As Strategy Meets Action unveils survey-based IT spending projections for 2012, just as one might expect, the story contains some news that doesn't feel very new and some that deserves consideration – maybe even action. Each year, SMA takes a look at IT spending trends and business directions to determine how they are reshaping business models, enabling strategies, and fueling competitive advantage.
There is optimism about IT investments. SMA research reveals a significant increase in the number of insurers that say they plan to increase budgets. At the same time, there is a decrease in the number of insurers that are holding spending steady or will decrease their budgets. Compared to 2011 projections, 6% more insurers are saying they plan bold moves and will increase spending by over 10% in 2012.
There are two consistent triggers for IT spending: the business capabilities that are needed to meet strategic goals, and the capabilities that the competitive landscape is driving insurers to address. Both are important. This is an industry in which being a fast-follower in technology adoption has worked well for many. But the faster pace of change and the revolutionary nature of the change could derail that strategy – it just might not work in a world where the forces that are shaping change are primarily coming from outside the industry.
It should be no surprise that the winner of the top spending category is core solutions. While this might be considered old news (since there has been a high level of IT investment over the past few years), it is understandable. Insurers focus on what makes them tick, what helps them run their operations. Core systems are part of the application foundation for all other investments. On the flip side, the exciting news is that there is rapid progress in the world of what we call Next-Gen technologies – mobile, cloud, and social media. Insurers are moving from 'watch mode' to action with projects involving research, exploration, and experimentation. For many insurers, projections for 2012 spending in these emerging areas are relatively small, but the important thing is that they are in the plan. And, of significant note, is the news that IT investment is planned in many additional key areas: enhancement of core systems, improvement in connectivity capabilities to expand channels, efforts to bring the management of customer communications into the 21st century, and everything involving more and smarter use of data and information.
So, what does this all mean? There is one point that is confirmed by our spending research and apparent in SMA's extensive interviews and experience-based work. The day will come when the insurance industry is no longer able to operate in a somewhat protective shell where most players offer similar products, deliver them through methods that are common in the industry, and then service them in much the same way as other industry participants. Competitive levers are dramatically changing, due primarily to instant, pervasive interaction that is largely under the control of the customer, and the use of BIG data and sophisticated analytics to achieve an edge. This edge is being shaped in underwriting. Pricing precision is so granular that personalized products can even be offered for personal lines and simple life products. It is being shaped in customer service through integrated, customized, and meaningful management of all customer touch points. And in claims, the edge is being shaped with proactive prevention and innovative loss management.
Yes, more aggressive IT spending is planned for 2012 and the coming years. But, the larger budget will NOT replace prudence. Insurers are tying the delivery of real business value to everything they do. Defining and sizing the business value of new business capabilities is tough, challenging work – but it is critically important. It takes an open mind with an understanding of the possible, engaging the entire organization in making sure that value is realized.
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