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In the face of economic uncertainty it may be tempting to follow a tentative plan of technology investment. Insurance IT budgets in 2010, however, are more likely to reflect a definite and resolute strategy. As a lasting impact of the recent economic crisis, insurance carriers must prepare for a more intensely competitive business environment, and IT investment will be one of their key avenues for doing so, according to experts.
"Rates are not growing, [and] the market is shrinking due to poor performance across the economy," observes Matthew Josefowicz, head of Novarica's (New York) insurance practice. "Carriers will have to 'steal' market share from others by providing better pricing or service, and IT is at the bottom of that."
The competitive realities of economically challenging times are not new, but this time around other factors are intensifying the need to react, suggests Josefowicz. While "flexibility" and "agility" have long been buzzwords in the insurance technology marketing lexicon, for example, the velocity at which the economy plunged during the crisis showed just how important these qualities are to the insurance enterprise. Even now, Josefowicz comments, "Few insurers' infrastructures are optimized to support rapid shifts in business strategy."
Carriers similarly find themselves challenged to keep up with customer expectations when it comes to technology. Today's personal technology has outstripped business technology, with enormous consequences for both consumer-facing technology and the internal work environment. "It's easier for people to find information and conduct transactions in their personal lives than through enterprise technology," Josefowicz notes. "That's a major change."
To a great extent, surveys of insurance IT spending have shown insurers' continuing intentions not to cut their technology budgets in the face of economic challenges. In fact many are spending more than before, stresses Kimberly Harris-Ferrante, distinguished analyst, Gartner (Stamford, Conn.). According to Gartner research conducted in the second half of 2009, insurance strategists who assume their competitors are pulling back are making a mistake.
"Twenty-eight percent of P&C companies and 19 percent of life insurers invested more in IT in 2009 [than in 2008]," Harris-Ferrante explains. "Therefore there's a very good possibility that they have invested in strategic projects that will put them at an advantage relative to their peers."
Growing the business
Gartner's research shows that P&C companies will be more focused on initiatives aimed at growing the business, while life insurers will take on more transformational projects, according to Harris-Ferrante. "Life insurers are more focused on data warehouse and business intelligence, while P&C firms were increasingly looking at predictive modeling and projects around product innovation," she relates.
Michael Costonis, executive director of Accenture's insurance practice for North America, sees P&C insurers' investment in underwriting sophistication in general and analytics in particular as reflective of a drive to grow top-line revenue. Carriers will continue to drive major initiatives in perennial areas of focus, such as legacy rationalization and general systems simplification, but in many respects their thinking is, " 'We've already done the easy things,' " says Costonis. "In 2010 they will focus on customer analytics, Web servicing, and more-sophisticated underwriting and risk segmentation."
At The Hartford Financial Services Group ($9.2 billion in annual revenue), IT has been focused on educating the business on the value of strategic investments over both maintenance spending and routine enhancements, according to Michael Kim, the Hartford-based carrier's CTO. "We need to effectively communicate that the 'business-as-usual' investments are not game-changers, that they will not substantially affect the overall return on the IT investment or business results," he says. "The savings we make in the other categories of spending should be reinvested in game-changing investments."
One such game-changing technology is predictive analytics, according to Kim. The Hartford currently is performance testing Oracle's Exadata data warehouse and online transaction-processing platform. Using the platform, Kim reports, analytics jobs that used to run for eight hours are now finished within five minutes. "Product development and research that used to take weeks or even months can now be done in a day or two," he comments. "This has an awful lot of people on the business side very excited about the possibilities it provides them."
The Exadata project is in line with a rebalancing of The Hartford's IT investment portfolio toward initiatives that drive revenue growth, according to Kim's counterpart on the life side, Kim Root, Hartford Life's CTO. "We are working into our portfolio initiatives that will simplify our infrastructure and application portfolio," Root comments. "What we're after there is to make more capital available for growth-related initiatives."
A maturing vision
While insurers across the industry, including The Hartford, are more focused on growth than they were in early 2009, their vision of how to achieve it also has matured, according to Joe Guastella, global insurance leader, Deloitte (New York). "Technology considerations have dominated the discussion about transformation, which has often short-changed the importance of people and processes," he asserts. "Now people are getting back to basics on process design, management skills and measurements. Technology is still critical, but the other dimensions are getting more appreciation now."
Simultaneous appreciation for technology and process is evident at Chattanooga, Tenn.-based Unum Group (approximately $10 billion in annual revenue), where CIO Kathy Owen reports increased IT budget with an emphasis on the development of key capabilities in support of business growth. "We think less about applications and systems than we do about domains, capabilities and services," she relates. "Some of our key investment areas are SOA governance technologies, service orchestration, business process management, document management and decision services." These investments, Owen explains, are aimed at delivering a more comprehensive, scalable and agile growth platform for Unum's major disability and life insurance businesses, with a view toward customer and product integration and process simplification.
Unum still faces legacy system issues -- for example, with its main policy admin platform -- Owen acknowledges. "It's an older application with high value to our business, but also presents technology issues characteristic of a legacy application," she says. "Our enterprise enrollment and communications platform is also a major area of investment directed at aligning our solutions with the business direction of increased employee choices in our insurance products and a focus on consumerism."
Overall, Unum's IT spending will address three key themes, according to Owen: reduction in technology complexity, acceleration in the ability to deliver business solutions, and an evolving globalization strategy to maximize the value of business processes and technology assets across Unum's multiple companies. In that context Unum's IT organization is investing in more-consistently applied and -agile development methodologies; more-productive and -predictable build and deployment technologies and processes; a richer development environment that permits more concurrent development; and a well-defined blueprint, road map, execution plan and competency center focusing on application and software rationalization, Owen reports.
"Rationalizing our capabilities and technologies across our multiple companies is also becoming an area of focus," Owen adds. "We are responding to the need for a set of globalization principles and practices that can help us govern our evolving technology directions across the enterprise."
Anthony O'Donnell
Source: Insurance & Technology
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