Economic uncertainty and political upheaval have brought insurers challenges and opportunities at a time when senior leadership is more involved in technology decision-making. Insurance & Technology spoke with three CEOs it has recognized as "tech-savvy"Jon Boscia, CEO, Lincoln Financial Group (LFG, Philadelphia, $6.7 billion in assets); Ben Salzmannn, president and CEO, ACUITY (Sheboygan, WI, $936 million in assets); and Martin D. Feinstein, president, CEO and chairman, Farmers Insurance Group (Los Angeles, $12 billion in assets)to learn how they are responding.
Q: Given the weak economic situation, has your company's approach to technology investment changed? In what ways has technology spending shifted?
A: Jon Boscia, Lincoln Financial Group: We have only made slight overall reductions in our technology budget. However, more importantly, we have taken the opportunity to better optimize our resources on high-ROI projects, and top-grade our personnel in the process. Technology spending has shifted in line with our business shift, to focus on supporting our consolidated wholesaling entity LFD (Lincoln Financial Distributors), and extend externally our digital assets to our selling partners.
A: Ben Salzmann, ACUITY: Given the bad economy and bad underwriting results, the commercial market is going hard, and the winners are making more money, not less, so this isn't a weak economy for the winners. In fact, we have increased our technology budget 20 percent for 2003 over 2002. We've accelerated investment because we see several key items coming together to create a new insurance delivery platform that wasn't capable of being created historically. We're using Applied Systems' (University Park, IL) Transformation Station, which can seamlessly remove information from an agent's system straight to the company, and we've built a platform for personal lines, for commercial lines, and for billing inquiry. That provides real-time policy delivery, so that now truly theenvironment is set: An agent enters information, transmits it to us, and we return a quote in five minutes and print the policy in a half-hour.
A: Martin Feinstein, Farmers: The biggest impact on financial or business investment decisions is the expected time for return on the investment and a weighted risk view of strategic investments toward shorter-term impacts on the business. We can no longer place bets on new and exciting thingswe need to focus on the sure thing. Regarding technology vendors, the implications of the economy are huge, as customers are now renegotiating contracts much more rapidly than before.
We have one big new technology investment underway called e-Agent, which is not only a significant move into PC technology from green screens, but more importantly, it represents a step change for our agents in the way they will manage their agencies and service their customers. This is not so much an investment as much as something that needs to be done. Competitiveness is not only based on price of the product, but it also is based on the quality of the customer experience. So, even within a weak economy, one must continue to do what is needed in order to reposition themselves for the future, because it is a matter of time when the economy will improve and you don't want to be caught flat footedyou want momentum.
Q: Have you chosen to outsource?
A: Boscia, LFG: LFG has been doing significant outsourcing for years, and has continued to expand this practice where beneficial.
A: Salzmann, ACUITY: Technology is too core to our business, too critical. Companies that outsource don't get it. You have an outsourcing company building a new system, and that knowledge walks out the door at the end of the project. Why don't companies outsource their underwriters? It would have the same impact, only with outsourcing your systems, the detriment lasts longer.
A: Feinstein, Farmers: We do outsource some applications programming but we do so only where it makes sense, not just as a means to reduce expenses. As the complexity of the systems has evolved, we need to make sure that our talented IT and business resources can be focused on delivering the critical business solutions, so we leverage their talent by outsourcing many of the utility-type programs. This significantly reduces any risk to our organization, while still achieving the savings associated with an outsource program.
Q: What is your role in the technology review process at your company? What internal governance measures help manage technology investment and implementation?
A: Boscia, LFG: Every technology investment project with a cost of over $1 million must be personally reviewed and approved by both our CTO and myself. A project over $5 million must be voted on by the additional three members who comprise our five-member LFG Executive Steering Committee. All approved projects require updates bi-annually, where the project sponsor must measure their success relative to the initial project assumptions. In addition, since the CTO reports directly to me, we meet monthly to discuss any other significant projects under $1 million.
A: Salzmann, ACUITY: We have a group of officers that goes through all of our technology, with the primary focus to look at all the small projects that don't have a quantum impact and to eliminate them so that we can truly build the next wave world-class technology. For major projects, you must have a corporate sponsor plus a project leader from our internal consulting area working with a head in IT to drive it through. The results speak for themselves: We have never failed on a project.
Q: How much do you focus today on the strategic opportunities technology presents, as opposed to operational efficiencies?
A: Boscia, LFG: At Lincoln Financial Group, we attempt to move forward with operational efficiencies simultaneously with strategic intent. For example, we are in the process of reducing the number of policy administration systems. As we prove successful, we will be able to achieve operational efficiencies. However, even more important will be the effect this will have on our strategic "time-to-market" project, where we are systematically reducing all the bottlenecks in our product launch cycle process to optimize Lincoln Financial Group towards efficient product innovation.
A: Salzmann, ACUITY: We focus more on technology than almost any other company. That is how we got our platform to where it is today. It is also why we are viewed as a technology leader, receiving four awards from ACORD last year. Ninety-six percent of all claims are addressed within the first 24 hours. We have an accuracy rate of 99.7 percent. We process our personal lines in less than one day. We cut the average response time in commercial quote by one-third, compared to our competition. This is driven by our focusing on what we think are the critical success factors and building systems that distance us from competition.
A: Feinstein, Farmers: As a company we have always weighted our focus toward operational efficiency. Expense management is a key to our success. We believe that finding new and creative ways to improveto reengineer the way we do businessis vital to competitiveness. Yes, we do have a group of people keeping a vigilant lookout for new technology ideas and applications. We are looking for every opportunity for a strategy advantagethat is what lead us to our investment in e-Agent. We have developed new analytical tools, as well. The more we know about our business, our customers and our competition, the better positioned we will be to win.
Q: What does a CEO need to know about technology to adequately appreciate the business opportunities it creates? How would you compare your level of knowledge today to when you first became a CEO, or even before you attained that level of responsibility?
A: Boscia, LFG: A CEO should lead the company in the efficient use of office suite products, PDA wireless usage, e-mail and intranet/Internet usage. To stay competitive, a CEO must study the ways competitors are using technology to expand their businesses. I have always had a deep appreciation for technology, and my working knowledge and usage of technology has definitely increased since becoming CEO.
A: Salzmann, ACUITY: CEOs don't understand the value of patience or that monolithic projects with big-bang deliveries always fail. This is wonderful from ACUITY's point of view, because we don't fall into that trap. So we're delivering systems that but one or two other companies are capable of building, because they shoot themselves in the foot. We say, "We want to build this best vision," and we don't blanch at a four- to five-year delivery. Are we doing something wrong? No, we're doing something right. I have companies calling me asking me how we build systems, when they're writing off $15 million with outsourcing that has failed.
A: Feinstein, Farmers: I was assigned for a two year period as CIOjust enough time to learn the value of what technology can do for an organization. I appreciated the time and it certainly has prepared me well for the challenges the industry has faced. To help future leaders here at Farmers, we assign individuals to work on cross-functional teams with IT professionals. The power of technology is best learned hands-on. A CEO does not need to be an expert and it would be best if they were not, because technology changes so quickly and any knowledge rapidly becomes old. A CEO does need to understand the value as well as the risks. It is not just a financial consideration any longerit has significant strategic implications.
Q: How do you keep yourself informed, and what role does your CIO play in the process?
A: Salzmann, ACUITY: My role on the board of directors of ACORD is vital, as is working very closely with my CIO Neal Ruffalo, whom I hand-picked. I listen to him more than any other technological source. I also chose him because he gets heavily involved in the industry, knows key people at other insurance companies and in vendor companies, and he stays thoroughly plugged in as a result.
A: Feinstein, Farmers: I stay up on technology by participating in many of the meetings where technology issues are discussed. The CIO attends my staff meeting and is provided an opportunity to keep my entire staff up-to-date on key issues. I also encourage everyone to circulate interesting articles about technology. Many information technology articles are shared among the management team, looking at what the competition does, new ideas, or even old ideas applied differently.
Recently we have also experimented with transferring people out of technology into the business side, and vice versa. You can't force knowledge into someone or a group; people have to want to learn, and I believe a CEO's job is to create the atmosphere.
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