Insurance Industry Lacks ‘Enterprise View’

A new study by TowerGroup released Tuesday of some of the nation’s top property and casualty (P&C) insurers found achieving an “enterprise view” of IT strategy, planning, priority-setting and architecture is the next major technology hurdle facing the industry — as well as a critical pathway to achieving competitive advantage.

The TowerGroup study, Bridging the Competitive Gap: The Value of IT as the Insurance Business Transforms, was designed to assess one of the most critical issues affecting the Property and Casualty (P&C) insurance industry today — the alignment of information technology resources and business objectives.

While insurers scored high marks for basic IT alignment across all components measured by the study, priority-setting for IT maintenance investments and achieving an “enterprise view” of IT were both noted as key areas for improvement.

“Over the last 40 years, P&C companies have built an enormous amount of IT capability, as well as sophisticated processes and structures to facilitate and support IT development, said Deborah Smallwood, Insurance Practice leader at TowerGroup, , research and consulting firm focused on the global financial services industry.

“Yet, faced with rapidly advancing technology, a changing competitive landscape, a tough economic climate, and lessons-learned from spending millions on runaway, failed projects, insurance companies are asking: ‘What are industry leaders doing to better integrate IT with the business?’ This study was designed to explore this and related questions.”

Smallwood highlighted three overarching take-aways from the study:

Basic IT alignment has been mastered for all components: All companies examined in the study demonstrated both a vision and an IT strategy, including significant business involvement for priority-setting and management oversight. As a result of Y2K, most companies clearly understand their respective business application portfolios. Yet these components of IT strategy are no longer a differentiator in the sector — they are a necessity for effective business operation.

Improvement is needed in priority-setting and budget metrics for maintenance: Only one of the carriers appears to have “mastered” the right ratio between maintenance and development, or has implemented formal priority-setting for all subjective maintenance spending. In today’s competitive landscape and strict budget allowances, these controls are of vital necessity.

Enterprise solutions are next big hurdle facing insurers: Driving an “enterprise view” of IT strategy, planning, priority-setting and architecture will be the next wave to position insurers for competitive advantage. The benefits of this process will reach far beyond savings in IT spending. TowerGroup noted that all companies examined in the study recognize the significance of enterprise development, as well as the effort it will take to clear this hurdle.

“It is imperative for insurers to understand their own areas of weakness and continue to adapt to emerging best practices,” said Smallwood. “Neither the leaders, nor the laggards, should assume that IT alignment is a differentiator. Rather, aligning IT with the business is a now requirement for conducting business effectively in the insurance industry.

“Planning, designing and building common, scalable and reusable IT solutions across the enterprise is the key. Enterprise solutions will have a direct impact on the bottom line from an improved time to market, decreased development costs and a decrease in overall maintenance budgets. This will drive a true competitive advantage.”

Conducted in the third and fourth quarters of 2003, the study was conducted through interviews with five of the leading insurance carriers that collectively spend more than $1 billion on IT annually. Interviewees included business executives; CIO; CTO; application development head; lead architect; PMO office; business analysts; strategy group; and CFO/controller.

This article was compiled and edited by CIO Update staff. Please direct any
questions regarding its content to Allen Bernard, Managing Editor.