Insurers’ reputation as technological dinosaurs will soon be extinct, if an exclusive survey of insurance CIOs is anything to go by

Have you ever come across an insurer at the cutting edge? It’s hardly likely. The sector is infamous for being slow to adopt new technology and being lumbered with out-of-date legacy systems. Brokers at Lloyd’s are still wandering around Lime Street with arms full of paper, and many insurers believe that launching an extranet brings them to the frontiers of new technology.

But that’s changing. According to a report from consultant Celent, exclusive to Insurance Times, technology is one of the few segments within insurance that is growing, innovating and brimming with confidence.

Today, the mood of optimism is clear as five of the chief information officers (CIOs) interviewed for the report join Insurance Times and the report’s author and senior vice-president of Celent’s insurance group, Catherine Stagg-Macey, for a photoshoot on a blustery afternoon in the heart of the City.

The wind may be blowing, but this group is all smiles – and after a glance at the report, it’s easy to see why.

Going for growth

A clear majority (78%) of the survey’s respondents said growth was a top priority – and this was against an industy-wide backdrop of losses and cutbacks. New and improved IT systems can enable insurers to respond to customer demands, whether they be for more efficient trading with brokers or for new products for end-users.

This is one area where insurers have fallen down in the past – compared with their banking cousins, they have been shockingly slow to develop new business practices.

“If there’s a single lesson for insurers from the financial crisis, it’s the importance of an agile and flexible IT operation,” Stagg-Macey says. “This has to be in place to support a rapid response to unpredictable trading conditions. It’s not surprising to see the continued planned investment around core systems – specifically underwriting, policy administration and claims.”

This means insurers need flexible and adaptable business operations – not the cumbersome legacy systems that many are lumbered with after generations of mergers and acquisitions. Zurich, for example, is currently overhauling its IT systems.

Chief executive Stephen Lewis told Insurance Times: “If you want to be easy to deal with, you’ve got to give your people the tools to do the job. That requires us to tackle wholesale our legacy architecture in the UK. Like many of our peers in this market that have been formed through integration and mergers and acquisitions, we have a multitude of systems. We will embark on a roadmap to replace our legacy architecture in the UK.”

It’s a view Stagg-Macey sees reflected across the industry. She says: “If you want to grow, you have to offer attractive products, at fair prices, and make them easy to acquire. So insurers are investing in their electronic storefronts. We are seeing upgrades to customer and broker portals, improved integration with the broker systems, and even some new products for the aggregators.”

Tackling regulation

Growth isn’t the only driver for investment in IT. Regulation also requires up-to date and efficient operating systems – particularly as Solvency II approaches. An insurer that uses its own internal models will probably have to hold significantly less capital than one using the standard models under Solvency II.

Getting the right systems requires investment, which is why many larger insurers believe they will do better under Solvency II than their smaller rivals. The CIO of one big insurer told Celent: “Solvency II should give us an advantage – at last, smaller companies are forced to carry the right levels of capital.”

A number of major programmes are under way to change systems in line with the new rules.

Technology can also help insurers to do more for less. One CIO asked Celent: “How do we grow the business without a commensurate increase in cost? It has been that for every £1 premium growth, we add £1 for costs.” The answer, says Stagg-Macey, lies in automation and self service – both of which are increasing trends, particularly within personal lines.

“Getting the most out of your data is back on the agenda,” she adds. “This is in part driven by Solvency II, but also by the need to better understand profitability of the books of business.”

Barriers remain

But let’s not get carried away. Technology is at the top of the priority list, but against the wider economic backdrop, cash is limited. “Even with the investment in IT to support the business, IT budgets are stable or flat,” Stagg-Macey cautions. Therefore, innovation and efficiency are more important than ever – and our six technology heroes, pictured here, are among those delivering them. IT