When is there too much planning or too little planning? Finding the right mixture of problem solving can drive companies to the point where they don't know how to react without pulling out pages of notes to remind them what direction the enterprise is supposed to be heading.

Doing it right–both strategically and logistically–is probably what separates the top performers from the middle of the pack, but even the experts have trouble reaching agreement on how best to accomplish those goals.

Matt Josefowicz maintains the difficulties carriers have in developing strategic technology plans often has to do with too many specifics.

“The further out you get, the more the real world is likely to change your needs and what you are going to need to focus on,” says Josefowicz, director, insurance for Novarica.

“It's important for companies to have an architectural vision or a long-term roadmap in terms of things they would like to get to–things that are necessary.,” he continues “A lot of companies have issues that come up that they know they need to address. It's a question of when those things are going to be addressed given other relative priorities.”

To achieve a successful strategic plan, Deb Smallwood maintains business leaders have to be clear about where the business wants to be in that three- to five-year period, both from financial and operational standpoints.

“Is it to grow?” asks Smallwood, founder and principal with Strategy Meets Action. “Is it to sustain? Is it to expand products? Is it to expand into new markets? Be clear on the business strategy.”

The second step, according to Smallwood, is to determine the required capabilities that the business needs from a people, process, and technology perspective in order to achieve those strategic or financial outcomes, which is the point where companies determine what technology investments are needed.

“What happens in the industry is they miss that middle piece,” says Smallwood. “They want ease of doing business with the agents, so they feel they must need a portal. They go and buy the portal instead of determining the required capabilities that are needed. The industry will put a portal out because they think that's one of the things they need to do, but they don't look at the maturity of that portal.

“What's the next generation going to look like? What's the real-time connectivity and download? What's the integration with AMS? How will it connect to the underwriting portal? Because carriers focus on the portal, 18 months later they see they need to do something with agent connectivity and the portal ends up not being a strategic investment.”

One key to long-term planning involves taking a hard look at the application infrastructure and the core technology environment in which an insurance carrier currently operates and understanding where that environment is leading–or not leading–current business needs.

One thing companies can do is learn to identify the problems without necessarily thinking they have to fix them immediately, points out Josefowicz.

“Companies need to have a map of things that are issues and need to be addressed at some point,” he says. “Then they can evaluate short-term or intermediate-term business requests against that long-term map of needs, which allows them to think more strategically.”

If a carrier finds itself always reacting to the latest business capability requirements, they will end up moving in several different directions, which eventually could lead the company to making a major investment that might address multiple issues at the same time.

“[Planning] requires not only a strong governance structure, but a strong communication structure so different business users understand the relative impact of where their requests fit in with other potential requests,” says Josefowicz.

Bill Jenkins describes Penn National as both bureaucratic and regimented in its planning. Not only does the carrier put together a three- to five-year strategic plan, but adjustments are made almost on a quarterly basis, according to Jenkins, CIO for the carrier.

“We basically lay out on a yearly basis the initiatives in IT–along with other segments of the enterprise–that support [the carrier's] strategic plan,” says Jenkins. “The strategic plan then drives the operational plan.”

On top of that, Penn National also does a three- to five-year strategic plan, which gets folded into the business diagram, explains Jenkins.

“We're pretty formal about it,” he says. “We also have ongoing monthly meetings to visit those plans and make adjustments based on what the market entails.”

Operational thinking

Barry Rabkin, principal analyst, insurance technology, Ovum, believes insurers are more reactive to the quick changes they face in doing business day-to-day rather than being tactical thinkers.

“I think [the industry] is more reactive, primarily because of the regulatory compliance and what the [new] Federal Insurance Office is going to do. We're not really seeing enough focus on analytics in the various applications that will help with regulatory guidance.”

An example of tactical planning witnessed by Josefowicz involves a carrier in the process of preparing for a core system replacement and at the same time needing to keep delivering business capabilities to its users.

“There are going to be tactical tradeoffs between what projects may start to create short-term business capability, or what projects you might defer until core system replacement comes to pass,” he says. “There's an example of real-life tactical issues that happen all the time.”

Historically the industry tends to purchase technology with point solutions, and Smallwood equates such strategy to tactical solutions, even if they involve complicated solutions such as a new policy system, a business intelligence solution, or a new portal.

“There are a few [insurance carriers] that are looking at their overall business strategy and their IT strategy with a roadmap,” says Smallwood. “Part of it is historical patterns–this is the way we always did it. Couple that with the recession we're coming out of. Purse strings are tight and people bunkered down to decide what they could afford.”

Smallwood believes there are strategic initiatives such as replacing a policy administration system that can be point solutions as well.

“What they're lacking is a strategic plan that is three to five years out that will link all the investments together,” she says.

Changing plans

Penn National doesn't stray far from its three- to five-year plans. Adjustments are made given market and regulatory conditions, explains Jenkins, but overall the carrier stays on plan.

“As part of our strategy, we have strategic IT initiatives which line up under the business drivers of the business strategy,” he says. “Our plan has stayed on course to enable those business strategies to be accomplished.”

Additional strategic initiatives are added because the carrier has become more data driven, explains Jenkins.

“When I first walked in here we didn't have predictive analytics and data management per se as part of our strategic initiatives,” he says.

“As the company has become more mature in the use of data we've come to embrace the use and management of data, and that has become a strategic initiative with associated investments being made,” Jenkins continues. “There have been changes, but they are pretty much changes that have been deliberated by the executive team and anointed as such.”

Smallwood agrees that carriers need to revisit their strategic plans every year because the market changes, the direction of the company can change, and there are new technologies that are emerging.

Business Issues

Jenkins' experience in planning sessions with Penn National is business units look to the CIO to bring them ideas on new technologies that will enable the company to compete.

“You walk that fine line because you don't want to tell the business how to do the business,” he says. “You start to cut off the dialog and they look at you differently.”

Jenkins likes to bring in consultants and industry analysts to talk to the senior management team about the use of technology that helped bring value to the competition.

“When you publicize to the executive team that someone from the outside is coming in to talk about how the competition is using technology to add value, you fill the room,” he says. “That's one thing that piques the minds of senior management.”

Many Penn National business leaders return from business conferences with ideas of their own on what technology can do for them.

What it comes down to, eventually, is the ability to deliver what the business units need. “You can't say you are going to do things and not do them,” says Jenkins. “The key is to focus on what you said could be done and get it done, meeting the time frame and expectations. We've done very well with that as a team. You can't be an island unto yourself.”

One problem some CIOs face is they work for companies where the business side doesn't support an IT strategy or an IT roadmap. In those cases the CIOs are handcuffed, according to Smallwood.

“It's very difficult for the business to define the required capabilities they need,” she says. “That leaves a gap. What ends up happening is the CIO puts together a roadmap to work from, but it doesn't always conjoin with the business. I don't know if that's the fault of the CIO or it's just a challenge they face.”

Josefowicz believes the role of the CIO is unique among senior executives in insurance companies. He feels they have developed a clear operational picture of what is going on in the enterprise because they are tasked with supporting all the systems within the company.

“[CIOs] probably know more about the business processes in any department than any other executives,” he says. “They should be able to communicate the positive and negative impacts of technology to the rest of the leadership.”

Challenges to the Plan

Like most carriers, Penn National has faced situations where they had to stretch out a project longer than anticipated. Projects such as extending legacy systems and data initiatives sometimes jump ahead of others as well.

Resources often are the biggest reason for adjustments, but Jenkins points out regulatory changes and changes in the business environment often are to blame.

Fortunately, the business side understands the constraints IT is working under.

“We have old legacy systems in the back and our plan is to replace them in the next few years, but when we're asked to either go to a new state or add different coverages, everything is at least a year because of the hard-coded systems,” says Jenkins. “We'll invest in the effort to actually identify down to the files what needs to be changed and what it takes. That's the educational process. We'll do the diagrams and estimates and show the users. After so many questions along those lines, [business users] get it. Those back-end systems are business inhibitors. [The business side] knows we have to change those systems and make them more componentized and flexible, but they know there are things on our plate that they deem to be higher priority. I will not set the IT agenda. I refuse to allow them to put the target on my sweater.”

Legacy Systems

Having an entrenched legacy environment is going to affect what decisions an insurance carrier makes long-term, according to Josefowicz.

“Are you going to live with [the legacy system]?” he asks. “Are you going to try and mitigate it through some sort of initiative? Or are you going to try a transformation? The questions comes down to how well can the business understand the impact created by your current environment vs. the potential value of a change.”

Unfortunately, a lot of the sales of legacy replacement systems that have taken place in the insurance industry have happened because they didn't have a clearly communicated or clearly endorsed business capability value, explains Josefowicz.

These bad decisions were based on the misguided view of making it easier for IT to maintain systems and reducing their maintenance burden. Josefowicz points out these projects can be cost justified in terms of the IT budget, but core system replacement is so disruptive to the business and requires so many business resources to do it effectively that if the business isn't asking for it, it shouldn't happen.

“IT shouldn't be driving core system replacement unless the business is asking for new capabilities that can not be delivered with the old system and IT can make them understand that the key to getting those business capabilities they are looking for is replacing the system,” says Josefowicz.

The issue of legacy systems complicates both strategic and operational plans for insurers, believes Smallwood. Often, a carrier's operational plans contain gaps because the plans aren't threaded.

Part of the carrier's strategy might be around data and analytics and it might involve creating a new lens into the current state of their company, which would allow them to do policy admin and forecasts differently.

“They may have a legacy system that will constrain them,” says Smallwood. “There's a lot of technology that can wrap around a legacy system. They have to determine whether they are going to invest around their legacy system or are they going to replace it.”

In speaking with insurance technology vendors, Rabkin points out the vendors face different problems than carriers deal with.

“Their world is much faster paced than the insurance world,” he says. “They have to see the future–what's coming over the horizon–because they are going to be meeting that a lot faster than their clients. Tech firms can be forgiven for thinking cloud is almost old news.”

Insurance companies, though, are still struggling with SOA and Web services, which is an issue Rabkin feels they need to come to grips with and implement successfully before they can move to the cloud.

Be Prepared

Rabkin believes most North American insurers are in what he calls a “steady-state mode,” which is based on decades of thinking that “glacial is fast.”

He believes that is part of what separates insurers from others in the financial services field.

“I understand the nature of our industry and how they keep the lights on and pay the bills,” he says. “I just don't see the insurers in North America and Europe doing much out of the ordinary.”

Jenkins feels company personnel need to adjust plans given the business needs.

“You have to be nimble and flexible,” Jenkins says. “The expectation [for IT] is you do these additional work efforts and also keep on plan. It's the old adage of doing more with less, but you have to be prepared for that. That's an important part of the job.”

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