The idea of innovation has been on a conceptual roller coaster in recent years. In the mid- to late-'90s, with dot-com mania giving credibility to even the most off-the-wall business plans, innovation was an end in itself, and the insurance industry was often slammed for its apparent preference for the status quo. But, when the boom came to an end - and IT budgets got squeezed - innovation was not viewed so enthusiastically, and financial institutions in general took a more conservative approach to their businesses.
Today, that roller coaster appears to be hovering in neutral. The wild praise for innovation is held in check, yet, with a renewed business focus on growth and revenue generation (see chart, page 43), it is accepted that there is a critical need for insurance carriers and other financial institutions to quickly identify and develop new products, new channels and markets, and new ways to process and support the business activities associated with them. And, for now, insurers' tendency to balance business caution with aggressive use of technology to achieve operational efficiencies is being viewed as a competitive advantage.
That trend is reflected in an exclusive new ranking, The Financial Services 40, a listing of 40 leading institutions in insurance, banking and financial services that have a track record of innovative IT practices that result in business success. This listing, which appears in alphabetical order on page 41, is derived from the renowned InformationWeek 500, an annual survey of the nation's most innovative businesses, produced by Insurance & Technology's sibling publication InformationWeek (see "Methodology" box, page 49, for details about how this information was obtained and analyzed). In addition to ranking innovative companies, InformationWeek also tracked best practices and IT spending trends within insurance and banking/financial services.
The results of this year's research underscore that the firms that are able to deploy technology in innovative, customer-focused ways - and are able to do so in a cost-effective, ROI-concentrated manner - consistently have a competitive advantage generating profits and building market share. But, how can they track these results? According to the Financial Services 40 research, in insurance, strict ROI metrics are being surpassed by more comprehensive gauges, such as payback analysis and worker productivity (see chart at right), while for banks and financial institutions, ROI remains the key measurement.
The IT spending trends uncovered by the Financial Services 40 research do reinforce the assumption that insurance companies are not as aggressive as other financial services segments in terms of IT spending (see "Industry Snapshots," above). According to InformationWeek, about 3.1 percent of worldwide annual sales revenues are reportedly earmarked to the IT budget in insurance, compared to 9 percent in banking and financial services. However, there is not much difference between industries in terms of how those budgets are divvied up.
Drilling down further, it appears that for both insurers and bankers, resources are pretty evenly divided between maintaining old applications and building new ones (see charts above), with a significant amount of funds also going toward integrating those systems.
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio