BI, Claims Technologies Top Personal Lines Carriers' Priorities

According to a new report from Novarica, insurers are investing with customer retention and reducing expenses as their primary goals.

Insurance Networking News, November 8, 2012

Justin Stephani

Business intelligence, policy administration portals and claims technology are hot spots for new technology investments among personal lines carrers, according to a new heat map of core systems investments released by Novarica.

“As the market continues to be soft, we are seeing personal lines carriers looking to invest in initiatives that promote growth strategies, expense reduction, and improvements in underwriting results,” said Karlyn Carnahan, a Principal with Novarica and author of the report. “Business intelligence, policy, agent portals and connectivity, and claims are definitely key technology areas for these carriers to help confront stresses on profitability.”

Novarica characterizes the market with high transaction volumes, intense price competition, high levels of advertising spending, particularly on the part of direct response companies, and lastly, slow growth.

The report also provides recommendations for how carriers should begin projects in these areas: Those looking to invest in business intelligence, for example, should start with data-quality initiatives, and then overlay a business intelligence tool such as a predictive analytics module or an organization that can provide pooled data and insights. Novarica also suggests carriers upgrade their policy administration systems to gain operational efficiencies and flexibility in their ability to add data—which will in turn improve risk selection and risk pricing, and reduce operating expenses. Extending functionality to agents continues to be important, according to the report, as agents and carriers increasingly prefer to receive and provide information electronically and process it with as little human touch as possible.

The report cites widespread use of segmentation as restraining the cyclical nature of personal lines pricing, with auto pricing remaining fairly stable even as homeowner rates increase. A.M. Best and the Insurance Information Institute forecast a combined ratio for private passenger auto of 100.3 percent for 2012, and 105.0 percent for homeowners, with considerable regional variation for homeowners dependent on local CAT activity. Thus, Novarica concludes that personal lines carriers are focusing on managing and improving customer retention, improving—or just maintaining—their market position, and reducing their expenses to continue to respond to pressure on the combined ratio.

The report also noted that carriers continue to focus on creating innovative product features as baseline products become more commoditized and more core systems get replaced. For example, while large carriers continue to invest in pay-as-you-drive programs, small and mid-size insurers are looking for alternatives while upgrading core systems, according to the report.

The report, "Business and Technology Trends: Personal Lines," includes data on the marketplace and over 30 named examples of recent technology investments by personal lines insurers, in addition to an overview of personal carriers’ business and technology issues.

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