Tough Times Don’t Have to Mean the End of Innovation in Insurance IT

Although the weak economy and global financial crisis are putting pressure on IT budgets, these tough conditions may actually drive insurance companies to pursue what would be considered innovative technology strategies.

Is it possible the insurance industry is about to embark on an era of unprecedented technology innovation and opportunity? Given the current economic and financial environment, that might sound like a ridiculous question. Almost every discussion today about financial services quickly comes around to grim topics such as belt-tightening, shrinking IT budgets and workforces, and rationalization.

It's not like insurance IT organizations had been in a state of spending profligacy, of course. Doing more with less and guaranteeing a measurable return on IT investments have been standard operating procedures since before the dot-com shakeout of the early 2000s made these principles nonnegotiable. The current crisis, however, has forced industrywide reassessment of core business practices -- not only risk management and corporate governance, but also strategic planning, infrastructure investment and customer service -- all of which are unimaginable without technology.

Yet it may be exactly these tough times and the industry upheaval that will drive innovation and IT investment. With trust and confidence shattered, financial well-being up for grabs and the playing field completely redefined, there may be no alternative but to commit to applications and tactics that either traditionally have been shunned or that, just a few months ago, didn't appear to be particularly high priority.

For example, although over the past decade the Internet has changed everything in insurance IT, online sales have remained a relatively small part of the distribution picture. That may be about to change, according to a new report from Datamonitor that predicts a dramatic increase in investment in online insurance sales strategies. Market factors, rather than any new technology capabilities, are driving this shift, reports Jonathan Steiman, a financial services technology analyst with Datamonitor and the report's author. "Because of the market conditions, insurers need a way to efficiently deliver their product and increase per-customer profitability," he said in a press release.

Similarly, because insurers will be under more pressure than ever to be efficient and productive, initiatives such as energy-saving computing and mobility are turning out to be smart, fiscally responsible investments that help companies maximize resources. And because bad economic conditions historically drive an increase in fraud, many carriers will have no choice but to invest in state-of-the-art analytics, fraud detection and claims management applications.

It's not exactly a silver lining, but it could be an effective game plan.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio