Let the Good Times Roll?

The opportunities identified by the ACORD LOMA Insurance Systems Forum alliance are being envisioned on an industry-wide scale, suggests Insurance & Technology affiliate InformationWeek Research in its 2Q 2004 Outlook/Priorities Study (based on 333 telephone interviews in March; 112 were from financial services).

Four out of five financial services firms anticipate revenue growth above 2003 levels, according to the research. Seventy-two percent of the insurance executives surveyed said their companies anticipate revenue growth in 2004 (14 percent expect it will decline).

At First American P&C Insurance Group, the combination of an improving economy and return on business- and technology-related strategies that have been implemented over the past several years is resulting in a stronger profit picture, reports Jim Court, vice president, CIO, First American (Santa Ana, Calif.; more than $100 million in direct written premium). "Profitability is our top priority," Court says, adding that there have been several factors involved, including "different distribution channels, and we're also leveraging the investments we've made in the past four years in back-end technology. We're also seeing tangible benefits in terms of expense reductions."

The potential increase in revenues identified by the study appears to be driving many financial institutions to invest in IT this year. More than half the organizations surveyed anticipate IT spending overall will exceed 2003 levels. Accordingly, IT budgets as a percent of revenue also are expanding. In December 2003, an average 10.2 percent of annual revenue for a financial services firm was allocated to IT budgets. In March 2004, this rose to 12.4 percent. In the insurance industry, IT budgets currently account for 8.3 percent of expected annual revenues, and 50 percent of the respondents predicted their companies' total IT spending in 2004 will be greater than in 2003; about one-third of the respondents said it would be the same as last year (see chart on page 62).

Salaries and benefits continue to take up the largest portion of insurance IT budgets - 39 percent this year, the study reveals (see chart, page 64). This is followed by applications and new technology in most cases.

Regarding the positive outlook, InformationWeek Research found that seven in 10 financial services firms feel positive about the U.S. economy and 76 percent are optimistic about the industry as a whole. These percentages are up from three months ago (67 percent and 64 percent, respectively).

Insurers were slightly less cheerful: 66 percent said they are positive about the U.S. economy, and 68 percent said they are positive about the industry's economic conditions today. Eighty-four percent of insurance executives surveyed, however, said they are positive about their companies' business prospects. Slightly more than half of those polled from insurance said their outlook regarding current IT budget/spending plans is positive, while 8 percent were negative on this count.

One organization that is doing more with its existing resources is Fairfield, Ohio-based Ohio Casualty Group. "We are very optimistic about the opportunities the P&C market is presenting," notes John Kellington, senior vice president, chief technology officer, Ohio Casualty Group (approximately $1.4 billion in written premium). "With that said, we've invested heavily in technology over the past few years, and that has positioned us well. We're able to implement new capabilities (Web enablement, Web services, IVANS' Transformation Station, etc.) relatively easily compared to others in our industry, which is reducing our demand for investment." Kellington continues, "So, with our new technology platforms, we're able to do much more with a reduced IT budget. "

How does all this good feeling translate into actual IT strategies? Based on the InformationWeek Research study's findings, insurance IT organizations will continue to be heavily focused on improving customer service, flexibility and productivity (see table page 61). Other top priorities similarly reflect themes at this year's Insurance Systems Forum, such as optimizing business processes, improving business agility, gaining better return on IT investments and regulatory compliance.

Technologies that will be used to support these key business initiatives, the study reports, include PC upgrades (cited by 86 percent of insurance respondents), network security management software (86 percent), Web development tools or products (86 percent), data warehouse (86 percent), Web services (68 percent) and XML-based applications (72 percent).

"We are working on new projects associated with data warehousing and predictive modeling," reports Ohio Casualty's Kellington. "We are completing our agency interfaces for both HTML and Web services, and we're moving our personal lines and specialty lines to our policy administration system [PARIS]. We're just completing these initiatives with fewer expenses."

Leveraging investments in technologies such as Web services is part of the strategy at First American, as are initiatives "that make us easier and most convenient to do business with, whether it involves an agent, lender or insured," Court reports.

Other technology areas getting attention at First American include storage-area networks and security. Court adds, "We constantly are looking at our value/efficiency model and exploring new ways to lower our infrastructure costs and general business process costs."

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