I am going to say something that you probably never thought you would ever hear from someone who has earned his living for over 30 years in the insurance industry from insurers spending money on technology:

Insurers spend too much money on IT

The problem is that insurer’s CIOs spend huge amounts of cash on projects which give them very little value. For years, the idea has lived on that to refresh your IT estate, you have to buy a new Policy or Claims Administration system. I have news for you. If you stop doing this, not only will you save money but you will have more money to spend on the functions which directly affect your Combined Operating Ratio – the front office, particularly the Digital front office.

Today the smart money (and increasingly the tech budget) is being taken from the CIO and given to the Chief Digital Officer. As one senior executive from a major insurer put it to me recently – the CDO is not interested in shovelling the rubbish faster in the, increasingly small, back office. He is interested in marketing, sales, underwriting and service focussing on Superb Portfolio Management.

What he meant was that everything, across every function in the business becomes optimised to securing the best customers in the company’s target demographic through marketing, selling and servicing them in the best possible way. That way the business strategy gets delivered and the portfolio of risks that the underwriters wanted to secure at the beginning of the year is achieved, with the resulting levels of financial performance and retention for next year.

It’s pretty simple stuff really but when you see CIOs spending incredible amounts of money on PAS and CAS systems which can never significantly affect the achievement of Superb Portfolio Management or the COR, you realise that too much money is being spent on things which are really not that important.

In mature markets, that realisation is slowly dawning, hence the change in expenditure. Jamie MacGregor’s analysis is spot on: Digitisation and analytics in front office sales and distribution is the future.