What do security threats, service expectations, doubts about the quality of software products being offered, and regulatory concerns have in common? They are all challenges faced by insurance IT leaders who took part in Tech Decisions' annual IT Town Hall.

This year's respondents–Raymond Voelker, CIO of Progressive Insurance; Tom Bauer, CIO of Allianz Life; Craig Forrester, CIO of Cincinnati Insurance; Stuart Rosenberg, CTO of Westfield Insurance; Tim Schaefer, CIO of Northwestern Mutual; Eileen Slevin, senior vice president and CIO of New York Life; and Craig Lowenthal, CIO of New York Marine and General Insurance Co.–considered a dozen questions.

They tackled current concerns ranging from the difficulties of the past year and the outlook for 2010 to how they deal with the challenges brought by both internal business users and their external partners and policyholders. These veterans provide insight on the state of insurance IT in late 2009 and what keeps them up at night worrying about the future.

Each one of the IT leaders admits to numerous challenges in the past year, but as a whole they are pleased with how their IT teams performed in the face of epic challenges to the insurance and financial services industries. As Bauer states, “The perception of IT has improved over the last year, with special recognition for better transparency in communications, business relationships, and budget management.”

We invite you to read on.

How difficult has 2009 been for your company and the IT operations area?

[Bauer] 2009 has been challenging for most companies, including Allianz Life. We have focused on ensuring a proper balance of sales, profitability, and customer service. In partnership with operations, marketing, and sales, IT has been focused on upgrading technology, improving processes, and enhancing efficiency to ensure we have the right platforms for customer responsiveness and product flexibility.

[Rosenberg] Overall, 2009 has been a positive year for our IT organization. Although the economic downturn has created some pressure on expenses, we have continued to invest in IT solutions that support our business.

During 2009, Westfield expanded operations into two new states, South Carolina and Colorado. We also deployed several new products, including a portfolio of commercial coverages designed for hospitality operations.

These initiatives, which are helping our company maintain top-line growth in a very challenging marketplace, require advanced IT solutions. We continue to make strategic IT investments that will shape the future of our business for years to come.

[Forrester] While the year has been challenging for our insurance business, morale is high and there is excitement about the future of IT. We are using the current economic climate as an opportunity to invest in our future by accelerating delivery of new technology systems that will make it easier for our agents to do business with us. Our IT associates are excited to be a part of building our future success.

[Lowenthal] Overall it has been pretty positive given the economy. While 2008 saw our investments decline, 2009 has been positive on that front. From an IT perspective, we've been staying on course and are in the final phase of our core policy administration replacement project.

[Schaefer] 2009 was a challenging year for all companies, and Northwestern Mutual is no exception. However, the company was able to leverage one of our core competencies–financial discipline–and navigated the storm with the same strength and stability it has demonstrated for more than 150 years. In the IT organization, several operational efficiency measures were implemented, which allowed us to take advantage of our flexible staffing and sourcing models. We also placed a lot of trust in our leadership to manage expenses and deliver on the commitments to our business. Many of these actions resulted in favorable results for 2009, while several will have a permanent positive effect on our cost structure in future years, as well.

[Slevin] From a company perspective, 2009 has been a very successful year. Sales are up significantly above 2008 and above our 2009 plan. From an IT perspective, in 2009 we've begun to implement our multiyear technology strategy in support of the business plans. We're excited to embark on this work; however, it also is challenging, since we're implementing many new technologies.

Were there any positive aspects to the last year that made it a better year than expected?

[Voelker] In general, 2009 has been better than expected. We saw some business growth, and our IT budget stayed relatively stable.

One high point for us was the introduction of Name Your Price, an online tool that gives consumers more control over car insurance by letting them tell us what they want to pay for car insurance before we build a package around their budget. Consumer feedback about the tool has been overwhelmingly positive; people even have told us we've made buying car insurance fun. Name Your Price also was recognized by our peers, ranking third on this year's “InformationWeek 500.” The tool is just one example of a way Progressive's IT operations worked with business leadership to drive company growth.

[Bauer] As planned, IT outsourcing benefits moved beyond just labor savings into improving service quality and delivery. For example, we were able to meet the needs of variable product projects by ramping up capacity both onshore and offshore and utilizing a “follow the sun” approach in running 24 hours a day. This was possible because we established the vendor relationship and infrastructure to deliver offshore in 2008.

[Rosenberg] A critical challenge for any IT operation is to attract, develop, and retain talented people. In 2009, we were able to strengthen our team through some key additions, particularly in the areas of service-oriented architecture and business intelligence.

We offer an outstanding environment for IT professionals. For example, we opened the Center for Innovation and Technology, a facility designed specifically for IT professionals that is very different from the traditional atmosphere at the insurance headquarters. It's very modern, open, and bright. There's a relaxed dress code. The environment puts an emphasis on collaboration.

[Schaefer] While it's hard to say 2009 was better than expected, there are several things we are celebrating. Sometimes it takes a burning platform to enact change, and at Northwestern Mutual, there were many positive things that happened as a result of our response to the challenges of the year. For example, a renewed focus on service management allowed us to reduce our support allocation and free up more discretionary investment to focus on strategic initiatives, rather than being limited to run-the-business initiatives. In addition, the company streamlined vendor relationships to focus on fewer, more strategic vendors, diverting more of our buying power to them and leveraging our strong relationships with these vendors. Finally, we met goals on a key measure focused on solution delivery predictability, which builds credibility with the rest of the business.

What is the outlook for 2010 for your IT operation and for the industry at large?

[Voelker] As the economy is on the upswing, I think the industry will proceed with caution. People will keep a close eye on whether consumer spending increases and how the jobless recovery evolves.

[Bauer] As life insurers gear up to facilitate distribution of products through multiple channels, we are laying the foundation in product configuration and delivery mechanisms.

At the same time, our company is focused on providing stellar service to our independent agents. The three largest IT investments among life insurers in 2009 for distribution are agent-facing portals, automated underwriting solutions, and incentive and compensation management systems. IT is putting the foundation for these capabilities through our licensing, contracting, and appointments project, which will provide a 360-degree view of our producers.

[Schaefer] There are several areas of focus for the Northwestern Mutual IT organization in 2010, including investment in customer-centricity, business intelligence, and distribution of the company's products and services through its network of financial professionals. We don't believe the coming year will mark the end of difficult economic times, although we certainly hope the worst is behind us. The challenge now is to learn how to better cope with the inevitable ups and downs in the economy. Looking at the industry as a whole, new approaches to delivering IT, such as cloud computing, have been and will be a key issue. We have seen technology can be a disruptive force, and in 2010 we will continue to monitor and adopt technology where the business case makes sense.

[Rosenberg] We're fortunate at Westfield to have leadership that appreciates the role of IT in supporting the success of our business. Our focus is on making the right strategic investments to improve our business capabilities, including better applying the power of analytics to the decisions we make.

Because we need to be responsive to changes in the insurance marketplace, we anticipate increased demand for automation to support insurance rate changes and product development. Speed to market is critical.

Another result of the economic downturn is increased legislative and regulatory oversight of financial services companies. Although most of the problems involved the investment and lending communities, elected officials make little or no distinction between those businesses and insurance. We're anticipating an increase in regulatory reporting requirements, and that means more work for IT.

In our outlook, we also foresee a steady increase in the demand for e-discovery requests. When the cost of discovery is high, it becomes a powerful lever for trial lawyers. We're working to improve our capabilities in this business process.

Proactively, Westfield is investing in predictive analytics and business intelligence. We're not alone in this effort, and the companies that fail to invest will be hard pressed to compete against those that do.

In terms of the costs for the services we purchase from vendors, we currently are taking advantage of some slightly lower consulting rates.

[Lowenthal] Our IT operations are going to continue as designed. When I joined NYMAGIC in 2007, we developed a three-year plan that runs through 2010. We've kept to the plan and plan to continue that through 2010. I feel more companies in the industry will begin to accelerate IT spending in 2010 to catch the wave of the economic change to try to get ahead of the laggard companies that will play it more conservative and wait until 2011 before getting back on track.

What issue concerns you the most about the future direction of insurance technology?

[Voelker] We need to continue to address security threats. As a company, we're responsible for keeping our customers' data private. As employees require more mobile technology and accessibility, security threats become more prevalent. We need to continue to be diligent in making sure our networks are secure so that our customers' information stays safe.

[Bauer] It is a difficult balance to maintain the existing relationships and expectations for service and sales practices while products, procedures, and practices are changing. Carriers often are forced to implement changes far in advance of the field being able to adjust to them, which can cause service and relationship issues.

[Rosenberg] The P&C insurance industry still lacks proven, scalable, and viable software products for the core processes that underlie the business–policy, billing, and claims administration. Hopefully, there will be enough investment by vendors to advance the maturity of software solutions and enable more companies to make core systems migrations.

[Lowenthal] Regulation continues to be my biggest concern. Needing to adapt to multiple states is costly and inefficient. While the discussions of federal regulation may appear to help resolve some of these issues, the likely outcome will be some watered-down compromises that will end up maintaining some level of state regulation and adding a level of regulation with the federal government. I hate to be so pessimistic, but politics continues to win out over sound solutions. Only time will tell.

Has the perception of IT changed within your company over the past year? Can you give some examples?

[Voelker] IT at Progressive has become even more transparent. My performance metrics now are more closely tied to business results. We've also helped leadership better understand how IT relates to business value. Our work on Name Your Price, which I mentioned earlier, is a great example of that.

[Rosenberg] The challenge the insurance industry has faced in achieving revenue growth has created greater attention on expense management. In this atmosphere, our internal business partners have increased their focus on understanding the IT expense picture and engaging with us on expense management and benefits realization.

Project sponsors are working closely with IT to realize fully the benefits from the new technology solutions we deliver. As an example, we were able to complete a state expansion project two months ahead of schedule by collaborating on the business plan. The user community across the enterprise also is embracing new IT consumption patterns designed to save money. For instance, employees greatly reduced printing expenses after we sponsored education on the cost of printed output.

Today, IT is better perceived as an enabler of business strategies and as an empowered partner in the development of business plans.

[Schaefer] Northwestern Mutual's IT organization implemented a strategy several years ago with specific goals around service and delivery commitments, risk management, teamwork, and process management. We are pleased we are meeting and, in some cases, exceeding these goals, which three years ago seemed daunting. This IT transformation, while challenging, has built credibility with stakeholders–a measure that is reviewed annually. By building credibility with stakeholders, the perception of the IT organization has improved, allowing us to focus on other opportunities and harvest current successes to create even more value.

Many analysts believe the focus for investment in insurance IT continues to be on core systems. Do you agree with that assessment, and how would you describe the state of the core systems within your company?

[Voelker] Devoting resources to updating core systems does seem to be an industrywide priority. It's been a priority at Progressive for years, and I'm happy to say we're well positioned moving forward.

[Bauer] Gartner's assessment was, due to budget reductions, half of insurers focused solely on cost reduction, such as business process management, paperless processing, and reducing system complexity, in 2009. A few insurers attempted to capitalize on economic conditions by entering new markets, creating new products, or innovating.

As stated earlier, the IT priority in 2009 was enabling product flexibility as well as building platforms to strengthen customer and market responsiveness.

[Rosenberg] Westfield's view is the value of IT investments is greater when the benefits are more directly targeted at revenue growth and loss mitigation. Therefore, we have invested in capabilities such as agency automation, predictive modeling, and business intelligence rather than on core systems.

We are fortunate in having one system for each of the core systems typical of P&C insurance companies. Therefore, we have only one policy administration, one billing administration, and one claims administration system. This environment gives us a platform to integrate other capabilities while deferring additional investments in core systems until the business needs support making a change or the P&C software marketplace matures to the point there are more viable options.

[Forrester] We already benefit from our implementation of powerful and flexible claims processing technology. And in the near future, we will execute our plan to deliver exciting new policy administration software. This positions us well for when the market starts to harden and allows us to move our technology focus from “what's needed” to “what's possible.”

[Lowenthal] I do agree with that assessment. I believe the late 1990s and early 2000s saw layered upgrades to core systems. This allowed Web enablement and extension of legacy investments. Companies now have to start taking the next step and modernize to be able to compete with the newer and more nimble companies that have leveraged technology to reduce their operating costs and quickly introduce new products.It became clear in 2007 we needed to modernize, which led to the current core policy administration replacement project that now is in its final phase.

How is innovation handled within your company? How important are your vendors/partners in this process?

[Bauer] Allianz Life and our parent company, Allianz SE, strongly encourage innovation. We have a global innovation program called Ideas to Success (I2S). The program provides training, materials, brainstorming techniques, and tools for tracking benefits. IT has been a major contributor and beneficiary of the results of this program.

IT still is learning how to tap into our vendor partners' innovation capabilities and include those ideas into our IT DNA.

[Rosenberg] Our leadership team at Westfield is fostering a workplace that is more collaborative, flexible, and receptive to innovation. In recent years, we have sponsored several major initiatives in empowerment and inclusion as well as leadership development efforts aimed at fostering respect for the contributions of employees at all levels of the organization.

In the area of IT, we support broad-based thinking and responsiveness through how we allocate team members to major projects. We maintain a flexible staffing model for many IT positions. Employees are assigned to projects rather than to support for a specific business unit. When a project ends, they move to the next project. We're able to move IT team members quickly when needed as new projects are approved and funded.

[Lowenthal] We don't have a specific group dedicated to innovation. We encourage innovation at all levels and have regularly scheduled meetings with underwriters and other business personnel to discuss ideas and leave with actionable next steps. Our partners are critical in this process. Our brokers, program managers, and technology partners each play important roles and provide capabilities that wouldn't make sense for us to go it alone.

[Slevin] Two years ago, we initiated a program called “Continuous Innovation.” The program is open to all of our IT employees for submission of new and innovative ways to improve organizational performance. This program leverages employee creativity and gives employees a comfort zone for open communication.

Employees are encouraged to provide ideas in basic categories, including: new ways to use our technologies; process improvement ideas; ways to go green; and ideas for new insurance products.

To date, we've received about 500 submissions via our intranet and through our first Innovation Week, which we hosted in June of this year.

What steps has your IT team taken to improve customer relations with internal business users?

[Voelker] We try not to think of it as a vendor/customer relationship. Our goal is to collaborate with the business in order to drive overall value for the company. I'll point to Name Your Price, again, as a great example of that collaboration. Rather than the business developing the idea and then presenting us with its thoughts, we had a seat at the table during the development phase. It was very collaborative and typical of how we approach innovation at Progressive. We don't consider them “IT projects;” they're “Progressive projects.”

[Schaefer] The relationship between business and IT cannot exist without two fundamental things: reliability and predictability. Without reliable and predictable systems, IT is in a defensive position. While it takes time for these things to mature, once they are established, credibility follows. Northwestern Mutual's IT organization runs a reliable and predictable portfolio of services, applications, and projects our business colleagues tell us have a meaningful impact on their operations. We remain focused on maintaining and sustaining credibility levels and building on this foundation by innovating around business process, enhancing our exclusive distribution network, and making it easy for our customers to do business with Northwestern Mutual.

[Bauer] IT organized to create a dedicated customer service and relationship management team to provide internal customer focus, build relationships, and align IT efforts with the business' strategies. We have internal customer surveys and special service initiatives. IT goals and progress are reported at regular meetings to executives and to a wide range of company employees.

As with any internal customer-facing team, we continue to evaluate whether we are meeting the internal customer demands and are continuing to evolve to meet these goals.

[Rosenberg] For years, we have had an IT organizational structure that formally aligns the members of our IT leadership team with business unit leadership. In recent years, we have extended this model to create client relationship management teams to improve the visibility and accountability of the broader IT management group for client satisfaction.

We also have implemented IT service level agreements (SLAs) with each business unit, defining expectations for all parties. We measure and communicate our performance against these SLAs via a service portfolio of metrics.

[Forrester] Our IT team delivers technology solutions our business users rely on. The implementation of IT service management best practices allows our department to respond quickly and efficiently to business user needs, ensuring quality and timely delivery of IT services are not jeopardized.

[Lowenthal] We use various methods. At the high level, there is our governance model via an IT steering committee. We also have a vice president of business systems, whose key function is to liaise with our business users. This VP of business systems manages our business analyst group, and we have business analysts assigned to specific business units. Additionally, we have a vice president of training and communications. This person is responsible for keeping our business users up-to-date with training but also is responsible for newsletters, tech tips, and other valuable communications. We have a production support hotline, too, for any application-related issues/questions/problems as well as a technical help desk hotline for all desktop/mobile/network-related issues/questions/problems. Having these hotlines alone isn't differentiating. Creating the appropriate processes and “closing the loop” with our business users via effective communications is the key. “Closing the loop” refers to ensuring we always touch base with the business users to keep them updated.

[Slevin] Recently, some of our teams have initiated something we call morning stand-up meetings. These are quick meetings, usually ending within 15 minutes, which foster friendly, relaxed communication with our customers about current projects.

In addition, for many applications, user acceptance testing has become increasingly complicated. To address this, we have created a new testing environment, which dramatically improves our ability to maintain a competitive advantage in a fast-paced environment.

What are you doing to improve connections with external users such as agents/brokers and policyholders?

[Voelker] We've always been committed to giving agents and policyholders choices in how they want to communicate with us (through agents, by phone, and online). These days there's an increased demand for online interactions, so we're finding new and innovative ways to accommodate those requests.

[Bauer] IT invested in the Depository Trust Clearing Corporation capabilities to improve “ease of doing business” with Allianz and on-boarding of new broker-dealer distribution as well as to enable distribution of fixed products through B-D channels.

Additionally, IT began development of a licensing, contracting, and appointments system to provide a single view of producer information across distribution channels for sales and service. Included in the initiative are improvements to the electronic workflow and to the data accuracy for delivery of producer services.

[Rosenberg] All of our insurance products and services are distributed exclusively by independent insurance agents. It is critical we understand their workflows and integration with the agency management systems they use.

We continue to be active participants in agency automation industry groups, agency management system user groups, and organizations responsible for standards. We also sponsor an agency automation advisory group, creating a forum for the exchange of ideas between our staff and technology professionals representing top agencies.

[Forrester] By advancing our technology offerings, we enhance the strengths we already bring to our agents and their policyholders–superior claims service, local decision-making, and underwriting flexibility. In recent years, we also have supported industrywide efforts on real-time bridging. This allows agents to submit information to our systems directly from their agency vendor systems, saving time and eliminating multiple entries.

[Lowenthal] As many companies are doing, we are trying to make it easier to do business with us. Our new core policy administration system will offer some key functionality for our agents/brokers. It also will offer our program managers choices they haven't had in the past.

[Slevin] Internally, for our agents, we are focused on three key projects right now: the continuation of our very successful sales-lead and agent-recruiting lead-generation programs; the rewriting of our illustrations system for our agents, in which we plan to use Web 2.0 features as we deliver the new system; and social networking.

Additionally, we implemented a robust CRM system for agents earlier this year. The system provides instant access to existing contacts, calendaring data, and the ability to review a client's portfolio, contracts, and up-to-the-minute policy details.

Externally, a major success for us has been our Virtual Service Center on our Web site (www.newyorklife.com). It provides our policy owners with another alternative for customer self-service across a broad array of service inquiry and transactions–from account value inquiries to changes in fund allocations. We process more than three million of these self-service transactions annually–a win for both our policy owners and New York Life.

Providing superior customer service to our agents and policy owners is critical to how we connect with them. We also have deployed technologies such as automated workflow to enhance our ability to do this. As part of our Service Anywhere strategy, we plan to take this to the next level, utilizing technologies such as e-forms and e-applications to simplify the way agents and policy owners interact with us.

Is green IT an important issue with your company? What steps have you taken in this regard?

[Schaefer] Northwestern Mutual always has been active in the community, and thus we see green as an extension of what we do for the communities we serve. The IT organization itself has implemented several green initiatives, including one that followed an audit of energy use in our data center regarding temperature and humidity adjustments in how we cool and control equipment. As a result, we reduced electrical consumption and provided cost savings for the business.

We've also continued to increase the percentage of virtual servers used in our operation, an initiative we began more than five years ago. This gives the company the ability to operate multiple servers on one piece of hardware, meaning we save energy every day and ultimately generate less downstream waste into the environment.

[Voelker] We do think it's important to be a good corporate citizen. However, the real goal of some of our greenest IT projects–such as server virtualization and paperless billing–is business efficiency. Clearly, this work is a win/win for us and the environment.

[Bauer] Green is a key concern for our global parent company. Locally, we have taken steps to address green issues such as virtual desktops, server consolidation, server virtualization, and paper reduction. It helps that our CEO is a proponent of environmental responsibility.

[Rosenberg] Westfield is a company that always has been responsible toward the environment. Our focus in IT has been to move away from paper to electronic delivery of reports and forms whenever possible. We have made significant progress in this area.

[Forrester] We are committed to reducing costs, improving workflows, and being environmentally responsible. We embraced virtualization and significantly reduced server footprint in the data center. Workstations are next. These changes result in real energy savings. In addition, our new policy systems make it possible to offer agencies and policyholders the option to go paperless with electronic documents.

[Lowenthal] Green is definitely important. Internally we are almost completely paperless. Everything is imaged into our ImageRight system as it comes in the door, and all subsequent handling and processing is handled electronically. Additionally, where practical, we purchase green servers for our data center.

Are you satisfied with the way business processes and workflow are handled in your company? If so, what have you done to achieve this? If not, what steps are you taking to improve this area?

[Bauer] We have made progress but always are looking for ways to improve. Processes were optimized during the outsourcing of operations for the variable product line in 2008 and the fixed product line in 2009. Investments were made in workflow applications to support the optimization and interactions with the outsource vendor.

[Rosenberg] There always is room for improvement in workflow management. We have made good headway through the implementation of our online rating and policy issuance systems. The result has been greater standardization across the enterprise and improved quality of data and underwriting. Predictive underwriting tools have contributed to better loss ratios by better matching price
to exposure.

Our professionals in personal lines and small business accounts have been able to transition from a sole focus on individual risk underwriting to more proactive territory and book-of-business management. This transition is supported by our ongoing development of business intelligence capabilities.

[Forrester] Technology is transforming our operations. Streamlined processes and workflows are creating new opportunities for our associates. However, change is tough. It's critical to manage the message and communicate effectively.

[Lowenthal] Based on our core policy replacement project, we've had the luxury to assess our current business processes and workflow and suggest changes based on several factors, including new system functionality. We've been working closely with our business users to change and/or enhance processes jointly.

Can your company continue to gain value from predictive analytics and business intelligence? Does the technology need to continue evolving, or is it a question of the data your company maintains?

[Bauer] Allianz Life anticipates an increased reliance on business intelligence, consumer data, statistics, and modeling and simulation. To do this, IT has developed an overarching data strategy and will continue to address the multiple views of data issues caused by separate platforms for fixed and variable products.

[Rosenberg] We see significant opportunities for value generation through our investments in predictive analytics and business intelligence. We have found the technology solutions to be plenty mature to meet our business needs.

From a technology perspective, the keys to our success have been establishing strong standards, building reusable services, and planning for scalability. From a business perspective, we have put extra effort into training, communications, and change management in order to up-skill our employees and enable them to perform their roles in new ways using better information and analytics.

It is important to get the technology right in order to minimize the burden for our business unit employees, but the true competitive advantage will be realized by the ability of our people to use information and analytics to make better decisions.

[Slevin] New York Life does, and will continue to, gain value from predictive analytics and business intelligence. As the volume of information available grows, better tools and methods are needed to identify, track, measure, and predict key metrics that are critical to our business planning.

The available technology does need to evolve, with a focus on simplicity of use, so it can be leveraged by a broader audience within the business. TD

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