Internal Conflict Over IT Crimps Insurers' Performance

LAS VEGAS--Insurance industry performance improvement is hampered by the different goals of information technology and business-line management, a leading consultant warned at an industry conference.

That caution came from John Hagel III, a former McKinsey & Company principal, in his keynote address here during the opening general session of the ACORD LOMA Insurance Systems Forum.

According to Mr. Hagel, the persistent gap in priorities of those in IT and line management also threatens the carriers' adoption of new automation options.

"The continuing friction in some ways is totally understandable," Mr. Hagel said. "IT executives are under a lot of pressure to cut costs while meeting new compliance demands."

Mr. Hagel explained: "That could lead to risk-aversion in innovation. If you are worried about disruptions, one of the last things you want to do is bring a new technology into play."

Meanwhile, he added, "on the other side of the table you have business-line executives who are under pressure to improve performance now. This prompts them to think in the short term, where they can get a quick payback. It's harder for them to think about long-term returns on tech investments in that environment."

With competitive pressures on the rise, "the friction between IT and business-line executives intensifies as everyone hunkers down to meet their own agendas," Mr. Hagel observed.

However, this stubborn gap could undermine an insurance company's competitive position and profitability down the road, he warned.

"I am concerned this gap could slow down deployment of emerging Web services and service-oriented architectures (SOAs) that could, if implemented properly, save a lot of money and improve efficiency in both the short- and long term without necessarily requiring a substantial investment."

Both Web services and SOA, he explained, help insurers become more efficient by allowing sharing of software across applications, databases and enterprises.

"Business executives are naturally suspicious about SOA after having been exposed to generations of hype about new technologies being a panacea that will solve all their problems," he said.

"I have my own concerns about SOA evangelists talking in grand transformational terms," he conceded. "But I do believe that there is a compelling business case to be made for Web services and SOA."

In the short term, he said, such technologies "eliminate business inefficiencies by leveraging existing systems to achieve immediate cost-savings while limiting the amount of investment required."

In the medium term, he added, "you move from savings to flexibility. It's easier to access systems, and you could cut the time to introduce a new insurance product into the market, for example."

In the long term, he predicted, "Web services and SOA will enhance the potential for innovation by allowing more experimentation."

The bottom line, he concluded, is that these are "deceptively disruptive technologies. You achieve very mundane cost savings, but they add up, all without major changes in your overall system."