The insurance industry is on the development trajectory again. During these past five years since the peak of the financial meltdown, the industry has learned many hard lessons and witnessed brutal truths in underwriting, claims, risk and financial management areas. Because of this, the insurance industry is well positioned today to handle newer uncertainties. After all, insurance is all about managing uncertainty! 2014 is going to be a year of business growth for many insurers across the globe and the industry is well capitalized today to take on new challenges. The market is stabilizing and looking great for the year 2014.
[Builders Mutual's CIO Graeme Boddy discusses 3 Areas of Focus for Growth-Minded Insurers]
1. Property and Casualty (P&C) business is stabilizing and more profitable.
Within the P&C industry, discipline in pricing is improving, with many players stabilizing the price base. The market is gradually hardening (read as rate corrections) in the commercial segment -- however it is still far away from a hard market. Personal lines are posing stiff competition for insurance players and the race to capture market share and lure the customer with reduced premium rates is on. Overall, the P&C industry looks like an avenue for profitable growth going into 2014.
2. Global economy is performing well and emerging markets are booming.
The GDP growth projections for many countries are looking healthy for 2014 when compared to last year (IMF projections). Many insurance players are optimistic and plan to expand their base in growing economies. APAC and LATAM [Asia Pacific and Latin America] will win the attention of many players in 2014-15, both from a business growth and an expansion perspective. The major markets (U.S., Japan, U.K., parts of Europe, and Australia) are expected to grow better than year 2012-13 as far as underwriting results are concerned. Underwriting efficiency, policy management and distribution are hot topics to leverage and IT investments are expected to be heavy in these area. The COTS (commercial off-the-shelf) products replacement, legacy modernization, policy system replacement/rewrite, channels and distribution optimization will be a focus for many business leaders globally. Digital adoption will continue to transform the insurance industry over the next three years and it is expected that a few players (including market leaders) would be making further investments in digital-enabling technologies and resources.
3. IT industry to pitch newer technologies with BI/Analytics leading the path.
The insurance industry will continue to leverage IT in its journey of growth into 2014. New technologies such as SMAC (Social, Mobility, Analytics, and Cloud) will continue to gain traction in 2014 but still may not be the key drivers for many business leaders. The successful experimentation and pilots on these newer technologies have influenced many CIOs and tech gurus, but many corporate business teams are expected to move cautiously with these newer technology selections. We expect a few more years before use of these technologies moves mainstream. Mobility and BI/Analytics are already in use in different forms by insurers and will continue to be on the radar of many CIOs during 2014.
4. IT budgets will foresee positive revisions.
IT budgets are expected to be better compared to last year, with discretionary spending gaining momentum. Gartner Research forecasts worldwide IT spending to grow by 3.6 percent in 2014 (compared to last year). The IT industry will definitely benefit from the positive pulse in the market during 2014. The large IT players will see some shift in terms of large projects getting split among preferred strategic vendors, while the emerging and mid-size players are expected to gain a larger share of the pie because of commoditization of services in the industry and similar, low-cost skill set availability in the market with more flexibility and agility offered by small- (including startups) to mid-sized companies. Gartner estimates from a recent CIO survey that about 68% of the CIOs worldwide are ready to explore a change of IT partners during 2014 due to a variety of reasons. The value differentiation and IT innovation themes may have little influence on insurers during 2014, considering many insurers want to bounce back faster with a more traditional tried-and-tested approach, rather than exploring newer options.
[IT budgets don't necessarily reflect the total value insurance companies derive from technology: Insurance CIOs Expect Modest IT Budget Growth, Increased Focus On Human Capital]
5. The insurance industry will witness a higher degree of consolidation.
Insurance industry consolidation is expected to be higher during 2014 compared to the last two years and many insurers will be on the lookout for M&A targets and will explore routes of acquisition in the newer markets, especially in APAC, Europe and LATAM. This could be a potential opportunity for many IT players during 2014.
Overall, the outlook is positive for the year 2014 for the insurance industry as well as for the IT players serving this industry.
Girish Joshi is a Program Director and Head of Insurance Center of Excellence at Mindtree. He is responsible for insurance strategy, solutioning and domain development at Mindtree.