The rush to sell stakeholder pensions over the Internet has turned the spotlight on the formidable IT challenges facing the insurance industry.
The raft of recent e-banking launches may have grabbed the headlines but IT managers in the insurance industry are having to navigate their company through the sector's biggest IT shake-up over the last 20 years.
When stakeholder pensions come into force next April, profit margins will be tight. Under government regulations, pension providers can only charge customers a maximum 1% commission on the stakeholder fund's total value.
Insurance industry leaders are looking to cut costs by delivering pensions over the Internet. And IT managers will be left to create seamless real-time Web sites based on ageing back-office systems.
The challenge of developing profitable online stakeholder pensions is only the tip of the iceberg for the insurance industry. Analysts have also warned that the development time for online insurance products will be slashed as consumers demand more sophisticated insurance products from the workplace and at home.
Following the recent spate of mergers among the insurance giants, IT managers are also having to make this strategic shift while marrying often conflicting cultures of two IT departments.
"Most insurance firms have got to the point where they realise that it's a new era for the insurance industry," said Brian Wood, director of strategy and development for Winchester White, a management consultancy specialising in the financial services sector.
So will the insurance companies rise to the complex new technological demands posed by the fast-moving consumer marketplace?
The insurance industry, like the banking industry, has a strong record of investment in new technology.
But against this the industry has a number of risk factors to minimise if its long-term IT policies are to bear dividends.
Back-office systems used by insurance companies cause the most IT headaches. A Web site to sell insurance and pension policies will be of little use if it cannot integrate with the company's back-office systems, warned Wood.
"Web front-ends are just capturing data for transactions," he said. "But they are then carried away and put on a monolithic back end. The old system is not designed to compete with 24/7 demands. There is still a lot of batch processing."
Scrapping complex back-office systems, however, is not a viable option for many IT managers with the on-going pressure on profit margins and IT spending.
One option could be to set up a data warehouse to siphon information from the back-office applications. The other main option - a laborious re-engineering of the back office to dovetail with the front end - is hardly an easy option either.
But away from the back office there are plenty of other IT challenges to test the insurance industry.
The industry appears set to follow the pattern of the banking industry, which has seen a raft of high-street banks launch online banking services. The banking sector has also seen the rise of newcomers to the market offering cut-price online credit cards.
The reduced time insurance companies have to develop new pension products is likely to add to the pressure to reduce the time it takes to deliver Web-enable products to the market, added Wood.
Here, IT department staff with Internet skills will flourish, alongside colleagues from other parts of the company.
Take Adrian Boulding, pension strategy director, for Legal & General, which is developing a stakeholder pension product. "We are working on the basis of multi-disciplinary teams," he said. "The Internet part of my IT team is crucial to the development of stakeholder pensions."
The IT efficiency drive is also likely to result in a renewed emphasis on business process optimisation, said Neil Summner, solutions specialist at Unisys' UK insurance practice. "This is about finding new ways of running the insurance industry practice."
When a customer applies for a policy through an independent financial adviser the process is paper intensive and slow, according to Summner. A Web-based link between an independent financial adviser and the insurance company would speed things up considerably and cut costs.
IT managers in the insurance industry are entering a turbulent and challenging period. As companies pour money into interactive Web sites, IT managers face tough choices over how to overhaul legacy systems. But meeting these challenges, and improving profits, will undoubtedly improve their esteem among their business peers.