By now, there can't be a working person in North America who hasn't had to face the difficult charge: "Do more with less." IT departments in particular continue to face this issue, but as Robert Kriegel told an audience at the CSC users conference in September, "Do more with less was last year. This year it's do more with nothing."

Kriegel's joke was obviously facetious, but for those insurers facing the twin demands of curtailing expenses while increasing revenue, it may not seem all that funny.

Most CIOs are looking at only modest budget increases for 2012, but a significant increase in demands from their business partners. Donald Light, a senior analyst in the insurance practice for Celent, believes becoming more efficient, lowering total cost of operation, and isolating routine maintenance are responses to the pressure being placed on them.

"If you are the CIO, you can make the IT department smarter and more efficient, but it is hard to make big gains in those areas year after year," he says. "You are running lean and running smart, but if the demand keeps going up corporate management is going to have to give more resources."

Light maintains a good corporate management team understands that some budget increases are necessary, especially if the carrier is taking on major projects.

"If you are going to take out your old policy admin system and put in a new one, that itself is going to cause a big bump in expenses for at least a couple of years," says Light. "That's part of the deal."

Dan Colarusso, vice president and CIO for Cypress Insurance Group maintains the challenge for IT today is to determine the value proposition that IT brings to the enterprise.

"IT organizations need to be creative and think differently because if the value proposition is not positive, [the business] will go get what it needs someplace else," he says. "My staff continuously focus on how we can bring value to the business—delivery of service, new ideas, processes that can streamline the business, and to make them more profitable."

Colarusso believes it is a balancing act for IT.

"On the one hand you are wrestling with all this new technology and what the benefits are, but on the other hand you have to sustain the current base," he says. "I firmly believe if you don't take care of the basic blocking and tackling, you never get to do the 'neat' things."

Another challenge for IT is getting the right people with the right skills in place, explains Colarusso.

"Technology is changing so rapidly that the skill set you invested in five years ago is probably not the same skill set you need today and going into the future," he says. "It's a continuing evolution of skills and competencies to meet the demands and move forward."

That means IT departments need to get people who have the necessary skills from an operational perspective. Cypress is spending time trying to figure out exactly what they need in terms of human capital, how it is going to be deployed, and how it is going to be managed.

"We have an opportunity to streamline our processes—do more with less—and gain economic value," says Colarusso.

FINDING HELP

Colarusso doesn't believe the employment market has turned into a buyers' market for insurance IT.

"With the things going on in the economy, I think you find that people who are talented are going to be protected [by their current employer] because [employers] don't want to lose the intellectual capital those people have," he says. "We continuously are looking for additional staff and frankly there have been some challenges there. There are people on the market, but they don't seem to have the skills we need."

Gerald Shields, senior consultant with the Robert E. Nolan Co., believes the biggest challenge for CIOs in the property & casualty market is not much different than what technology leaders face in other industries.

"With the economy where it is, CIOs and technology leaders have to deliver business value," he says. "Gone are the days when you can put out any sort of technology project. It has to be how you can help the business units, how you can increase revenue, and how you can decrease costs. You better be delivering true business value."

The pressure most insurance carriers faces remains on cost containment and increasing revenue, adds Shields.

"Every other commercial you see on TV right now is for a P&C insurer. Count how many P&C commercials you see during an ESPN broadcast," he says. "You are getting competitive pressures on the pricing and because of that you better be able to figure out how to grow the revenue or to reduce expenses."

STARTING OVER

Cypress is in the midst of an important challenge as the Florida-based carrier migrates away from a BPO environment to a new platform from MajescoMastek.

"In essence, we are building the infrastructure for an insurance company," says Colarusso. "Heretofore, everything was outsourced. Now we are insoucing it."

In addition to a policy administration system, Cypress is installing a billing system, a commission system, a claims system, a first notice of loss system, a general ledger system, and a data center consolidation, according to Colarusso.

"The challenge we have is managing all this change and at the same time being able to sustain all the business," he says. "As you are doing all this you can't tell the business that IT is going away for six months. The rating challenges and the regulatory challenges have to be supported while we are putting in all these systems."

Why undergo such a massive change? Colarusso explains the executive leadership at Cypress felt the BPO provider did not give the carrier the flexibility needed to manage Cypress' own environment and be flexible.

"They did a really wonderful job for us, but in order for us to grow the company to the next level, we need to manage our resources and be more nimble to deliver products to the market much quicker," he says. "We can do that if we have control of our systems."

Colarusso points out insurance carriers don't manufacture anything, but what they have is data and data is a source of information and knowledge to help carriers make decisions.

"By us having that data, managing that data, and mining that data, we can better support the business and help them make better decisions," he says.

WHAT'S ON THE TABLE?

Light doesn't expect discussions of mobile technology, social media, or even cloud computing to disappear in 2012. He believes that in terms of what is new and different, those areas have garnered a huge amount of attention, particularly since none of them were on anyone's agenda two or three years ago.

But Light believes if you ask CIOs what they will be working on this coming year it probably will be the same theme that analysts have heard for a long time: What are you going to do about your core systems? Replace vs. wrap and extend vs. continuous improvement.

"Those are the major options," says Light. "From a total resource point of view those remain the main focus. Mobile and social media have certainly caught a lot of people's attention, though."

There are exceptions to this viewpoint, points out Light. For example, some insurance companies have put in new systems in the last five years.

