Often, it seems as if insurance technologists have a thankless job. While the systems they develop and maintain go a long way toward enabling the profitability of the business, rapidly changing business user, agent and policyholder expectations and demands tend to quickly render yesterday's cutting-edge solutions inadequate. Elite CIOs must manage these expectations and innovate, while working within budget and keeping everything running. As such, prioritizing technology investment and resource untilization is critical to the success of the insurance IT organization. I&T examines the four issues that will top insurance CIOs' concerns in the coming year and how the right approach can create an advantage.
#1. Staffing: The Right People for the Job
By now, everyone knows that legacy modernization should be a priority for insurance companies. But getting people who understand how to guide the organization through a modernization effort is key to success, says Gerald Shields, senior consultant for Robert E. Nolan Co. (Dallas). "Most CIOs today have had their fill of the large, big-bang policy administration or claims replacement projects," he says, adding that instead, insurance CIOs will be seeking high-quality architects to help integrate legacy systems with modern desktop systems, web systems and even mobile devices.
"It's easy to find people who want to do web and mobile development," Shields explains. "Getting people in who understand the evolution of legacy systems and move the organization ahead -- skills that take years to develop -- is a real difficult task."
Shields' colleague, Robert E. Nolan senior consultant Jim Strebler, adds that while the business side will demand more capabilities that require major development projects, there may not be a commensurate rise in staff budget. "IT leaders are trying to find that balance between what they need to have for legacy maintenance, web and mobile development, new programming languages, vendor packages, software as a service, as well as making all that work together," Strebler says. "CIOs will be kept awake at night wondering, 'How do I do this?'"
One potential solution to workforce issues is variable staffing, notes Matt Josefowicz, partner and managing director of Novarica (Boston). Bigger companies, he says, might have multiple providers of variable staffing to help them with various projects. "You can staff for peak demand using a partner that doesn't have to be brought up to speed on a project basis," he explains. "This is good for things that are regarded as non-strategic or where the skill sets aren't available."
#2. Mergers & Acquisitions: Tying It Together
Allstate and Nationwide made headlines this year with their acquisitions of Esurance and Harleysville, respectively. Experts say consolidation in the insurance industry won't end there. In fact, 63 percent of insurance executives in a recent KPMG survey said their companies will be involved in a merger or acquisition as a buyer or seller in the next two years. The three main drivers of consolidation are access to new markets, regulatory pressures and product synergies, KPMG reported.
"These transactions, which are typically driven by the promise of hard economic benefits and efficiencies, sooner or later result in rationalization and consolidation of supporting infrastructures and cost centers, including core operating systems," says Stephen Applebaum, senior analyst for P&C insurance at Aite Group (Boston). "Integration is almost certain to be challenging, but these transactions can represent ideal opportunities for carriers to plan, update and prepare their systems for the future."
If there's one piece of advice for a CIO working at a merging company, R. E. Nolan's Shields says, it's to disregard the time schedule the business side gives you to integrate the new companies. "They will end up wanting it tomorrow," he notes. But it takes time to accomplish the integration, Shields continues. "Once they get in and see it, they learn more, they're smarter and there is a true business need to integrate these applications."
Yet not all acquisitions require complex consolidation projects, Novarica's Josefowicz points out. Sometimes -- as was the case with both the Allstate and Nationwide buys this year -- a parent company is looking to leverage the expertise and market position of the target and wants it to keep going the way it has been going. In these cases, IT organizations for both companies have the opportunity to work together to add value. "If the acquired company maintains its own organizational structure and is really merged only at a balance sheet level, there may be some opportunity to do shared services or leverage relationships with key vendors, but there is generally less of an integration project or total reengineering of operations and technology," Josefowicz says.
#3. Data and Analytics: The Business Case
You might think that no organization is ignorant of the benefits of advanced data management and analytics capabilities in today's marketplace, but there still are cases when IT must work hard to convince the business of the functionality's value, R.E. Nolan's Strebler says. "I see data and analytics as something that the user community hasn't totally grabbed onto yet," he asserts. "IT is pushing the idea that there is true value in the data warehouse and analytics capabilities for the end user. Because there's expense attached to it, it's going to be a hard sell, especially depending on the way the departmental budgets work."
There are few business functions that wouldn't benefit from analytics, Strebler adds; chief among them are actuarial and marketing departments. But even if you can get them on board, Novarica's Josefowicz says, there's little you can do if your organization lacks in basic business foundations. "You have to walk before you can run," he explains. "If you don't have a flexible, modern infrastructure -- if you don't have a functional agent portal, or your legacy system prevents you from getting products to market quickly -- you're not going to leverage the possibilities of data superabundance."
To help win over the business side, CIOs can set clear priorities and demonstrate how analytics can help the business grow, Aite Group analyst Clark Troy adds. "They must determine which are the most important domains to clean up or master -- be it customer, product, producer or finance data -- and within that, which are the specific data elements that will return the most immediate value to the enterprise," he says.
In a year when catastrophes such as the earthquake in Japan and tornadoes and hurricanes in the U.S. made headlines, location-based data could be a good place to start, says Mark Breading, partner at SMA Strategy Meets Action (Boston). "A vast amount of risk data and analytical models and tools are now available in the marketplace," he says. "But to take advantage of the data and analytics for areas like risk assessment, pricing and CAT planning, the underlying data needs to be accurate, geocoded and organized in a way that makes it easy for analytics engines to ingest the relevant information."
#4. Mobile: Setting the Table for Change
Mobile technology trends seem to change on a dime, and this year Apple's iPad and other tablets began to work their way into the enterprise. While CIO of Aflac, Robert E. Nolan's Shields worked on an iPad application called Launchpad, which put the company's sales presentation on the tactile device to give agents an assist. Shields says he sees parallels between the tablet phenomenon and the PC revolution 25 years ago.
"When the PCs were coming to the market, a lot of CIOs at the time wanted to ignore them," he recalls. "I predict, though, that you're going to see people go back to desktops, and the portable device is going to be a tablet [instead of a laptop]. You need to embrace it, figure out how they work in the environment, get [device management] software on there and develop policies."
But these tablets aren't necessarily going to be issued by the company, analysts contend. The insurance enterprise will have to figure out a way to get comfortable with new employees wanting to use their own devices. There is an opportunity for the most forward-thinking companies to develop apps that enable flexible, efficient and profitable business operating models, SMA's Breading notes.
"CIOs should enable their organizations to move beyond the 'accommodation' phase for mobile technologies," he insists. "Recent SMA research shows that about two-thirds of insurers provide support for mobile platforms and horizontal applications, but have not ventured into custom apps. There is a lot more opportunity for apps that will have strong business value."
Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio