Although 2011 has been a rough year in many ways for insurers,those we spoke with for the 2011 IT Town Hall—for the mostpart—believe it was a good year and they are looking forward towhat could be another good year for the industry in 2012.

The annual Town Hall involves four leading insurance technologyleaders answering a series of questions on some of the more hypedissues being faced—cloud, mobile technology, social media—and theissues that keep them awake at night—data, analytics, andmodernization of core insurance solutions.

The participants in this year's Q&A include Wayne Umland,executive vice president and CIO of Glatfelter Insurance Group;Doug Allen, vice president and director of information technologyof State Auto Insurance; Greg Ricker, vice president informationsystems of Strickland Insurance Group; and Tom Peach, CIO of ZurichFinancial Services—North America.

What were there some of the positive points from thepast year that made it a better year than expected for yourcompany?

Umland: 2011 was a good year for Glatfelter.While we certainly had the pressure on rates and experienced arecord number of catastrophe losses as did so many others in ourindustry, we continued to invest in our infrastructure and focusedon making it easier for our agents and brokers to do business withus. We continued our march toward full legacy replacement and havesuccessfully accomplished that. While we stuck to the basics interms of good, solid underwriting, prompt/responsive claims, andconsistency in our market, we made progress and continued tostrengthen our brand.

Peach: Our project execution in 2011 wasoutstanding. We were able to implement a full agenda of programsacross all of our portfolios with almost a 90 percent on-time andwithin budget ratio. This was on top of the fact that we have beenin the middle of a large-scale datacenter migration.

Allen: We've made great progress on theimplementation of a new claims platform. The project has stayed onbudget and on time. It is still scheduled for delivery in mid-2012.We've also arrived on a decision for a new policy platform for oneof our business entities. We're on track with our data centerconsolidation effort and hope to wrap it up in early 2012 and we'veimproved our production stability significantly over the pastyear.

Ricker: First off, throughnine months of this year, direct written premium is up just under20 percent. For us it's been a good year. One of the biggestimpacts was we've focused on reducing the costs our agents incur indoing business with us. We're a specialty carrier in the E&Slines. We've really focused on eliminating steps, bringing moreautomation to the table, and reducing the amount of effort an agentspends to rate, quote, and issue. By streamlining the process we'vebecome an attractive market for them to place business. As the oldsaying goes: It's not how much you write; it's how much you make.By focusing on those expense dollars and on efficiency there's noquestion that's had an impact on our growth this year.

What is the outlook for 2012 for your IT operation andfor the industry at large?

Allen: IT will be challenged again with thebalancing act of run-based activities and transform/strategicinitiatives. The strain on company financials (earnings, surplus,premium) as a result of record claims activities and the currenteconomic climate also is going to continue to put demands on ITorganizations. It could hamper and throttle-back investments thatreally need to be made.

Umland: Our IT budget is continuing to grow in2012. While we expect commercial rates to slowly begin to flattenor increase slightly, we need to manage our expense growthinternally. We do continue to reinvest in technology and havecontinued to do that throughout this latest long market cycle. Ourgoals continue to focus on ease of doing business, informationanalytics, and eliminating unnecessary workflow costs whilestreamlining our business processes. The stampede to mobility andthe ubiquity of smartphones and tablets will certainly bring withit opportunities to do more on the commercial side for thoseindependent agents and brokers who do business with us. It willalso drive more openness internally as we see more and more peopleand industries move to "BYOT" to the workplace.

Peach: 2012 will continue to be challengingfrom an expense standpoint. We are being asked to consolidateinfrastructure and labor costs and expedite applicationdecommissioning efforts. This will be done in conjunction withadvancing our organization in the areas of customer collaboration,workflow management, advanced management reporting, and nextgeneration underwriting tool concepts.

Ricker: From the IT side, we have a prettypositive forecast for 2012. Again, we're going to continue theinitiatives with efficiency for the agent, providing morefunctionality to them on the Web portal, and opening more for webservices for integration. We feel pretty good about 2012 from an ITperspective. Looking at it from the industry side, I think you aregoing to see more growth for the specialty and E&S markets. Inthe standard markets, where the combined numbers are pretty toughand investment income isn't what it used to be, I think you aregoing to see them continuing to tighten their underwritingguidelines, adjusting their pricing, and see business that kind offlowed to them in 2005 and '06, start migrating its way back to thespecialty and surplus-lines markets. Additionally I think you aregoing to see increased pricing in 2012. From an industryperspective, I think there is going to be a lot of change nextyear. Catastrophes are continuing to put pressure on alreadystrained combined numbers.

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

Peach: My major issue is that the currentindustry technology and application infrastructure lacks theability to support new distribution and customer collaborationmethods. For that matter, I believe that we as an industry arebehind the pack in defining or utilizing new cutting-edgetechnologies that will be geared toward the next generationcustomer.

Umland: I guess I'll probably be the contrarianon this one. The drive to simplicity, easy infrastructure,streamlining everything, and having solutions that are all thingsto all people is the road to everything becoming "vanilla." Thereare differences in what we all do. Specialty lines will neverreally become generic, in my opinion, and there is clearly adifferentiation between companies and how our customers are takencare of and supported. While the future direction of technologywill keep driving companies to simplification and generalization, Ibelieve those of us in strategic positions need to balance thatwith what brought our companies to where we are today. We can'talways let technology and simplification of everything drive us tothe point where our corporate values, our key principles, and ourcare for our customers are sacrificed. If we do that, then webecome just another company where choice no longer matters. We takepride in our differentiation and don't ever want to lose that.

Allen: Change management. With so many biginitiatives underway, orchestrating, coordinating, and implementingthem in a quality fashion will separate the winners from thelosers.

Ricker: Two items concern me the most. Numberone is system complexities. With so many systems being integratedand so much functionality coming together and so many pieces to thepie, system complexity is growing. With that complexity you needgood talent and you need to make good decisions on the products youare using and how you implement them. Because as so many systemsare starting to piece themselves together—we interface with threeinsurance systems, with MGA/broker systems and they are extendingdata down to retailers—there are just a lot of moving parts. Thesecond concern is the increased cost in software licensing. As theboxes are getting bigger, some of the licensing costs arecontinuing to take a bigger chunk of budgets. The more money youspend on maintenance the less there is to spend on R&D. Thebudget pressures continue to be a challenge.

What have you done in the past year toimprove the knowledge of your business users through data projectsand predictive analytics? What lies ahead in 2012 for thisinitiative?

Allen: We have an active project to put in thesecond edition of commercial lines predictive modeling. Ourpersonal lines business already uses a predictive modeling approachin the pricing/underwriting processes.

Ricker: We invested pretty heavily in our datawarehouse several years ago and last year we brought a Cognos BItool to the organization that has helped us significantly inmonitoring our business. We have sophisticated price-monitoringreports where we are able to drill down to the level we need to seehow our product is being priced and sold. We can tell where folksare using credits, debits, what classes, and what policy types.There has been much more focus in the last year to a year and ahalf on agent profitability. When you can drill down and lookspecifically at what classes, what states, and what agents areputting pressures on your loss numbers, that is huge. In 2012 Ithink you are going to see a continued push for turning more ofthat data in your rating systems and your policy admin systems intoinformation and you will see companies making specific decisions toget out of or change strategies with certain lines of businessbased on those analytics. If you can write high-valued property andmake money on it on the coast on one part of the country, but noton the other you you'll see companies tweak underwriting guidelinesto reflect that.

Umland: In 2011 we finally began our formalgovernance and project management process and extended it to ouruser community. Our project teams consist of technical staff andbusiness users. They are involved throughout the projects, whichallows them to become more familiar with the technical issues,infrastructure and integrations aspects of all of our systems. Theyquickly came to understand the complexities of systems and howintegrated they are. On the analytics side, generally all of ourpredictive analytics to this point have been in the actuarial area.We have built an expanded data warehouse with various views andcubes and we will begin moving to analytics for our marketing andsales departments.

