versus-buy conflictsv
- Value contribution gap between CEO expectations and CIO delivery
Life and P&C insurers worldwide continue to be buffeted by external and internal upheavals, and demand new business models and technology approaches to remain viable and competitive.
Economic unease born from the euro crisis, the U.S. fiscal plight and slowing growth in emerging markets is pressuring insurers' premium growth and profitability. Regulatory uncertainty will spur industry restructuring, mergers and acquisitions, and new alliances and competitive relationships. Consumerization and changing client expectations is making it difficult to serve, retain and attract new customers. Channel proliferation continues in many markets, forcing insurers to review their distribution and customer relationship strategies.
Internally, many insurers face a morass of legacy systems. Tight IT budgets and costly investments in IT assets that are mainly used to run the business are impeding innovation. Integrating new technologies with legacy applications is often complex because many legacy applications can't expose key data.
Gartner's 2012 insurance research agenda provides guidance and best practices to help life and P&C insurers steer toward legacy modernization and business-IT transformation. Insurers will face demands for emerging technologies that may not support their IT strategies or deliver tangible business benefits, such as cloud computing, big data, social media and mobility. CIOs and IT managers must also deal with a fragmented vendor market and gain new skills to manage future vendor relationships.
Organizations that don't meet these challenges will face many negative issues, including loss of market share to more agile competitors or to new competitors, such as banks or investment firms. Insurers may not only lose their competitive leadership, but also fail to appeal to new customer segments.
IT will play a vital role in bridging the CEO/CIO disconnect on IT performance, and will help insurers become more profitable, manage tightened regulations, and retain clients and intermediaries. Technology and strategy will be enablers for navigating through a volatile business environment in 2012.
- How should insurers develop the business case and project scoping for insurance legacy system modernization and replacement?
- What are the best practices, selection criteria, priorities, vendors and future directions for core insurance systems?
- What are the challenges and best practices for legacy modernization?
- How should insurers address the current and future regulatory environment impacting the business?
- What are the best practices, priorities, vendors and future directions for BPO and BPM?
- What BI, analytic, and fraud tools and applications are needed to manage data and identify key performance indicators?
- What is the perspective on IT spending trends, sourcing, staffing levels and skills in the insurance industry?
- What are the best practices, priorities and future directions for improving the customer experience, including customer acquisition and retention?
- Which emerging business models and technologies should insurers adopt to better manage their relationship with intermediaries?
- What strategies, tools and technologies are required to support the evolving insurance channel network?
- What emerging technologies and trends will influence and disrupt the insurance industry?
- How will business models change and how should insurers evolve to meet shifting market demands?
- How should insurers innovate to differentiate and better compete in the market?
How should insurers develop the business case and project scoping for insurance legacy system modernization and replacement? Creating the business case for legacy system modernization and replacement is a challenging task for many insurers. It's often difficult to quantify the business value of new core insurance systems, or to assess the overall legacy modernization costs and risks. Defining the sequential steps and the scope of legacy modernization projects also requires careful analysis. Life and P&C insurers must consider many aspects, such as the development of meaningful business metrics for the business case calculation, vendor risk analysis, and migration scenarios for existing IT systems.
Gartner will discuss the advantages and disadvantages of different rollout strategies for core insurance systems, namely policy administration packages. We will analyze the design of request for proposal/request for information (RFP/RFI) documents for policy administration systems. We'll also review which IT and business indicators determine the life cycle of policy administration, and assess when it's time for IT renewal.
Gartner continues to receive many inquiries on the selection of core insurance applications. Global life and P&C insurers are increasingly looking for packages to replace their legacy IT systems. Functional and geographical coverage, vendor differentiators, architecture and integration capabilities, strategic vision and viability of vendors are important decision criteria for insurers.
We'll update our annual market analyses of policy administration, commissions and claims management systems. These include our MarketScopes and Magic Quadrant of life and P&C policy administration systems, and our MarketScope research on policy administration and claims management. We'll also update our analysis of insurance megavendors, monitor the latest market development of billing and collection management systems, and review other core insurance solutions such as underwriting systems and rating engines. Another focus will be on the architecture requirements of core insurance systems.
Life and P&C insurers often face significant risks of failure in their legacy modernization projects. We estimate that, by 2014, only half of global insurers' legacy modernization programs will generate the originally expected measurable organizational value. Life and P&C insurers will require best practices to mitigate some of the risks of legacy modernization.
We'll discuss the most critical mistakes of life and P&C insurers during their legacy modernization efforts. We'll analyze the important perils of system configuration that led to potential budget overruns or project delays. We'll also review common licensing metrics for policy administration systems, and introduce the concept of systems that are built for change and what their implications are for insurers.
Life and P&C insurers in most global markets face the growing compliance requirements of local and international regulators � for example, Solvency II, which will affect business models, product policies and channel strategies. Other examples are the Dodd-Frank Act in the U.S. and the Retail Distribution Review in the U.K. The highly volatile market environment and economic uncertainty in many countries will likely lead to insurers' further IT investments in their overall risk management practices.
Gartner will continue its Solvency II research, analyzing the vendor market and probing the lessons learned in early Solvency II projects. We'll assess the growing importance of cyber-risks such as cyberinsurance, which is a potential threat to the further digitization of insurance revenue. We'll also examine data privacy regulations and their role in the digital agendas of life and P&C insurers.
Most insurance IT groups suffer from limited budget growth and spend most of their budget funds supporting IT systems to run their businesses. Business process outsourcing (BPO) and IT outsourcing (ITO) can effectively free up IT budgets for more transformational uses of resources to exploit external innovation capabilities and to meet tactical goals around staffing limitations. A common challenge for IT is the huge reliance on legacy systems for core processes in policy administration, claims management or billing. Business rules are often embedded in these legacy applications and are hard to change. Many life and P&C insurers are evaluating business process management (BPM) to improve efficiency and agility and to empower changing business initiatives.
We'll discuss the role and key trends of BPM for the insurance industry, including the use of BPM as an application development platform and its function for case management. We'll also continue to monitor developments in the BPO/ITO market, including the role of offshore models and platform-based BPO, and the shift of BPO providers in offering hosted software.
Life and P&C insurers need to increase their analytical capabilities and improve the quality of data to streamline and automate processing, or to meet increasing regulatory requirements. In many countries, P&C insurers will also likely face more insurance fraud in light of the economic recession. Various regulators, insurers and consulting organizations have reported that fraudulent claims are on the rise during the recession. Reducing fraud will become even more vital for profitability in a highly volatile market environment. The business intelligence (BI) strategy of many insurers is often lacking in the areas of analytics and applied BI to various business units, such as claims and underwriting. Insurers are drowning in data that is stored in siloed IT systems, and often rely on ad hoc reports that are insufficient to support good business decisions. Improving these analytical capabilities is key for insurers to be more agile, to empower better sales and service, and to defend their market positions.
We'll analyze the impact of big data on the insurance industry for various business areas, such as underwriting and claims. We'll review BI vendor options and vertical product offerings for insurance companies. We'll also focus on insurance data models and their providers, and evaluate the role of accounting hubs for insurers.
Many life and P&C insurers will experience only moderate IT budget growth in 2012. According to Gartner's IT Key Metrics Data, the average IT spending change in the past four years was below 3% and doesn't take inflation into consideration. We don't expect this to change significantly in 2012. Insurers often face the dual challenges of retaining sufficient personnel with legacy IT skills while acquiring the new skills and experience needed to support modern systems and emerging technologies. Managing tight financial and human resources will be paramount for insurance CIOs to build executive confidence in their IT departments. Reduction in personnel, aging senior resources and the emergence of newer technologies will continue to challenge existing staffing models, driving insurers toward a greater reliance on vendors or new staffing approaches, such as remote workers, part-time support and offshoring.
We'll discuss the most relevant IT trends and priorities for North American life and P&C insurers, and analyze their spending preferences and technology priorities for 2012. We'll continue our biannual analysis of the IT spending priorities of the 25 largest global life and P&C insurers. We'll also examine total cost of ownership considerations for policy administration systems, and provide a vertical "drill-down" into our IT Key Metrics Data.
Life and P&C insurers seek ways to increase the frequency and depth of customer interactions. Improving the multichannel experience for customers will be paramount to ensure a positive customer experience and to secure customer retention. IT plays a major role in supporting this business strategy by providing new technologies, such as mobile applications or more personalized client portals. Retaining customers will become critical for insurers (in saturated and emerging markets) to maintain profitable growth.
We'll discuss the evolution of the consumer-centric insurance organization and the shift to customer experience management within the industry. We'll analyze insurance consumers' use of mobile devices, comparing patterns in the U.S. and the U.K. to provide insight into core requirements for sales and service via mobile tools and technologies. We'll also focus on e-billing offerings and the evolution of the next-generation claims department.
Life and P&C insurers continue to invest in new technologies to facilitate collaboration with their intermediaries, who place a high value on convenience and ease of use. Life and P&C insurers build out their online channel services, equip field sales with mobile devices or invest in mobile applications. Providing more e-services and mobile capabilities to agents and brokers is important for raising their level of productivity and for streamlining � for example, new applications, commissions handling and other self-services.
