Insurers See Mixed Results for New Technology Investments, But Remain Optimistic, According to New Tillinghast Survey

January 07, 2002
New York, NY

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Survey also finds September 11 will not hold up implementation of new technology

NEW YORK, NY (January 07, 2002) -According to a just-released Tillinghast-Towers Perrin survey, insurers using traditional business measures are finding spotty evidence of success for their new technology investments. Yet even in the aftermath of the September 11 terrorist attacks, they remain optimistic that the technology will eventually deliver top- and bottom-line business results. The survey was the second in a series of industry “pulse” surveys conducted by Tillinghast-Towers Perrin, the worldwide management and actuarial consulting firm. Insurers composed the overwhelming majority of respondents drawn from the 248 North American financial services companies participating in the Tillinghast e-Track Program. The first survey found an insurance industry confident that new technology will drive significant industry change.

However, in this second survey insurers admit measuring only mixed results to date. They are seeking refined measurements that will capture new success factors, especially in the area of distribution and customer management. This focus on customers-both distributors and end-users-dovetails with the first survey where insurers said that new technologies have made owning the customer relationship a key to success and that distribution and customer management has become their number one technology investment priority for the next three years. “Taken together, the two surveys confirm that new technology has accelerated insurers’ shift in focus from developing their products to better understanding and responding to customer needs,” said Jenny Emery, Tillinghast’s global e-business leader.

Shift To Customer Focus Demands Refined Metrics – Over the past three years, insurers have measured the most improvement for their new technology investments in business processes and operations. Most dramatically, over 80% of respondents reported that technology has driven improvement in both employee productivity and turnaround time. Yet only about half of the respondents have seen evidence of technology-driven success in net operating results, return on capital invested, and growth. Fewer have seen evidence of success using other traditional measures like market share, retention ratio and return to shareholders. And almost half (48%) indicated they were looking for ways to refine their measures to capture new success factors engendered by new technology. An additional 15% of respondents believe they need to radically retool the way they measure success.

“Respondents expressed a lot of faith in traditional business measurements,” said Emery. “But they are also seeking refinements that focus on measuring the satisfaction and value of customer segments and the performance of distribution channels. Perhaps this is because such measures can provide more timely and actionable information that insurers can rely on as leading indicators of what the more traditional measures will eventually find.” The survey also indicates, however, that many insurers have not begun to implement their refined metrics. “Over a third of companies say that over the last three years they don’t know about or don’t measure such things as channel profitability or customer profitability,” said Emery. “But that number shrinks by more than half when they predict the next three years. Clearly, some companies will begin embracing new metrics.”

Jaimie Pickles, a senior vice-president at InsWeb and member of the e-Track Advisory Board, agrees. “New technologies bring together an extraordinary amount of customer data in one readily accessible place. Many insurers are beginning to realize this, but only a handful are getting the processes in place to allow them to use this information to better manage their business. Those who succeed will undoubtedly gain a substantial competitive advantage.”

Optimism for the Next Three Years – Despite the mixed results to date, respondents expect new technology to drive measurable improvements across the board over the next three years. An overwhelming majority of respondents expect to see new-technology-driven improvements in customer profitability (70%), company profitability (78%), market share (78%), customer retention (81%), revenue/premium growth (83%), expenses/expense ratios (88%), turnaround time (90%), and employee productivity (94%). And while a third felt technology would be irrelevant for improving loss ratios, a majority still felt it would drive improvement there, heavily influenced by property/casualty insurers.

“P/C insurers were the hardest hit by September 11 and more than other respondents indicated new technology was helping them manage the impact of the attacks in their underwriting, pricing and products. Based on anecdotal evidence, we believe this is a response to the reinsurance markets hardening and primary insurers hoping that improved access to greater volumes of data can help them better understand increased concentrations of exposure and risk,” said Emery. Terrorist Attacks Don’t Faze Implementation of New Technologies Despite being the largest single-event loss in the industry’s history, most respondents indicated that the September 11 attacks would not significantly affect how quickly they would implement new technologies. In fact, at least 15% said the attacks would accelerate their implementation in distribution and customer management, as well as in business processes and operations. In contrast, very few said it would decelerate their implementation.

In addition, as companies struggle to process claims and maintain operations affected by the attack, over one quarter of respondents said technology has played or will play a major role in managing the impact of the attacks on business processes and operations. Twenty percent said new technology has played or will play a major role in distribution and customer management. Only 8 percent said it has played or will play a major role in underwriting, products and pricing-though 22% of property/casualty insurers said it has played or will play a major role in those areas.

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