Life insurers look to IT

US life insurers face increasing competition from other insurers as well as from commercial banks and career agents. Increasingly, these agents are leaving their companies in favor of independent brokerages, often with their clients in tow. To counter the resulting decline in profitability, many insurers are looking to improve their IT systems as a way to boost operational efficiency and to lower costs.

In cooperation with LIMRA International,McKinsey conducted two surveys of 40 leading US life insurers of all sizes about technology priorities and the effectiveness with which they have been implemented.

1. Business Area: distribution- and compensation-management automation
It provides insurers with a better understanding of all facets of the distribution cycle: product planning, channel selection, sales, and agent compensation. It also gives these companies tools for monitoring agents, retaining their top performers, and improving client service.

2. Straight-through processing
It links tasks that were previously unconnected, such as new applications, renewals, service requests, and claims. This approach often greatly improves productivity by streamlining data entry, applications review, and underwriting and processing.

The main factor driving the use of these technologies is that agents are leaving their longtime employers at a record rate. Typically, agents know how much of a client's total business a carrier has captured as well as its possible cross-selling opportunities. As the sole keepers of this knowledge, they wield tremendous power over insurers and, as a result, can extract higher commission rates from them. Now, however, distribution- and compensation-management technology is enabling insurers to capture and retain critical information about their clients and agents. This technology can assist companies in matching products with customers and generating sales leads even after agents have departed.

These technologies are not easy to implement, nor are they trouble free. Survey showed that in 2002, failed IT projects and cost overruns accounted for up to 20 percent of the total expenditure on IT projects. Insurance executives acknowledge that they must improve their ability to implement IT. To achieve their aims, they cited the need to focus on fewer critical initiatives and to introduce processes that align business and IT priorities. The executives also want to make employees accountable for a project's implementation as the first step toward recapturing some of the life insurers' lost profitability.