The popular conception is the insurance industry is light-years behind all others when it comes to technology, but one analyst believes the last five years tell a different tale.
Before joining TowerGroup as an insurance practice leader, Deborah Smallwood was a partner with KPMG and spent a lot of time in the late 1990s visiting insurers to research their readiness for Y2K and analyze risk assessment reports. Smallwood wasnt particularly impressed with what she saw. [Insurers] didnt have documented IT strategies, they didnt understand their [software] portfolios, and they didnt have a handle on their environment, she says. Since then, though, she reports the progress the industry has made has been significant. Between Y2K, the market crashing, and the business side not wanting to stand on the sidelines anymore, [insurers] have put some strong processes in place and some discipline. They have matured in the last five years, she says.
Smallwoods observations come from a recent study conducted at TowerGroup, entitled Bridging the Competitive Gap: The Value of IT as the Insurance Business Transforms. The study took a detailed look at five property/casualty insurersthree public companies and two mutual companies. Four of the five have written premium above $8 billion with the fifth being a mid-tier insurer with written premium of more than $200 million.
A recent trend in the industry has been to take mutual companies into public companies, she notes. The reason often cited is public companies have easier access to investment funds. I think its still safe to say the public companies have more of a sense of urgency and are more mindful of costs, expenses, and the bottom line than the mutual companies, says Smallwood. Of the companies she studied, the insurer that scored the best in areas that included IT strategy, governance, organization, business applications, and architecture was a public company that, she says, is trying to do some aggressive things.
Among those aggressive moves is a consolidated priority setting and budget that links new development and maintenance, explains Smallwood. Most companies have a maintenance pool and new development, she says. What we saw [with this insurer] is all the detailed processes around priority setting are for new development. This particular company sees maintenance as running production support and the rate changes necessary for compliance. Everything else needs to be put in the bucket of new developmentmajor enhancements to legacy systems. What this company has been able to do successfully is flip the ratio between maintenance and development.
Another positive practice this insurer has taken involves organizational structure. [The insurer is] putting all its programmers together into an enterprise architecture area and still is maintaining a business alignment with business analysts and project managers, says Smallwood. The two objectives I was looking for were business alignment and enterprise alignment, which is sometimes difficult to do.
In other findings, Smallwood saw the smaller carrier couldnt afford certain things larger carriers are able to dosuch as running a project management office (PMO). But most other parts of the IT infrastructure were there for the smaller carrierintegrating IT strategy and business strategy, having processes in place, executive involvement, and a legacy plan.
Her study made it clear carriers need IT to maintain or gain a competitive advantage. Being on top of the heap, though, is not always a permanent position. Some of the companies we would consider leaders have to understand they cant assume because they have been doing things wellthings like vision strategy, priority setting, and getting the business involvedthats going to keep them there, she says. The whole industry is starting to catch up. The new challenge is finding the right organizational alignment, finding the right balance between your maintenance and development, andthe biggest hurdleenterprise development. If you think about enterprise strategy, thats going to help out in areas such as maintenance costs.
ROBERT REGIS HYLE
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