Theres been a shift to the buy side in the build vs. buy debate. Thats one of the findings in IT Spending in U.S. Insurance, a recent study conducted by researcher and consultant Celent Communications (www.celent.com).
Carriers looking for efficiencies in their technology development cycles are trying not to reinvent the wheel, says Matt Josefowicz, Celents senior analyst for insurance. It is not a case of everyone jumping to out-of-the-box solutions, but I think there are more and better solutions now than in the past, he says.
Time to market and the expertise of both consultants and software developers are important reasons for the movement. That just reflects a desire to get to market faster with new products and a desire to take advantage of some of the advances in packaged software and specialized skill sets of consulting firms rather than having an internal staff devote time to creating new systems, Josefowicz adds.
Both the business side and the technology team have to be focused on ROI, particularly in the short term. We feel thats a good thing, but also a potentially dangerous thing, Josefowicz says. On the plus side, he says it is important for carriers to map out their path and understand what the business benefits are going to be before entering into a technology project.
The danger? There are a lot of carriers that are concerned with quarterly or annual results and may not be able to justify a longer-term project that will have greater results but might take 18 to 24 months to have a demonstrable ROI, says Josefowicz.
A mistake some carriers make is to dismiss such projects out of hand. A lot of the important efficiencies can take longer to materialize, depending on the business situation the carrier is in, he says. Some operations are tight, and everything has to have a short-term return. There are others able to take a more strategic view.
While some would describe that as the difference between a mutual insurer and a stock-ownership carrier, Josefowicz says, There are certainly fewer pressures at mutuals. They are a little less frantic about hitting short-term numbers than the stock companies are. But the shift to equity ownership is providing a lot of impetus to bring down operation costs and get rid of inefficient technology set-ups.
He believes it is important for insurers to look at all possibilities because there have been advances recently in policy administration systems, CRM, and rating and underwriting. The industry was taking a kind of wait-and-see attitude during the dot-com boom, says Josefowicz. Now its starting to see there are real efficiencies to be gained [from the Internet and Web services], especially in a time of reduced investment earnings. Robert Regis Hyle
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