Take a look with NEOS into the future. This whitepaper is a summary of the top technology trends and impediments that are coming around the bend in the insurance industry.

1. Technology Trends in Insurance
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A NEOS Whitepaper

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Technology Trends in Insurance
Purpose
NEOS consultants have worked with CIOs and IT executives from all across the insurance industry. We have worked on everything from technology strategy setting down to the nuts and bolts of implementation and from health insurers to life and annuities companies. We have a deep interest in the industry not just as consultants but as participants, with over 100 years combined experience in the annuity and insurance industries. It is clear that 2014 will present opportunities and challenges to insurers, and they won’t be what they were last year. This paper identifies four of the biggest trends for insurers and four of the biggest impediments to watch out for.
Trends
1. Time to Modernize: NEOS Senior Principal Scott Witter has identified an increased focus on modernization as a rising trend in the industry. “In the recession, most IT departments had to focus on cutting (projects, programs, staff, etc.). During this period of time, portfolios aged, and modernization work was often sidelined,” contends Witter. “Now that the market is picking up, those IT departments are looking to do the modernization work that has been put off.” This will begin to hit all insurers, as those that don’t modernize begin to feel competitive pressure.
Those that do modernize are generally doing so for similar reasons. Upgrading and consolidating IT assets often mitigates risk and can help create differentiation for a company (think better ease of use, or better support for customers). Insurers are also modernizing in order to support new products and product types that older systems couldn’t handle. Whether it is to gain an edge or just keep up, companies will need to start looking into modernization efforts again.
2. Much More Mobile: Modern consumers (and, increasingly, modern business people) expect a mobile experience. NEOS believes that successful insurance companies will become increasingly mobile in the way they present themselves to the public and in the way they conduct transactions. This will be especially pertinent for consumer lines of insurance. However, it will also begin to impact the whole insurance industry as the role of hand held devices in business and for internet access continues expanding.
The first wave of this has mostly just focused on mobile web. Companies have pursued the straightforward implementation of portals onto new mobile devices. While this is a step forward, the real revolutionary changes will arrive when mobile devices start to get used for all that they are, rather than just as more portable computer screens. Applications like location management or video and audio recording are the real future of mobile technology in insurance.
As insurers move towards increased consumerism, (i.e. they put more capabilities in the hands of customers) expect mobile technology to be on the leading edge of this. Ron Nadeau, Director of Architecture and Technology at NEOS, points out that health insurers are currently ahead in terms of offering more functionality to consumers, due to the nature of the industry. He expects the rest of the insurance industry will be in close pursuit, however. All insurers are beginning to realize the benefits of connecting with their customers and making their lives more convenient. This goes for agents as well, for whom NEOS foresees a strong move towards tablet use and support. NEOS’s client engagements have reflected these trends as well according to Senior Consultant Dan Kohler. “It is becoming uncommon to have a project where mobile capabilities aren’t being mentioned, particularly in engagements where we’re helping clients set technology strategy.”
3. Cloudy Forecast: Cloud computing in insurance has been long talked about, but NEOS sees many reasons why 2014 will finally see it deliver on the hype. Industry sources are noticing this trend as

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well. Insurance and Technology magazine indicates that cloud infrastructure service revenues grew 15% through 20121. An October 2013 survey by IBM found that “over the next three years the cloud’s strategic importance to business users is expected to double.”2
NEOS’s VP of Strategic Solutions, Randall Love points out that “the perennial barrier to widespread adoption has been concern of information security.” However, while this worry remains, it is being largely replaced by more widespread cultural confidence in the cloud. A recent survey in CIO magazine indicates that 85% of IT professionals are “confident in [their] cloud provider’s ability to provide a secure environment.”3 “The promise of increased scalability, simplified disaster recovery, and greater ease of maintenance is always compelling to CIOs.” argues Love. As the need to deal with ever-increasing data volumes continues, the cloud will only become more attractive. It looks like the ROI potential for the cloud is positioned to increase in 2014.
4. Rise of SaaS: Randall Love maintains that insurers across the industry are beginning to consider SaaS-type implementations for functionality that does not provide a competitive advantage. “This will allow them to focus efforts and investments on those activities that do provide a competitive advantage,” he holds. Life insurers in particular are under pressure. As low interest rates squeeze returns on investments, consumers are pushing them to offer new products to market and process applications more quickly. SaaS implementations can help with this; with SaaS the software is already up and running on the vendor’s infrastructure, so roll-outs tend to be substantially faster and smoother. Because of its inherent speed and scalability, SaaS can also be expected to play a large role in helping mid and smaller size insurers who are looking to compete with the larger industry players.
Impediments:
1. Industry Flux: NEOS assesses that M&A activity as well as regulatory uncertainty will shake up the operations and technology organization of insurance companies in 2014. Fitch’s 2014 life insurance industry outlook predicts an increase in M&A and notes the ambiguity surrounding forthcoming regulations4. Their P&C industry outlook also notes ambiguity in regulations, specifically TRIPRA5. Another large-impact item is going to be the Affordable Care Act. It will have its most visible impacts on health insurers, but the ACA is likely to economically affect Property and Casualty as well through spillover via cost shifting and claim shifting. Dealing with all this flux and the associated challenges may dominate the agendas of some compliance and/or IT organizations, possibly at the expense of falling further behind on other important technology trends in 2014.
2. Unchanged Budgets and Goals: NEOS Director Ron Nadeau identifies constrained and shrinking budgets as a key 2014 impediment. A survey of CIOs conducted by research firm Novarica indicates that budgets and top priorities are remaining largely consistent across 2014 from 20136. Companies continue to invest largely in replacing or improving their legacy core systems like admin systems7.
1 Mason, Kevin. "3 Reasons for the Inevitability of Cloud Computing." Insurance and Technology. N.p., 19 Jul 2013. Web. 7 Jan 2014.
2 Comfort, James, Craig Hayman, and Hupfer Susanne. "Under Cloud Cover: How Leaders are Accelerating competitive differentiation." IBM, 24 Oct 2013. Web. 8 Jan 2014.
3 Olavsrud, Thor, and Dan Muse. "How Secure Is the Cloud? IT Pros Speak Up." CIO Magazine, 28 Mar 2012. Web. 7 Jan 2014. <http://www.cio.com/article/703064/How_Secure_Is_the_Cloud_IT_Pros_Speak_Up>.
4 Fitch Ratings. "2014 Outlook: U.S. Life Insurance." N.p., 18 Dec 2013. Web. 7 Jan 2014.
5 Fitch Ratings. "2014 Outlook: U.S. Property/Casualty Insurance." N.p., 11 Dec 2013. Web. 7 Jan 2014.
6 Josefowicz, Matthew. "US Insurer IT Budgets and Projects 2014." . N.p., n.d. Web. 7 Jan 2014. <http://www.novarica.com/InsIt_2014/>.
7 Ibid

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Unless companies can find a way to free up resources to work on business growth rather than maintenance then this work, important as it is, will have an either/or relationship with some of the important trends above.
3. Big Data, Little Progress: Big data has featured as a technology buzzword for many years; it looks poised to stay that way for now. Though companies have access to big data, NEOS sees that their inability to capitalize on it will likely continue into 2014. In order to capitalize, companies need to redesign their business processes to accommodate the collection, maintenance, and use of big data. This may mean adjusting the way they conduct business, which has been something that companies have balked at thus far. This has been supported in recent research by Gartner, which indicates minimal investment and implementation despite the fanfare8. However, it could be a tremendous boon to intelligence and targeted marketing, companies look poised to continue letting the opportunity slip.
4. Modernization Trouble: Many insurance companies put off needed modernization efforts due to the recession. Postponing modernization has clear near-term effects in the form of increased complexity, legacy code, slow speed to market, and limited readiness for online or mobile services. However, NEOS assesses that this will have complex implications for the industry going forward. “In general, when modernization work is deferred, it becomes more difficult and time intensive when it finally does happen,” says NEOS Senior Principal Scott Witter. Many insurers are therefore faced with steep roads ahead if they are going to fully modernize.
Several factors will compound this issue. The first is that patience from the business side regarding long modernization efforts is often limited. Second, modernization projects are often long and resource-intensive. Because of this, changes in the market can outpace a modernization effort, especially a longer one, leading to frustration and objectives not being met. Third, because of their complexity, it can be easy to do modernization projects incorrectly. One form this often takes is when the efforts are IT-driven rather than business-focused. When this happens, business goals become secondary, and value is not maximized. Lastly, modernization efforts often come at the expense of committing resources to other work, something that not all IT leaders may have the stomach or the ability to do in their current situations.
About NEOS
NEOS is a management consulting and technology services firm with unparalleled experience in holistic modernization, enterprise data and business operations consulting. Our clients trust us to help them transition from legacy business processes and technologies to their optimized future state. Our mission is to bridge the business-technology divide with creative, implementable solutions that yield short-term results and long-term benefits.
Contact Information
View the NEOS website at www.neosllc.com to download additional whitepapers and to learn more about our complete suite of offerings and solutions. Contact any of our team at (860) 519-5601.
8 Harris-Ferrante, Kimberly. "Big Data in P&C and Life Insurance Is Overhyped and Immature." Gartner Inc., 13 Dec 2013. Web. 7 Jan 2014.