We'll review the market for vertical portal solutions that provide life and P&C insurers with a collaborative environment for their agents and brokers. We'll also monitor the development of the market for commissions management solutions.
Many life and P&C insurers still fail to develop adequate multichannel strategies, and tend to fall into the trap of implementing channel silos, ignoring expectations from customers or intermediaries and ignoring market realities. Insurance CIOs must carefully evaluate the potential of new technologies and business opportunities, such as mobile applications or social media, to improve their business-to-business-to-consumer channel experiences.
We'll review the market for illustration systems and discuss the risk considerations of mobile devices for intermediaries. We'll introduce a maturity assessment for model insurance strategies and also analyze the IT implications of the digital agency. In other research, we will discuss the impact of Internet and electronic business models, as well as business analytics, on distribution channels.
Change in the life and P&C insurance industry is primarily driven by several factors, including the approach to dealing with big data, the growing importance of mobile devices, the emergence of vertical cloud computing models, and the need to satisfy the multichannel needs of customers and intermediaries with the use of social media and other tools. CIOs must accurately assess the importance and maturity of emerging technologies and business trends, which are often inter-related, to evaluate the potential disruption to their industry.
We'll present the top 10 disruptive technologies for life and P&C insurers. We'll update our annual Hype Cycles for Life Insurance and P&C Insurance. We'll publish a new edition of our annual insurance industry predictions. We'll also analyze software as a service, cloud computing and the implications of HTML5 for mobile enterprise/consumer application strategies from insurers.
Global life and P&C insurers' business models will be challenged by many factors: demographic changes in many countries, a return to a more-regulated business environment, changing customer behaviors and expectations, and ongoing pressure for greater operational efficiency. Likely consequences are the emergence of new operating and distribution models that will affect traditional value chains and channel strategies.
Gartner will discuss how life insurance markets will mature over the next few years from an IT and a business perspective. We'll analyze what the growing digitization of insurance implies and what consequences this may have for the industry. We'll also focus on the industrialization of insurance processes and services being a prerequisite for the wider adoption of cloud computing.
Insurers that fail to develop an innovation culture to adapt operations, products and services to changing client needs won't be able to differentiate themselves from their competitors. Innovation in insurance can have many facets, and can affect many business and IT processes or departments. Investments in legacy modernization, business process redesign and customer intelligence are departure points for fostering innovation in insurance.
We'll develop an assessment framework for analyzing the implications of disruptive technologies in insurance. We'll also take a look at the most recent developments in telematics, its advancement in other industries (such as automobile manufacturing) and its impact on automobile insurance. In addition, we will discuss the evolution of the paperless insurance office.
Key Initiatives address significant business opportunities and threats, and typically have defined objectives, substantial financial implications, and high organizational visibility. They are normally implemented by a designated team with clear roles and responsibilities, as well as defined performance objectives.
Table 1. Related Priorities
|Insurance-Specific Key Initiatives|
|Business and IT Transformation in Insurance||Insurers need to assess the use of emerging technologies, adopt existing channel strategies evaluate evolving operating models to remain competitive in an increasingly complex business and IT environment.|
|Insurance Legacy Modernization||Life and P&C insurers are modernizing their core insurance applications to control costs, accelerate compliance, improve risk management, strengthen client relationship management, and drive revenue growth.|
|Other Related Key Initiatives|
|Analytics||How can analytics help insurers make better decisions by using data for predictive and real-time analysis across various business domains?|
|BPM;||How can life and P&C insurers use BPM to modernize their legacy core systems and become more agile in a complex and disruptive market environment?|
|Cloud Computing||Which trade-offs should insurers be aware of when adding cloud computing to their deployment models?|
|IT Cost Optimization||How can insurers rebalance their IT investment portfolios to support a higher degree of business growth and transformation?|
|Mobile Enterprise Strategy||How can mobile applications be used to foster better collaboration between insurers and intermediaries, and to improve the channel experience for insurance customers?|
|Outsourcing||To what degree and at what cost can insurers transfer management responsibility for IT or IT-enabled business processes to an external vendor?|
|Portal and Web Strategies||How can insurers develop Internet and portal strategies for their intermediaries and customers, thereby delivering highly personalized content and resources?|
|Risk Management||Which key risk indicators are relevant for life and P&C insurers to assess, prioritize, monitor and control the impact of uncertainty on their businesses?|
|SOA and Application Architecture||How can service-oriented architectures (SOAs) help life and P&C insurers modernize their IT landscapes and create more agile business applications?|
|Source: Gartner (January 2012)|
Source: Gartner Research G00227812, Juergen Weiss
16 November 2011