The insurance market will surely contract, but it will not collapse. Consumers and companies will still require risk management - albeit, the number of buyers are fewer. Some of the now marginal mid-tier and small carriers may be acquired, or simply fail. Prices will flatten, and rate increases will be needed to raise capital, but the size will be restrained by the contracting economy. However, most insurance industry leaders think that we will be in that contraction through the first half of 2010. With that return to expansion, the industry will still be confronted with the challenges/ opportunities discussed in my last two missives - expanded demand for more sophisticated products and the need for time-to-market agility while managing losses and expenses.

1. Insurance
The Market Will Contract, Not Collapse
The back story
Last July, I updated an earlier article for Communique on
trends in the US Insurance industry. Both articles looked
out over the next few years to see where the industry was
going, and how we might exploit those trends. Little did
anyone suspect what would take place in the intervening
months, and in what ways that would affect the year 2009.
If you will recall, we did anticipate that there would be
“some” financial unrest, but the fundamental picture was
one of critical change in the market place and a
corresponding change in IT support. Well, while much has
changed in the immediate environment, most of those
trends are still on course - albeit when they arrive is now
open to question.

2. The arrival of the “Perfect Storm” ? What's next….?
The insurance market will surely contract, but it will not
Okay, it has become a bit of a cliché as of late,
collapse. Consumers and companies will still require risk
but we did see something akin to that in the
management - albeit, the number of buyers are fewer.
last half of the year, and its repercussions will
Some of the now marginal mid-tier and small carriers may
continue to echo for some time to come.
be acquired, or simply fail. Prices will flatten, and rate
Property & Casualty companies faced a twin
increases will be needed to raise capital, but the size will be
problem through the first three quarters of the
restrained by the contracting economy. However, most
year. Rates for insurance coverage continued
insurance industry leaders think that we will be in that
to fall, albeit at a slowing pace, because
contraction through the first half of 2010. With that return
simply put, there was too much capital in the
to expansion, the industry will still be confronted with the
system. Indeed, net income had fallen by 57%
challenges/ opportunities discussed in my last two missives
for the first half alone, even though overall
- expanded demand for more sophisticated products and
revenue stayed essentially flat. Why?
the need for time-to-market agility while managing losses
Because, insurers sustained a $5.6 billion loss
and expenses.
in the first half; a $20 billion adverse swing
from the same period in '07. The main culprits This leaves the industry facing yet another set of
for the increased losses were hurricanes challenges. With revenue continuing to shrink as the
Gustave and Ike, and an extended and costly economy contracts, operating budgets will shrink
fire season on the US West Coast. Life, Health accordingly. Note though, a recent poll revealed that,
& Annuity companies were in a somewhat across all industries, CIOs expect IT budgets to remain at
different boat. Financial results were mixed - about 8% of that smaller revenue. However, because the
some companies saw rising market share and problem could be relatively short lived, the industry cannot
profits, while others declined. The problem afford to “turn turtle”. Rather, they need to maintain market
was that the market itself was not growing - share, do an even better job of managing expenses, and,
seemingly a bit stalled, possibly due to the most importantly, find ways to position themselves
financial stagnation and uncertainty in the operationally for the turnaround - when it comes.
economy. Still, the investment picture was not
too bad. For P&C companies, investment What we're seeing…..
income had dropped by only 1.4% in the first
The insurance business environment is a mixed bag at the
half - with realized capital losses coming in at
moment. Overall, the industry appears to be weathering
$1.1 billion, a $5.2 billion negative swing from
the storm. But, there will be some further deterioration of
the first half of '07. Life, Health & Annuity was
financial results before it all flattens out. There will be even
not much different. That is, until the bottom
further emphasis on expense management: higher bars set
fell out of the capital markets…. With AIG as
for RoI's; staff expense will be closely scrutinized; and
the exception, companies in both industry
operational budgets, including IT, will be flat at best and
segments were not heavily involved in
most likely see some reduction. We have already seen
subprime mortgages and credit default
some clients pull back on discretionary projects, focusing
swaps. So, for the most part, they have not
time and resources on mission-critical areas. Others are
experienced the disastrous drops in liquidity
consolidating vendors and looking for improved pricing or
that the capital markets and banks have seen.
value at the same time. These are defensive moves, and
But the economic uncertainty has affected
should be expected given the temperament of the times.
both segments in terms of steep declines in
However, we are also seeing a fair amount of strategic
investment returns - a key element in
planning taking place. Not many solid commitments on
profitability - and decreased business and
new major projects yet, but there is a lot of conversation
personal insurance buying.
about and interest in continuing to make critical changes.
Those changes include interest in replacing or enhancing

3. core systems; further automating distribution Acknowledgments
channels, particularly B-to- B, and B-to-C e-
To misquote Capitan Renault in the movie Casablanca - it's
business connectivity; improved data
time to “recognize the usual suspects”. I pulled the data on
management/ analytics. Better document
the state of the industry from a very wide swath of industry
management and mobile computing are areas
and financial news media - National Underwriter, WSJ, Risk
of continued interest from a planning and
and Insurance, to name just a few. The view on where we
“what's possible?” standpoint. “Green IT”
are going comes from many of those same sources, plus IT
translating into reduced energy costs should
industry media - and most importantly from numerous
rise higher in their collective radar - and that
colleagues and contacts throughout the industry. Finally, as
may open up Infra. Interest in BPM and BPO
always, my colleagues in the Insurance vertical are a
continues to increase - albeit tentatively so.
veritable fountain of industry information and insightful
wisdom.
And our opportunity is….
It seems clear now that 2009 will be a very
challenging year. On the one hand, the
continuing economic problems will negatively
impact carrier IT spend, certainly reducing
discretionary spend and likely putting some
mission-critical projects on hold. On the other
hand, they also recognize that they will need
to be poised to capitalize on the expanded
market before that turnaround takes place.
So, 2009 should largely be a holding action,
with strategic planning and preparation for the
follow-on expansion. This presents a
remarkable opportunity for HCL. While the
pain of low organic growth and increased
competition for existing business will make
our year difficult, the fact that carriers are
doing strategic planning plays to our
burgeoning strength. As our Insurance
practice grows more mature, we can position
ourselves to bring technical and domain
expertise, our think-global-act-local flexibility,
and our innovative engineering and deal-
making DNA to the table. This is not a time for
short-term sales thinking. It is a time to think
and act strategically for and with our clients.