Lean budgets are now the new reality, according to Rod Travers, and that's the biggest challenge for insurers in today's environment. "The old clich? of 'do more with less' has leveled out to become 'do more with what you have," says Travers, who is senior vice president of technology at Robert E. Nolan Company. "Although the worst of the budget pressures have passed and every company's situation is different, IT departments still are pressured to do more within budget constraints."
Travers will be moderating the IT Town Hall session, on Wednesday at 9:15 a.m., which features a panel of industry experts and promises to look at the issue of how IT departments are learning to "live lean," including leaner staffs, tighter budgets, greater focus on ROI, and shorter projects. Carriers that must adapt to this "new normal" while still delivering high-impact results are examining every area of their IT operations to drive efficiency and cost savings.
"There is continued pressure to weed out the outdated systems that are costing a lot of money to run. Maintenance on those systems is where you continue to find budget dollars sailing out the window," Travers says.
"I also see companies trying to renegotiate service contracts and outsourcing agreements to get more favorable terms and rates. I see them looking at outsourcing for the first time, whether it's for a mainframe application or the entire data center. That's the kind of thinking that has gotten increased interest to free up dollars because budgets are simply remaining flat," he adds.
Upgrading legacy systems remains a priority for insurers despite economic pressure, says panelist Marcus Ryu, vice president of products and strategy at Guidewire Software.
"If anything, those systems are even older this year than last year and are that much closer to retirement. Therefore, we're seeing an increased urgency around legacy replacement," he says. "Companies know it doesn't happen overnight, but there is a recognition of a need for a strategy. CIOs know if they're on those same systems 10 years from now, it will be a calamity."
It's more than just maintenance that drives carriers' legacy replacement decisions. "It's a question of upgradability," Ryu says. "There really is no such thing as an 'upgrade' with legacy systems, just instances of progressive code--adding new widgets that further increase costs. Long term, that's unsustainable, and there is a recognition across the IT landscape that upgradeable enterprise systems allow for a long-term 'division of labor' between internal IT and a vendor."
The panel also will take on the issue of security within the context of budget realities. Panelist Gary Mullen, senior director of corporate marketing for Kaspersky Lab, says insurers can't be penny wise, and pound foolish when it comes to securing systems across the enterprise.
"One of the problems with a 'leaner staff, tighter budget' mentality is protection often becomes a commodity decision," he says. "Because carriers are frustrated with budget issues, rather than putting the best protection in place, they often try to make good with 'good enough.' They accept the risk of being only 80 percent protected."
While companies are willing to put money into network protection through firewalls, URL filtering, and perimeter gateways, Mullen says, companies are losing hundreds of thousands of dollars by allowing cybercriminals access to desktops, laptops, and other connected user endpoints.
"The endpoint is the new perimeter," he says. "Companies need to go after third-party applications at the desktop level, many of which are never updated and never patched. As a result, they're opening up big holes in their protection by allowing users free rein and by not having the right detection and response mechanisms in place for when malware is introduced into the organization. That's unacceptable in any budget environment."
The Big Picture
Despite continued budget pressures, insurers need to look beyond current economic issues and position themselves for growth and profitability.
"IT should be focused on delivering systems and capabilities that create a competitive advantage," Ryu says. "Once they're freed of 'reinventing the wheel' with standard platform capabilities, IT departments can do just that. That recognition is driving a real sea change in the way core systems are built and deployed."
And it's not just legacy systems that benefit from that change in approach. "Companies are asking how they can retire not only the big, core administration platforms but ancillary systems, as well," Ryu adds. "How can we get all our transactional systems to work on a unified platform? Because at many companies, and particularly the big carriers, these systems are completely siloed. Being able to consolidate systems and share them better among different areas not only addresses budget issues but also helps solve the problem of system proliferation."
Budget pressures, maintenance problems, and system sprawl aren't the only challenges carriers are facing. Travers says the perennial problem of the talent shortfall in IT just will be exacerbated by system modernization and replacement trends.
"The good news is the pressure to replace outdated systems has started to bear some fruit over the last couple of years, and that trend will continue. But on the flip side, those replacements are allowing some people who have held off retirement in order to maintain those systems to retire finally," he observes.
"The problem is people who had run a claim or policy admin system for 15 to 20 years know more than just the system--they understand the claims and underwriting operations, as well. That knowledge is very valuable, and organizations need to find a way to capture and retain it."
Despite these challenges, Travers indicates there is a note of optimism to the session. As it has in the past, the IT Town Hall will be a lively forum to discuss how companies can use technology not only to adapt and survive but to lead and thrive.
"The economic and insurance market trends are both headed in the right direction. There's going to be a potential for upturn in business," he says. "IT has a critical role to play in helping companies prepare for that upturn."