In spite of a new business environment, cultural inertia andother issues stall efficiency initiatives

By Michael Ha

Orlando

Insurers' chief information officers face continuing challengesfrom entrenched attitudes, a new regulatory environment andmanagements that have different vision for technology, technologyanalysts told a systems meeting here.

In the insurance industry, there have been a lot of companiesthat think “if it isn't broken, let's not worry about fixing it,”especially when it comes to replacing older legacy systems, saidKimberly Harris-Ferrante, vice president and research director atGartner Inc. in Stamford, Conn.

Ms. Harris-Ferrante was one of a panel of technology analystswho spoke at last week's Town Hall Meeting at the ACORD-LOMAInsurance Systems Forum.

The group advised that there is a new business landscapeoffering opportunities as well as problems for CIOs.

Continuing to articulate the challenges, Ms. Harris-Ferrantesaid, “We've heard many companies complain about the new[governance] regulations and regarding compliance reporting, andhow they had to decrease their discretionary [technology] spendingbecause some of the money they were going to spend on more coreactivities has been diverted into compliance initiatives.”

Additionally, when analysts ask CIOs where they are investingtheir tech budgets, “we are finding that CIO priorities are not inline with CEO objectives. CIOs tell us that their major issues areprivacy, security breaches, regulatory compliance, and how to dealwith business disruptions,” said Ms. Harris-Ferrante, while CEOscite retaining customers and growing revenues. “That's like numberseven [for CIOs] compared to all the operational areas they arefocusing on.”

The problem today, she said, is that “we can talk about greatdeeds, looking at new customers and growing market share, but thereality is we are spending more time on operations. That's whereour technology money is going.”

When it comes to the IT budget, the challenge is to realign thepercentage of spending for maintenance with investments intransformation projects that can grow the business long term, notedTodd Eyler, vice president of financial strategies for Gartner Inc.“When you look at a typical IT budget, a big chunk is dedicated tojust keeping the lights on,” he said.

Still, the smartest companies are those that look ahead andlaunch initiatives to improve their systems, according to thepanelists, who said such forward-thinking efforts will paydividends very soon.

“The smartest companies–those that will be leaders in fiveyears–are really focused on aggressively consolidating the backoffice,” said Mr. Eyler. Indeed, the panelists warned that focusingon revenue growth without also paying attention to policyadministration, claims and other support functions will preventcarriers from fulfilling their promises to new customers.

The panelists advised that CIOs must deal with a new regulatoryenvironment, which offers opportunities to streamline business datamanagement, but at the same time can drain resources that could goto broader and more strategic information technology projects.

“Now, for example, mutual insurers have to respond much morelike publicly traded companies than in the past. Regulations aredemanding it,” said Matthew Josefowicz, manager of the insurancepractice at Celent Communications, headquartered in Boston. “If youcan't get a view into your financials across your organizationeasily at any given time during the day, you know you will havesome problems,” he said.

Ms. Harris-Ferrante also noted that the reason insurers arestill coping with inefficiencies, such as duplicate data entries,is that “application systems and developments of standards likethose from ACORD have all been works-in-progress in the last fewyears.” However, she noted, the industry is just at the point wherestandards initiatives are coming together.

“This gives us an opportunity to put the systems together andhave the data flow seamlessly through the organization, and to haveit in a common, standardized format,” she said. “So, I think we arejust now at the turning point where we can start tackling this headon.”

Cynthia Saccocia, research director for insurance at TowerGroupin Needham, Mass., observed that when she talks to insurer CIOs,she notices they are starting to incorporate more language similarto that heard in the manufacturing sector–such as comparing theirprocesses to a conveyor belt–and as a result to embrace moreefficient data-management systems.

“They are talking about moving data and information on theconveyor belt and moving away from double-data entry and away fromseparate silos,” she said.

Flag: “What They're Saying”

“CIOs tell us that their major issues are privacy, securitybreaches, regulatory compliance, and how to deal with businessdisruptions.”

Kimberly Harris-Ferrante, VP, Gartner Inc.

“When you look at a typical IT budget, a big chunk is dedicatedto just keeping the lights on.”

Todd Eyler, VP, Gartner Inc.

“If you can't get a view into your financials across yourorganization easily at any given time during the day, you know youwill have some problems.”

Matthew Josefowicz, manager, Celent Communications.