Giant Leaves the Door Open to IT-Driven Competitors

Report finds multiline carriers with specialty lines coverage in the best position to take advantage of the new landscape. Tech spending mostly unaffected by the AIG-related market turmoil.

By CYRIL TUOHY, managing editor

Large multiline property/casualty carriers with strengths in specialty lines coverage and the cash available to upgrade their information-technology-driven services have been handed an early Christmas present in the teetering fortunes of American International Group Inc., according to a new report.

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That's because brokers, hunting for alternatives to AIG, are ready to shift their clients' business from AIG to competing carriers, but only as long as those competitors can handle the IT-driven service requirements of a large buyer.

"Specialty lines companies are thinking this is the time to ramp up their game for IT-driven services for services not locked up on Pine Street," said Matthew Josefowicz, principal of Novarica LLC, an insurance IT consulting firm. AIG's headquarters are located on Pine Street in New York's financial district.

While AIG's troubles have provided competitors with a once-in-a-lifetime opportunity, few insurance IT executives say the insurance giant's problems are altering their technology plans. Operational effectiveness, growth strategies and cost-cutting measures all figured more prominently, according to a survey of 40 senior IT insurance executives.

The survey, conducted in the first week of October by Novarica, also found that as a percentage of projected premium, 7 percent of property/casualty respondents said that their 2009 IT budget would be "much higher" compared with 2008; 43 percent said the 2009 budget would be "slightly higher"; and 36 percent said next year's budget would remain the same.

Top IT projects for 2009 include those related to business intelligence, policy administration and agent portals, the survey found. A total of 43 percent of property/casualty respondents cited business intelligence as a top-three project, and 36 percent each cited policy administration and agent portal technology as among their top-three projects next year.

Postponed or delayed projects, which will affect life and health carriers to a greater extent than P/C carriers, were likely to be related to a carrier's infrastructure or back-office functions, the survey also found.

In how it is affecting IT purchasing, this economic downturn is different than the last one in 2002-2003, Josefowicz said. That's when the Sept. 11, 2001, terrorist attacks, the dot-com collapse, the hangover from computer glitches related to the year 2000, and broken promises of just what insurance technologies could and could not deliver conspired to force a massive retrenchment in IT spending.

This time around, however, top insurance executives, having approached the tech spending cycle with more modest expectations, have been more careful not to overlook the progress that IT departments have made over the past five years.

"What's happened over the last five years is business executives have come to realize that the ability to create value is dependent on strong information technology, and over the past few years, chief information officers have gotten a seat at the table," said Josefowicz. "With this downturn, CIOs are more on the bridge and not being thrown out with the bathwater."

Slightly more than half, 55 percent, of survey respodents said there had been no changes in their IT projects due to the recent turmoil in business conditions.

December 1, 2008

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