Improving IT Management Practices: Level Setting With CMM?

Insurance enterprises are becoming more performance-oriented. Renewed attention is being paid to managing underwriting, reserves and expenses with an eye toward achieving profitability in core insurance operations, rather than depending on increasingly unreliable investment markets.

This change is affecting insurance IT groups as well. Whether it is a matter of post-merger rationalization or just improving performance, many insurance IT groups are taking a long look in the mirror and asking how they can operate more efficiently and serve the needs of the enterprise more effectively.

For many insurance IT groups, the answer is CMM.

CMM is the Capability Maturity Model, which is maintained by the Software Engineering Institute (SEI) at Carnegie-Mellon University. It is a set of standards for the "maturity" of an engineering group's processes and methodologies, both in software development and in project management. The goal of CMM adoption is to add control and predictability to IT projects, to make them easier to manage, and finally to optimize and continually improve processes and practices.

Companies like Allstate, MetLife, Farmers, and Allmerica all have recently publicized their commitment to CMM, and in Celent's recent insurance CIO/CTO survey, 35 percent reported using CMM in their organizations.

All of the CMM-user insurers that Celent has interviewed report improvements in efficiency and control. Among the specific benefits insurers cite are standardizing and rationalizing development practices, improving efficiency and reducing costs of IT projects, and improving staff performance by linking incentive compensation to project results. All of this is tied to developing and maintaining metrics for IT efficiency, something most insurance IT groups do not have. As the old saying goes, you can't manage what you can't measure.

Some insurance IT groups have not just adopted CMM, but have also taken the extra effort to get certified by an appraiser, who provides an external judgment of the level (from 1 to 5) of maturity of the organization. Several insurance IT groups have been appraised at level 2, and a few have publicly announced a goal of achieving level 3 or 4.

The business drivers for pursuing appraisal include benefits in internal marketing -- an area of increasing importance to today's IT groups, many of which find themselves facing increased scrutiny from program offices, IT steering committees and business project sponsors. Just as systems integrators and IT companies pursue certification to advertise their reliability to potential clients, internal IT groups have found that certification helps them communicate their value, dedication and reliability to the rest of the enterprise.

Appraisal can also improve esprit de corps in the IT group by providing bragging rights as well as better practices. This can be especially valuable in maintaining morale of insurance IT groups and retaining high performers. Given that insurance IT tends to lag behind other industries, it can be difficult to attract and maintain key staff. An official CMM level demonstrates the professionalism of the group.

CMM is not a silver bullet to solve the difficult problems of insurance IT (there is no such thing), but it can be an important tool for CIOs in refocusing their organizations to meet the challenges of today and tomorrow.

Matthew Josefowicz is manager of the insurance group at Celent. This article is adapted from his recent report, Insurance IT Management Strategies and Practices. More information about Celent's research and advisory services is online at www.celent.com/insurance.asp