PEACH: Predictive analytics have been a majorpriority for Zurich North America for the last several years and2012 will be no different. We have dedicated sizeable funding forthese efforts within our organization. The same with our dataanalytics and business objects areas; these are core to ourorganization's strategy and are supported from all our businesspartners.

How important is improving core technology and gettingaway from legacy systems for your enterprise?

Umland: As I mentioned above, we have been on astrategic effort to replace any system that was legacy. The realityis, however, that the new systems with which we have replaced ourlegacy systems will very quickly become the legacy systems oftomorrow. Technology is changing so rapidly and it is becomingeasier for users to understand, that our "new" systems will need tobe replaced, enhanced or redesigned much sooner than theirpredecessors. Our users, both internal and external, will demandfurther integration, more simplicity and new tools that theyexperience in their lives outside the workplace.

Peach: This is one of ourcurrent strategic initiatives. We are constantly looking to drive abetter balance between our legacy and strategic programinvestments.

Allen: Very important. We are replacing ourlegacy claims applications with a modern platform. We also will beimplementing a new policy and billing administration system for oneof our entities.

Ricker: We've gotten rid of all our legacy.Everything we are running is pretty current technology. Our policyprocessing system is not that old and neither are our Web systems.We feel pretty good about our core. Our focus will be to continueto expose more of the core functions of the systems via webservices. Folks that want to dive deep into claims, pull loss runs,and get into some low levels of data detail will be able to dothat. The core we feel will support all that, so we're just openingmore of that up.

What steps, if any, have you taken to use cloudcomputing this year? Is this going to increase in focus for you in2012? What concerns do you have with the cloud?

Allen: We have placed very little emphasis oncloud computing and there will be very little focus in 2012. Cloudis immature. There are security and stability risks.  Pluswith us being in such a transitional phase with our apps, it wouldadd even more risk at this time. We need to define a strategy andhave some POC's first.

Umland: Glatfelter has not moved any systems tothe cloud. While we are not opposed to the technology, we aretaking our time in adopting this. We believe that the cloud is agreat application and certainly takes cost and infrastructuremanagement out of the internal equation, but we also feel that itis important that all appropriate safeguards and availability arein place. We will probably not move those mission critical systemsor those applications which differentiate us. We want to be in aposition to monitor and control them very closely and to be able torestore them quickly should something happen. We're not yetconvinced that the cloud can meet that need for us…yet.

Ricker: There are a couple of functions weperform with third parties via cloud computing. In 2012 we willincrease our efforts there. We are going to use it in an onlinebackup mode that will help us with disaster recovery plans and ourco-location sites. We'll continue to expose more things in webservices to become a provider to other folks. The pieces we arekeeping an eye on the most involve the security of it—making surethings are encrypted and we aren't taking on any unneeded risk—andvendor reliability will be huge in that space. As we've seen thisyear, some of the top cloud computing vendors have all taken majoroutages. Reliability is going to be watched very carefully. We'llslowly increase in how and where we use it and as long as ourexperience is favorable you'll see us continue to move otherfunctionality and take advantage of that.

What do you see happening to theinsurance industry in terms of regulatory changes for2012?

Allen: 2012 is not shaping up to have manyregulatory changes. Perhaps, with it being a presidential electionyear, it will be quiet on that front.

Ricker: We feel for 2012 not much is going totake place. With an election year we feel it will be a time to staythe course. We're not expecting to see any states take drasticaction either. Beyond 2012 and looking into 2013 and 2014, a lotdepends on what happens next year with the election. We're keepinga close eye on year-end results because we're expecting when yellowbooks are finalized in the early part of the second quarter you aregoing to see some tough year-end results. That's going to lead tosome interesting discussions with A.M. Best for everyone. I thinkthe states are going to let the companies focus on the immediateissue of profitability and not jump in and try to regulate that.It's no secret from a catastrophe perspective 2011 has been a toughyear, but we're not anticipating the states to jump in and saysomething is broke and try to fix it. I think you will seecompanies take positive steps to gain control of their loss andexpense numbers. The states will see that and won't take animmediate action for change. Post-election, I think you will seethings change and a lot of that will depend on—especially at thefederal level—who's sitting in the White House.

Peach: We have seen a steady increase inregulatory activity and believe this will continue into 2012. Thisincludes rate and regulatory bodies as well as audit function-basedactivities.

Mobile technology is making life easier for businessusers and customers. What concerns—if any—do you have about mobiletechnology for this year and the next five years?

Peach: We absolutely agree that mobiletechnology is here to stay within our industry. Our concerns arefocused on data security and ensuring that these devices have thesame protection as internal-based computing devices. We also needto be concerned with support channels to effectively andefficiently support our mobile device users.

Allen: My concerns are:

•  How will the priority for mobiletechnology stack up with all the core/enterprise wideinitiatives?

•  Do we have the underlying architecture andinfrastructure to support the mobile platform?

•  With the speed at which mobile devices arechanging and the introduction of new devices, which platform(s) doyou pick?

•  Where are we going to find the talent todevelop these platforms?

•  There are security concerns in an immaturemobile platform space.

•  How will this increase the IT runcosts?

Ricker: We're trying to understand from amobile environment what is the real need vs. the hype of having amobile app. We've seen some folks in the surplus-lines industryrush to build a mobile app only for their customers to say that'snot really what they need. Are brokers really going to do policyissuance from an iPad? We don't believe that's realistic. The bestpractices we think are for rating and quoting apps for the brokersto use with their retailers. We are working on that and we have theweb services to support that. We are trying to get on board with acommon XML standard for rating in the specialty lines so we canfacilitate the comparative rater type applications and move them tomobile devices. There's an awful lot of hype out there, but whenyou sit down and look at it from a business perspective you can seethere are specific areas that make sense and we are going to focuson those areas.

Umland: For a company our size, the first andimmediate concerns go to how do we find the talent to developmobile applications, how do we stay up-to-date with mobiletechnology as it continues to evolve, how do we handle the securityaspects, and how do we make those applications generic enough sothat we are constantly reworking solutions so they work on newdevices? Beyond that, however, is the challenge of reality.Glatfelter is a specialty program manager. We need to not try andbuild a mobile app for everything. We need to take a step back andfind out what the agent wants and how he wants to use it before wego out and try to develop something. A proprietary underwritingapplication for a complex specialty line is probably not going toever be a mobile app. While all the hype is there, we need to berealistic about what it is we want to provide based on externalneed.

Social media has garnered as muchattention as any initiative in the last five years. Does yourcompany have a social media initiative underway? What are some ofthe areas you are focusing on?

Umland: Glatfelter has jumped in with Facebook,LinkedIn, and we've experimented with having a presence in thosespaces. We don't have a corporate social media initiative activelyunderway. Social computing/social media is something I have beentrying to push for two years. 2011 was a year where we experimentedon several fronts to see what kind of play there might be indifferent areas of social computing. I believe there are manyopportunities for us to take advantage of and we are just now tyingsocial media into our overall marketing plans. The communityaspects of social media for specialty markets present us with manyopportunities.

Allen: We are very early in the social mediaspace with no definitive strategy established. We are workinginternally with some associates as focus groups.

Ricker: We've developed a social media strategyand we use that to share information with our agents and brokers.Because we are a specialty carrier and we deal with brokers, wecan't go directly to retail agents or insureds, but we do shareinformation with our agents. We listen intently to things saidabout our company—both from a positive and negative perspective.Those are great tools to share information with our agents andbrokers. I think you'll see in 2012 we will increase the frequencyin which we are disseminating information and we will look to getour brokers involved with us as well. As with mobile, you have toseparate hype from reality and say where is the real need. To beable to tweet information about immediate changes in products ishuge. Being able to hear what your customers and policyholders haveto say about their experience with your company also is huge.