Insurance is an information business. As the market becomes morecompetitive and information processing capabilities become moreadvanced, insurance company executives universally understand thatthe effective development and management of information technologyis core to their abilities to create value.

However, this growth in the recognition of informationtechnology's core position can be a mixed blessing for insurer ITexecutives, since they are now expected to measure and communicatetheir value in concrete business terms.

Novarica's research has described three major classes of ITmetrics–cost, performance and, most importantly, value.Unfortunately, most insurers are still stuck using the first twoclasses. For IT executives who want to be true partners in thebusiness, value metrics are a must.

Cost metrics are generally the easiest to gather and monitor.Simple calculations of budgets against headcount, policy count orpremium volume provide a baseline method to communicate ITexpenses.

But cost metrics provide only one side of a cost-benefitanalysis and are of limited value in managing the technologyorganization to create business advantage.

Insurer CIOs who use cost metrics as their primary data incommunicating with their business peers risk cementing a positionfor themselves as a cost center rather than as a strategic partner.And, of course, there's only one thing to do with costs–cutthem.

Performance metrics measure how effectively IT operates withinits own terms. Did it meet its own goals for systems uptime,quality (defects/change ratios) and project management?

Performance metrics are invaluable for the internal managementof IT. CIOs need to be able to measure the quality of group, teamand individual performance to manage their staffs effectively.

In addition, performance metrics are often viewed as aneffective tool for communicating IT's professionalism to the restof the organization.

Unfortunately, in many cases these kinds of metrics are betterat highlighting failures rather than successes. While engineers areused to measuring shortfalls against unachievable perfection goals,business people are used to surpassing their performance targets bya healthy margin.

Anything shy of zero percent defect ratios and 100 percenton-time/on-budget ratios sounds like a measurement of failures, notsuccesses. A 99.99 percent up-time record sounds great to peoplewho manage systems every day, but it is small consolation to anunderwriting vice president who missed capturing a major casebecause the system was unavailable.

Measuring value created is the only effective way for IT tobreak out of the “cost center” box in which it has traditionallybeen placed. Without measurements of value, there is no “benefit”in the cost-benefit analyses and no “return” in return oninvestment.

Isolating technology's contribution to business value, however,is much more complex than tracking cost or internal performance,and many value metrics are really only proxies for understandingthe true value created.

The most commonly used value metric is internal customersatisfaction. But there are many other metrics in this class,including business efficiencies created (such as increased speed tomarket or reduced processing time in underwriting or claims) andpercentage of projects that delivered promised return oninvestment, or total ROI.

Capturing value metrics is complex in many ways, and can be areal challenge for IT groups, which are generally used to thinkinglike engineers–measuring things such as defect ratios and coststhat involve hard, uncontroversial data that requires onlyanalysis, not interpretation.

Unfortunately for IT, business is used to thinking in what someengineers might regard as “soft” metrics like projected sales,market share and mind share. Even worse is the black magic ofaccounting, with the attribution of costs and revenues to variouselements within the organization.

Although it does not play to their core skills, IT must “speakbusiness' language” and measure themselves in similar terms. UnlessIT is able to step up and provide measurements of its own value, itwill find itself measured by other divisions that may not beinterested in sharing credit for business success with theengineers in the back room.

In many cases, this may mean devoting resources to detailedfinancial analysis and reporting. Many successful CIOs that we knowhave had their own CFOs who were partially tasked with creatingthese metrics.

Insurance IT executives must embrace value metrics to clearlycommunicate their contributions to their business peers and managetheir own groups effectively.

Focusing on business results helps both sides. Businessunderstands it has a true partner committed to its goals, while ITis able to focus its priorities to align with enterprise goals.