It can be hard for insurers to sort the hype from the reality in newer technology areas like mobile, big data, cloud, and digital. All four areas have already started to affect the industry, and are poised to drive greater change. But insurers’ IT management practices and prioritization systems are mostly designed to drive efficiency, not innovation.
Mobile has been a “hot topic” in insurance for nearly ten years, but the massive growth in smartphones and tablets since 2010 has made mobile more central to customer and stakeholder communication strategies across all industries. Mobile deployment rates among insurers are still comparatively low, but are growing. According to recent Novarica studies, roughly 1/3 of insurers have live mobile capabilities, and many more have active or planned pilots.
Like mobile, “Cloud” (i.e., cloud computing, relying on remote systems or applications hosted and/or managed by an external provider) is another topic that has been “hot” for close to a decade. More than two-thirds of insurers in the sample already rely on (SaaS, a sub-category of cloud) solutions in some ancillary applications like financials, HR, and CRM.
“Big data” means the effective use of data characterized by a volume, variety, and velocity that outstrips the capacity of traditional data management and analytics tools and environments. Examples of big data include social media data, internet clickstreams, video and audio data, and the massive proliferation of consumer, business, and location data now available from government and commercial sources.
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If the insurance industry can effectively harness big data, it could have a transformational effect on product design, marketing, and underwriting. A wealth of information about prospective risk could be analyzed before engaging with the prospective insured, potentially moving risk selection from underwriting to marketing. Claims analysis and customer profiling could be similarly enhanced.
One trend that has emerged over the past year is the use of big data technologies like Exadata or Hadoop to tackle enterprise data challenges. While this may not be Big Data in the classic sense, some insurers are finding that their own enterprise data has a level of volume and variety (if not velocity) that makes it a good fit for big data technology tools. “Digital” and “Digital Strategy” are confusing buzzwords to many in the insurance industry. There isn’t even universal agreement among insurers about what is included in the category, with insurers including everything from agent e-business and policyholder e-business to corporate sites and online marketing.
One of the biggest challenges for CIOs in investing in these emerging areas is in making a formal business case and projecting a return on investment. In a recent study, Novarica asked CIOs what value they had received from their investments in these areas. Interestingly, no more than 15-20 percent of insurers had calculated a hard return on investment in any of these areas, but more than twice as many said that the value of their investments were widely recognized.
It seems that many insurer CIOs are breaking free of the need to quantify the value of investments in these areas. This makes sense, since most of these areas are introducing new capabilities that expand insurers’ abilities beyond wha had been possible. Most of these investments are focused on growth rather than cost structures, and few insurer executives are willing to commit to growth numbers in a formal business case.
This is a positive development. While insurers shouldn’t spend money on technology with no expectation of return just because it’s cool, neither should they box themselves in with formal management practices designed for another age of technology.
Today’s new technologies are tomorrow’s basic capabilities. Increased, but still uneven, deployment rates in mobile, big data, and other areas indicate that this evolution is continuing, and that some companies are evolving faster than others.
The broad recognition of the value of many of these areas, even in the absence of formal ROI calculations, is also an encouraging development. The costs of deployments in most of these areas pales in comparison to the amounts spent on legacy maintenance or transformation. The potential benefits are much higher in many cases, but quantifying these benefits precisely before they emerge is challenging. Insurer business executives who demand precise benefits calculations before making initial investments are likely to miss opportunities to discover new benefits.
15 years ago, many early investments in web-based systems were held up by the same type of inadequate business cases. It was cheaper, for most insurers, to continue to print and mail information, and to serve their customers and distributors by phone and fax. But the market demanded new capabilities. While many of the early adopters spent more than was required on learning what worked and what didn’t, they also had more experience and many were better positioned than their more conservative peers who had to try and catch up after it was clear, in Wayne Gretzky’s famous formulation, where the puck was going to be.
On the other hand, early adopters who put down too much investment too early found that they had higher switching costs as a market and technology evolved. Insurers must remain nimble in this rapidly changing world, by ensuring that their digital investments are efficient, well-considered in terms of evolving market need, and easily abandoned if necessary.