LAKE BUENA VISTA, Fla.--To prepare for market changes during the next several years, insurers need to assess future demands and make intelligent decisions about information technology, an expert said.

The most technically innovative insurers already are starting to invest in product quality and "product lifecycle management" and to better analyze and target customers, said Kimberly Harris-Ferrante, a research vp at Gartner Inc., a Stamford, Conn.-based research and consulting firm.

Those leading insurers also are working on improving "multichannel integration," so that all of a customer's personal and service information is shared among an insurer's different communication "channels"--including the Internet, agent office, call center and mail--regardless of where the information first enters an insurer's IT system.

"Today there is a lot of business change," Ms. Harris-Ferrante said during her presentation, "Insurance Technologies: Enabling Innovation," last month at the Assn. of Cooperative Operations Research & Development and the Life Office Management Assn. Insurance Systems Forum in Lake Buena Vista, Fla.

"In the past 12 to 24 months, we (have gotten) a number of calls from companies that are interested in innovation," she said.

Although the insurance industry is "a slow-moving and traditional industry," there are many reasons insurers must improve, said Ms. Harris-Ferrante. Insurers must innovate to earn profit in commoditized product lines, differentiate themselves in the market and to retain agents and improve their loyalty and satisfaction. Insurers also must improve value for stakeholders, processes to promote customer satisfaction and product offerings.

Cutting-edge insurers are offering "innovative" products like wedding insurance--which covers "change of heart" by either the prospective bride or groom, she said. In addition, insurers are targeting women for auto insurance products, or parents of teenaged drivers, who are willing to pay for in-car global positioning system technology to track their children's whereabouts.

The drivers behind product development "are shifting," she said. Beginning in 2005, insurers generally focused on speeding up operations by adopting strategies that include reducing time-to-market, extending the life of legacy systems, shifting control of the transactions to business users and reducing product development costs.

Now, however, most insurers are focusing on quality as their goal for 2008 and beyond, according to Gartner Research.

Insurers' emerging strategies are geared to creating niche products for specific types of customers. The focus will be on understanding the impact of new products on existing products and on improving integration with setting rates and other processes, she said.

Insurers also care about improving accuracy in pricing by better matching risk to price, improving awareness of product profitability and improving their ability to automatically generate reports and filings, Ms. Harris-Ferrante said.

There also will be a shift in focus to managing the lifecycle of a product, which goes beyond product configuration, Ms. Harris-Ferrante said. It includes marketing the product, analyzing the reactions of customers and producers as well as analyzing pricing and product profitability.

In addition, insurers will seek to integrate customer information from all channels of communication, she said. To do it effectively, multichannel integration requires establishing a common platform for all channels to access information, streamlining data exchange through the use of standards and supporting collaboration across all channels.

Insurers may face several problems if they don't track and manage cross-channel interactions, Ms. Harris-Ferrante said. For example, customers may become dissatisfied with being asked several times for the same information and go elsewhere to buy coverage. In addition, the information may be inconsistently reported on bills and claims and customers may face an unjustified rate increase, she said.

Integrating multichannel interactions effectively also requires applying business logic and rules to validate data, to trigger events such as a claims payment, to support decisions and to orchestrate business processes, she said. In addition, it is necessary to centralize content, documents and information and provide "a single customer view," she said in her presentation.

It is also important to remember to structure the IT systems so there is "proper security and authentication" and a limited access to the transaction, she said.

It remains to be seen, however, whether such innovations in products and services become a reality for most insurers, Ms. Harris-Ferrante said.

According to poll of a Gartner Symposium audience last fall, the biggest challenge insurers face in modernizing their technological infrastructure is "the inability to change corporate culture within their organization," she said. Some 58% of respondents cited that reason for the lack of modernization at their companies, while 18% cited lack of funding; 15%, insufficient business to prompt identification of new needs; and 9%, lack of pressure to buy new technologies.

Insurers must overcome the hurdle of corporate culture and other challenging market drivers if they want to survive and grow, she said.

All lines of insurance are facing changing market demands, shifting consumer requirements and more regulations, she said.

And all types of insurers have to comply with regulations such as the Sarbanes-Oxley Act and Solvency II. They also are interested in expanding into emerging markets at the same time they are trying to gauge the impact of stock market fluctuations and continued merger and acquisition activity.

In addition, specific market drivers for the property/casualty insurers include an increasing concern for managing the risk of catastrophic events, increased use of the Internet, commoditization, scrutiny of broker practices and more in-vehicle computer systems.

At the same time, life and annuities/pension insurers face shifting consumer demographics, pension reform and compensation disclosure requirements.

Despite those market drivers, insurers have more to do with little or no increase in resources, she said. As a result, there is a demand "for process automation, operational efficiency, customer retention, sales effectiveness and product innovation."

That means "reinventing the insurance business process, not just buying new technology," Ms. Harris-Ferrante said.

For marketing and pre-sales, that means faster time to market for new products, improved product quality, accurate customer segmentation based on aggregated data and improved cross-selling, she said.

For rating and quoting of coverages, that means rating accuracy and consistency, real-time quote generation and improved price-to-risk assessments.

For servicing, that means self-service; reduced losses and improvements in several areas, including claims processing, claims data and analysis, billing and collections; and customer satisfaction.

Insurers are getting ready for the future with the projects that they are engaged in today.

"The primary focus is operational efficiency, with growing concentration of sales and customer service effectiveness," Ms. Harris-Ferrante said.

Gartner found that the top priorities of insurers in 2007 are: