Celent Asks: What Does a Shrunken Insurance Industry Mean for IT Spending?

Insurers will need to adjust ways of doing business to suit a new business environment. Whether the duration of the current environment is long or short, insurers who achieve process agility will be better able to respond than those who lack that capability.

Boston-based analyst firm Celent has released a report questioning whether the current downturn in economy — and a related contraction of the insurance industry — is not merely a passing slump but the sign of things to come. The report, "Is Today the New Normal for the US Insurance Industry?," authored by senior analyst Donald Light, includes the following note:

This report uses the term "New Normal" to mean an economic and insurance industry environment with an extended period of flat, minimal, or negative economic growth; persistent high unemployment; very low interest rates; lackluster equity returns; and reluctance by businesses and consumers to make major purchases and investments regardless of prevailing interest rates.

On Tuesday I, along with Insurance & Technology webcast attendees, got a preview of some of the report's findings, detailing recent contraction in the P&C and life insurance markets, shown in historical context. During the webcast, "Gaining New Business Efficiency Through Responsive Process Management," sponsored by Progress Software, Light's colleague, Celent senior analyst Mike Fitzgerald, discussed what the "New Normal" should mean for insurance IT investment. Celent stresses that the report doesn't predict that a "New Normal" will prevail, but only cautions that insurers need to be prepared in the event that the current lackluster performance of the economy and the insurance industry is indeed a precursor of a longer-term trend.

Different economic scenarios explored within the report imply different strategies for insurers, each according to their particular strengths. However, the report suggests a larger lesson, one of preparedness for uncertainty, economic or otherwise. Whatever specific approaches and investments a carrier may make in IT, they can hardly go wrong in moving in the direction of flexibility. In good times and bad, the more agile insurers will minimize waste and maximize opportunity through the responsiveness enabled by technologies such as configurable applications, scalable network and application capabilities such as cloud and SaaS afford, and especially business process management.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio