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11 Burning Insurance Industry Questions That Will Be Answered in 2012

Insurance companies enter the new year facing many questions about regulation, technology trends and more. Not all of the answers will emerge this year, but I&T provides clarity on some of the most pressing unknowns.

6. How Will 2011's Catastrophes Change Insurers' Strategies?

By the time the calendar flips to 2012, it's likely 2011 will be recognized officially as a banner year for insurance losses. The ISO, PCI and I.I.I. reported last month that insured losses in the first half of 2011 nearly tripled from 2010 -- and that didn't even count Hurricane Irene or the rash of mid-fall snowstorms and tornadoes.

With cash flow already uncertain due to soft market conditions and investment performance, it's likely that insurers will apply advanced analytics to be sure they are as prepared as possible for a multiyear cycle, according to SMA's Smallwood. "We have climate changes and catastrophes as one of the external drivers affecting insurers," she says. "It's a great opportunity to leverage external data and analytics to use in your underwriting. It's also important to use the predictive analytics on the back end -- it's hard to prepare for tornadoes, but you can take steps to mobilize your CAT teams to get out there quickly."

The changing face of weather threats could mean that certain regions won't fly under the radar anymore when insurers measure their potential to be affected by events generally perceived as uncommon. "Vermont is probably not priced to handle hurricanes," Smallwood notes. "But now, when insurers go to rate homeowners insurance, insurers are going to rate and price by peril and really segment. It requires sophistication in rating engines." --N.G.

7. What Does 'Big Data' Demand From IT?

A buzzword that emerged toward the end of the year, "big data" might seem like an obvious way to describe the wealth of information on policyholders that is available to insurers. But what it really represents is a change in how data is handled within the enterprise, says Oracle VP of global strategy and alliances Chuck Johnston.

"Actuaries, statisticians and marketers have been trained by traditional IT departments and vendors to work with tranched data, estimates and indicators to do reserving, forecasting, market segmentation and buyer trending," Johnston explains. "Cheaper, faster hardware and more advanced data query and management tools are making it possible to actually work with much larger data sets that eliminate the need for estimation and aggregation."

Strategies that embrace the "bigness" of data will allow insurers to do much of the predictive modeling demanded by some of these other areas, Johnston adds. "The great opportunity is the ability to mine data sets that were never considered accessible, such as all of the e-mail communications between a carrier and its customers, for common patterns around service conversations versus policy activity to create predictive models for lapse behavior or fraud analysis," he says. "By working with more raw data, unexpected patterns are less likely to be hidden when doing customer or market analysis." --N.G.

8. Will Healthcare Reform Survive the Year?

Based on the current political environment, the prognosis for the survival of the Patient Protection and Affordable Care Act -- at least in its current form -- beyond 2012 is bleak. The Supreme Court's November 2011 announcement that it would rule in 2012 on challenges to the act's individual mandate provision certainly put the future of President Barack Obama's signature legislation into doubt.

The eventual outcome of the 2012 national elections -- whether Obama wins reelection and whether the Senate retains a Democratic majority -- also will determine whether healthcare reform survives, lingers on life support or dies. Further, the failure of the congressional "supercommittee" to agree on deficit reduction steps will result in required cuts in Medicaid and Medicare, which also will shape insurers' and providers' strategies (although not until after the 2012 elections).

Regardless, both healthcare providers and payers appear to be gearing up to do business in some kind of changed regulatory landscape. According to a recent report from PwC's Health Research Institute, organizations positioning themselves for the new environment will focus on (and invest in) a number of key issues, including adapting to a new performance- and value-based payment structure, cutting administrative costs to keep premiums down, health informatics and related data issues (collection, quality and integration, and privacy and security), social media, and competing with exchanges. --Kathy Burger

9. How Will IT and Marketing Roles Merge?

As customer experience becomes the watchword for all the ways in which insurers interact with policyholders, prospects and distributors, it's getting harder to tell where marketing leaves off and technology begins (or vice versa). Today's leading-edge approaches to customer communications -- whether via social media, mobile, video/telepresence or even state-of-the-art contact centers -- are only window dressing without a robust architecture and fast, secure networks to support them. Furthermore, without access to analytics-based insights about customer, channel and producer behaviors, needs and performance, it's almost impossible to deploy the new tools effectively.

For insurers to really make this work, there will need to be, if not a merging of IT and marketing roles, certainly a more collaborative and trusting relationship between the two areas. A recent Forrester/Forbes survey of 300 CIOs and chief marketing officers (CMOs) found that, "CIOs typically rated their willingness and ability to work with marketing higher than marketers rated the relationship," noted David Cooperstein, VP and practice leader at Forrester Research, in an article in Forbes about the research. Similarly, whether it came to staff expertise, speed to market or deployment of customer-facing technologies, CIOs gave their IT organizations higher ratings than the CMOs did. Clearly there is much room for improvement. --K.B.

10. How Will the Insurance Technology Landscape Change After This Year's M&As?

Through 2011 the insurance technology market saw some significant mergers and acquisitions, including Mphasis' (Bangalore) acquisition of Wyde (Eagan, Minn.); Accenture's (New York) acquisition of Duck Creek (Bolivar, Mo.); and the merger of Sapiens (Rehovot, Israel), FIS (Cardiff, Wales) and IDIT (Beit Dagan, Israel).

This energetic activity is a welcome development for the industry, in the view of Celent senior analyst Donald Light, who is based in Palo Alto, Calif. "The 2011 M&A and ownership transfer activity should be good for buyers of insurance technology -- in general the new owners will have a sharper focus on, and deeper understanding of, what makes for a good insurance solution," Light opines. "It will also be good for the vendor side of the market, since better competitors create the best type of incentive for all vendors to get better."

Novarica principal Matthew Josefowicz predicts that more independent software vendors will be acquired by services firms, in the manner of Wyde/Mphasis and Duck Creek/Accenture. "This is driven in part because most insurers have shifted to a 'buy' rather than 'build' mentality. Another reason is that the componentized suite is becoming the dominant model for software vendors," Josefowicz asserts. "This is likely to drive consolidation of vendors that provide only a single point solution." --A.O.

11. Will Insurers Remember Agents In Their Push to Improve the Customer Experience?

The I&T editorial team has covered many aspects of customer experience. But one important area we haven't noted is the role of agents in providing that experience to consumers. Forrester senior analyst Ellen Carney says agents can be blamed for a poor experience caused by the insurance carrier -- which doesn't help anyone.

"When the agent is standing there and trying to give you quotes, if the portal is slow to load or slow to return a price, that's frustrating," she says. "Allstate agents are trying to unionize -- that's an interesting statement about the carrier they're writing business for. Agents say they go with what's easier for them."

John Cusano, managing director of Accenture's U.S. client service group, says insurers should work to enable their agents to participate in some of the technology-powered customer experience initiatives that they're taking on at the corporate level. "The agent could become the remote voice or knowledge behind these electronic channels, maybe to the point when you click on the videoconferencing button you speak to an agent," he suggests. "More and more of the customer experience is online, and more consumers are used to, want to and like to engage that way. For the first time some of the really large agent-centric distribution organizations are thinking it's time to enable the agent that way." --N.G.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio

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