Focus Shifting to Innovation

There's a change in the data collected by Celent for its annual survey of insurance IT leaders. A new word—innovation—has made its way into the title for the recent survey: 2012 U.S. Insurance CIO Survey: Pressures, Priorities—and Innovation.

Among the findings, according to Donald Light, senior analyst with Celent and co-author of the report along with Craig Weber:

• CIOs have three top-of-mind challenges: delivery; IT strategy and resource management; innovation and emerging technologies.

• Business is asking IT to focus on growth and profitability.

• Several emerging technologies will grow significantly over the next three years including: social media for marketing, for internal users, and for claims; and mobile apps for mobile staffs and for customers.

"Delivery becomes easier with more resources, but you only get the resources you can afford," said Light. "Growth is fairly optimistic. The year-after-year growth in budgets is optimistic for 2012."

Part of that growth is because IT departments have improved execution, according to Light. Agile development is one such area carriers are turning to for new projects.

"The newer theme is innovation and emerging technology," says Light. "Mobility is hot and we think it is going to remain hot. BYOD (bring your own device) has a lot of challenges from a network security point of view and from versioning—between Apple's iOS and the Android and Microsoft joining the group. Several different platforms have to be addressed for one mobile app."

Mobility has opened demand and raised the pace of change for insurers, says Light.

"Mobility between iPhone and iPad is quite rapid," he says. "Adoption among mid-level business users has been remarkable."

Availability of Innovation Tools

Some insurance organizations have a research and development groups operating within IT, but Light believes that is a luxury for companies with less than a couple of hundred million in direct written premium.

"Once you get into the $500 million area or certainly the $1 billion level in premium, you darn well ought to have [R&D]," he says. "It may not be called R&D, but there should be one or two people thinking about R&D."

Innovation has not been a demand for 90-plus percent of the insurance companies in the U.S., according to Light. Companies traditionally hire, retain or fire staff because of execution. With a change to innovation, Light feels carriers have to change their incentive structure, hire the right people, and utilize the right skill steps.

Sourcing Strategies

While many feel the build vs. buy debate was settled years ago, insurers occasionally find the need to build an application for their systems. As Light points out, the kind of companies building systems are large, tier one carriers.

"It is awfully hard to rip and replace legacy systems," says Light. "The IT departments that know how to build with a sense of continuous improvement are either the ones that built 15 years ago or have been maintaining [the system] ever since."

Another debate in the area of sourcing strategies centers on best-of-breed vs. end-to-end solutions. Light believes it is the size of the companies that is most important.

"Above the tier-three line, companies don't see end-to-end as a good solution because those companies have IT skill sets in terms of integration and success with vendor management," he says. "If you go below $500 million, it's kind of scary to integrate seven systems or manage seven vendors."

Business Growth

A change in the 2012 survey revolves around the business side asking IT to focus on growth and profitability, replacing expense control and cost reduction as the prominent themes.

"Profitability can be read as growing the top line or lowering the cost structure, but it also can be read as getting smarter—using business intelligence or analytics for pricing, underwriting or claims," says Light. "[Growth and profitability] is an interesting charge for IT because it's not something that immediately translates to what they do."

Light enjoys hearing the optimistic nature of the insurance CIOs surveyed.

"We're looking forward to 2013 to see if good times get better," he says. "We'll know from the national economy and the election this year. There is modestly renewed hope and optimism."