Placing Your Bets Technology

Will insurers ante up on technology investments in front-office or back-office systems in 2004, or hold back? In this exclusive preview, TowerGroup assesses the field.

Insurance figures prominently on the balance sheets of most U.S. households and includes products such as auto and homeowners' insurance for asset protection, term, whole life and long-term care insurance for life protection, and asset management products such as annuities and mutual funds for inflation protection. Top performers in the distribution of insurance products manage shareholder, policyholder, and customer value with a certain focus on competitive differentiation. To maintain their competitive edge, insurers must determine how to utilize technology strategically to best manage the challenges they face.

In 2004, TowerGroup expects insurers to take the necessary steps to concentrate on core businesses and grow their market share in areas of strategic focus. The outlook for the life and annuity (L&A) and property and casualty (P&C) business demonstrates significant differences in recovery, adaptation, and growth. For some the result may be consolidation, for others it may be business divestiture. Early examples of this include Prudential's acquisition of American Skandia, announcements by Manulife Financial and John Hancock of their consolidation, and AXA's bid for MONY Group's life and annuity business. Safeco's announcement that it will sell its life and investments business to concentrate on property and casualty follows a host of other divestitures by insurers of retirement and select insurance business lines, among others. Insurers are looking closely at their business operations from both technical and organizational perspectives. As a result, they recognize the need to change their ways of doing business if they expect to increase value to their shareholders and policyholders in the coming years.

It's important to understand the confluence of factors in both business lines that affects insurers and the way it will influence their business strategies and subsequent plans for tech spending. Analysis of industry developments illustrates a turbulent market with discrete differences in each line of business. For certain insurers, the challenges ahead will hinder their progress and diminish their financial strength. The insurers with sound business acumen and a conservative management approach are likely to survive and face fewer competitors in the future.

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