"In that case, those systems are going to have a useful life of another five to 10 years, but in a lot of cases there may be instances where you have multiple systems or a core claim system they are trying to extend but now the question is whether to keep extending its life or do radical surgery and put in a new system," he says. "The smallest companies have only one system by type. Once you get to the midsize or large companies you have multiple systems in the same category and it is, in a sense, never-ending when considering what to do with them."

Policy administration is in the lead among the core systems by the number of initiatives Celent analysts see, according to Light, and certainly by total cost because policy systems are "a factor of two to three times what a claims system would cost," he says.

There remains interest in claims, billing, rating, and underwriting, and analytics—which has become a major focus in the last two or three years, reports Light.

"Analytics is not a core system per se, but it's a major area of investment," he says.

Analytics can cover both small and large initiatives for insurers, according to Light, and these can reach different levels of spending.

"You can get an analytics package that will be one-tenth or one-third of what a policy administration system would cost," he says. "If you want to create a data warehouse and data marts and expand analytic capabilities in a number of different operating areas, [the expense] could start to approach the cost of a new policy administration system. It can become a big-ticket item, but there are approaches to keeping it smaller. It is odd that the costs can be so variable."

The hype for mobile technology and social media causes concern and difficulties for IT departments because they elicit a certain amount of excitement with the executive leadership.

"I think periodicals drive a lot of IT strategy," says Shields. "The CEO gets on the plane and reads about neat things and those then become strategic projects for IT."

IT leaders have to manage the situation so they can keep some focus on those hot issues while not interrupting other projects, such as modifications to a claims systems, response to regulatory issues from one of the states, or not interrupting the rollout of new products.

"At the same time, strategies like social media or mobile can go a long way in helping the business find ways to apply those things to real solutions," says Shields.

Legacy modernization gets more attention within IT, but doesn't earn "wow" status from the business side. At the same time, if carriers look at which opportunity has the most risk, the answer certainly would be legacy modernization over social media.

"Few companies are going to be shut down because they screwed up the social media strategy," says Shields. "They may not realize some of the benefits, but a company that screws up its legacy modernization strategy can put the company at risk, slow down claims payments, and slow down customer service. When a claimant calls and asks why it is taking so long to get the claim paid, you can't tell them, 'We're real far behind in legacy modernization, but have you seen our beautiful Facebook presence.'"

Shields adds that with the way capital is in today's economy and with the way staffing levels are headed, a large-scale legacy system replacement project is difficult to sell.

"Wise IT and business leaders are looking at an ongoing evolution of legacy systems and shoring them up piece-by-piece rather than with a big-bang replacement," he says.

REGULATORY ISSUES

Regulatory issues will always be at the top of mind for IT leaders, points out Shields. Fortunately for P&C carriers, though, the attention is going to be much greater for the healthcare sector.

"In the P&C business there obviously are regulatory concerns, but not like there are in healthcare," he says.

The amount of state audits is picking up, though, and Shields believe one reason for that is it is a way to increase revenues for state insurance departments.

"It used to be a state auditor would be in your shop for two or three weeks," he says. "Now they are in there for six or seven weeks. The insurer pays for the time the regulator is in there. That's a way for the states to generate even more revenue."

To combat this, Shields believes carriers need to shore up their systems to improve access to data for the auditors.

"The sooner you can get the reports to the auditors the sooner they can get out," says Shields. "Access to data and transparency go hand-in-hand with regulatory compliance."

BUSY YEAR AHEAD

Shields believes 2011 has been a challenging year for insurance IT leaders because of the pressures placed on the business unit.

"The number of requests for help I've seen from organizations I've been working with are exponentially higher," he says. "The requests are backlogged. Even a project of a few hundred thousand dollars that would have risen to the top three years ago is not moving up today. The user community is getting frustrated with IT because they feel IT is not completing projects. IT actually is getting more things out, but there are five, six or seven times more requests. IT is under more pressure than they've ever been and the business users are more frustrated than they've ever been."

Shields believes expectations are higher on the business units, but the business side doesn't have the option anymore of adding headcount to their staffs.

"Some can't even replace people who leave," says Shields. "If they can't replace anyone when they leave how are they going to get the same amount of work done with fewer people. The business units are under pressure and the only way to fix that is to increase automation. IT is getting more projects out, but [the business side] is dropping more projects in the bin than they did three years ago."

Shields believes most of the low-hanging fruit from automation has already been plucked.

"We've optimized through technology as much as we can, but the vast majority of automation has already been done," he says. "To automate more you need new processes to automate. To do that you need to take people to work on new processes, but how do you free up people to change those processes when you are already low on people. People feel the burden and are overloaded, which causes another set of problems."

CORNERSTONE

A cornerstone of any corporation is the investments they make in terms of information systems and the people that support it, explains Colarusso.

"Without that it would be very difficult for senior executives to make the decisions they have to make," he says. "IT is a key player, but IT has to look at it that business is a partnership and if you form that partnership you clearly will be able to do some exciting things together."

The evolution of the relationship between business and IT started out as a mystery to business users. That has evolved to where IT has to provide a service and if you can't provide that the business will go someplace else to get it.

"CIOs, CTOs, and all IT people have to be cognizant of the fact there are options and business can exercise those options if they want to," says Colarusso. "It's going to be challenging with the new technology coming out, but you have to look at the new technology and be able to figure out how it can benefit the business because if it's not a benefit to the business, it's just technology."

Light believes IT leaders have answered the call, though, and expects the business side to increase its reliance on technology.

"It is fair to say over the last six to seven years the CIO has had good access to senior management and a prominent position in making resource decisions," says Light. "It's certainly a change for the positive."