CEOs Get Smart

Insurance carrier CEOs have come a long way in their appreciation of the importance of IT to the success of the business. But their need to understand technology's role will only intensify in the near future.

Opinions differ as to how much insurance carrier CEOs have improved with respect to their "tech savvy," or their understanding of and commitment to investing in information technology in a visionary manner. As the Internet Age advances, however, there are many reasons to expect that CEOs should now be measured by their degree of tech savvy rather than by the fact that they have any at all.

And yet, the following chestnut still passes for wit among some insurance technologists: "Tech-Savvy CEO? Isn't that an oxymoron?" Given the perennial challenge of IT/business alignment -- and the associated trauma of failed projects and the resulting blame-mongering -- it's understandable that stereotypes persist. Still, it is hard to find an industry observer who doesn't acknowledge progress on the part of the business in general and CEOs in particular in their understanding of technology and their commitment to working with IT to get it right.

That progress is demonstrated by obvious changes in the typical insurer's technology landscape. For example, "When I started writing about agent portals in 2001, there were still significant numbers of CEOs who needed to be persuaded that they needed them," says Matt Josefowicz, insurance practice director, Novarica (New York). "That conversation has been over for two years at least."

Most CEOs have come to acknowledge the critical role of tapping IT to create strategic advantage for their enterprises, Josefowicz adds. "It's relatively rare for a CEO not to at least pay lip service to IT's strategic role," he says. But, "Beyond that, there's a pretty broad range of commitment on that score."

Josefowicz measured that range among P&C CEOs in a February 2008 Novarica study. The survey of about 60 P&C CEOs demonstrated that large personal lines carrier CEOs tend to be more tech-savvy than peers in other lines, according to Josefowicz. "It goes with their focus on technology in support of communications," he remarks. "Smaller commercial lines companies have fewer communications networks and fewer interactions to manage."

The survey also found that CEOs generally fail to appreciate the technological sophistication of customers, and that smaller company CEOs were often completely unfamiliar with new technology areas, such as service-oriented architecture (SOA) and social networking technologies, Josefowicz notes.

While the more sophisticated CEOs may be deserving of laurels, however, they should not expect to be able to sit on them. CEOs' improvement with respect to tech savvy is a necessity, and the necessity of understanding technology's relevance to the insurance industry will only intensify.

These are challenging times for the insurance industry, and IT is key to meeting those challenges -- be they commoditization of product, changing demographics, distributor ease of use, product speed to market, or risk management. That characterization is akin to motherhood and apple pie to insurance CIOs and tech vendors. Now, however, that gospel is spreading.

New Expectations

"There is greater recognition today of CEOs needing to understand the utility of technology than at any time in the past," asserts Michael Magsig, leader of Los Angeles-based executive recruitment firm Korn/Ferry International's global insurance practice. Insurance company boards, he reports, increasingly stress the requirement that CEO candidates understand the link between technology and competitive strategic differentiation.

This appetite contrasts to a decade ago, when board members' focus on technology was more likely to be limited to the CEO's ability to drive productivity enhancements and cut costs, according to Magsig. "They were less strategic in their view of technology then than they are today," he says.

And boards aren't the only ones with a changed perspective: Insurance equity analysts also are interested in carriers' IT investments, according to a recent survey conducted by Institutional Investor Market Research Group on behalf of Accenture. Among the survey's findings were that both P&C and life insurance analysts are bullish on operational efficiency or "transformational" programs, which (at 77 percent) ranked only slightly behind share buybacks (83 percent) and well ahead of product and service innovations (56 percent) in respondents' lists of important uses of capital.

Asked to identify the most important challenges facing insurers during the next three years, 85 percent of respondents cited "aging technology systems/modernizing IT" -- just behind climate change (89 percent) and ahead of new regulations and reforms (76 percent). Life analysts expressed a similar opinion, ranking aging systems (92 percent) just below growing risk to investment portfolios. The majority of analysts (57 percent) surveyed also said that IT investment in areas such as policy administration, claims management, process optimization and call centers are "critical" to the insurance industry over the next three years, with an additional 34 percent describing such IT investments as important.

While the survey didn't focus on CEO conduct specifically, its findings clearly are highly relevant to identifying the importance of tech-savvy to the CEO job. "That 91 percent [of respondents] see technology as one of the most important levers in improving the performance of a business over the next three years is just extraordinary," comments John Del Santo, managing director of Accenture's North American insurance practice. That finding, Del Santo suggests, indicates a growing awareness that insurance, like other financial services sectors, is an information-processing business.

"It's always been expected that large, diverse financial services institutions have, at their core, an information- and data-processing capability," Del Santo says. In the minds of many industry observers, he adds, "Insurance companies are falling into that same space where the expectation is that they are going to have standardized, world-class information-processing and data-mining capabilities."

These expectations should motivate CEOs to take a more visionary approach, according to Deborah Smallwood, partner, Smallwood Maike & Associates (Overland Park, Kan.). "The CEO should provide the vision and strategy and rely on his team to execute," she says. "CEOs don't need to know the difference between BPM tools and policy admin systems, but they do need to know the power and potential technology has for the business."

That knowledge will be key to future success, and its lack explains a great deal of failure in the past, according to Smallwood. "Many of the multimillion-dollar project failures we have seen have been because the business didn't know how to ask for the right thing," she contends. "The business has to be accountable, and the CEO needs to keep up with what the reliable capabilities of technology are today."

Creating Business Value

CEOs' accountability includes engagement with the IT organization, active involvement in major decisions and the insistence that every technology project have a defined business value, asserts Jeff Goldberg, a New York-based analyst with Celent. Poor requirements from the business are not the only problem. All too often, he says, IT projects are driven by what the IT organization perceives as a need.

If a project is worth doing, however, its purpose can be articulated in the language of business value, Goldberg insists. "There is business value to IT projects, whether it is cost savings, faster time to market, quicker integration of new systems -- those are tangible business benefits that the CIO needs to articulate, and the CEO needs to understand and demand," he says.

The future of competition in the insurance industry is inexorably bound with technology capabilities, Novarica's Josefowicz adds. "The next stage is a focus on data as a strategic asset and being able to profitably use both enterprise and external data sources to substantially improve underwriting," he says. "That is an area with the potential to impact both high- and low-transaction volume segments of the industry, and CEOs who don't turn their attention to IT are going to be left behind rapidly -- they're going to be outpriced, outperformed and out-analyzed by their competitors."

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio