Despite the pressures virtually all insurance technology executives are under to reduce costs and achieve measurable returns on technology investments, the competitive environment requires CIOs to identify and pursue enabling technologies that will allow their firms to become increasingly flexible and efficient, as well as improve service and bring products to market more quickly. This was the theme of Insurance & Technology's fourth annual Executive Summit, which last month gathered more than 100 top insurance technology executives and solutions providers for three days of education and networking.
"The New ROI: Balancing Vision and Value," the theme of Executive Summit2002-which took place at the Arizona Biltmore in Phoenix-was addressed in a variety of ways by the conference speakers. "The technology and consumer experience intersection is happening in all industries and if the insurance industry doesn't find a way to deal with it, the industry will look bad" when compared to others that do, warned John Ounjian, senior VP and CIO at Blue Cross Blue Shield of Minnesota.
For instance, explained Ounjian, insurance companies have traditionally taken a "one-size-fits-all approach to customer service" and have not taken into account differing customer, agent, or policyholder needs. "Insurance companies have to change that thinking immediately," he said. "We have to ask ourselves, 'What are the customer's needs?' Customers simply want resolution quickly and the solutions that provide the resolution should be passive," or easy to use. Insurers should "shift toward creating value for internal and external customers by developing a new delivery model that embraces service, innovation and simplicity."
Carefully analyzing a customer's needs should also play a part in the return-on-investment equation, Ounjian said, "and ROI should not be thought of in the short term," pointing to the classic ATM adoption-rate analogy as an example of technology that did not show strong ROI in the short term but pays off today.
Hard To Quantify Benefits
In fact, leveraging the Internet to provide customers with superior customer service is just what Nationwide Insurance is in the process of doing, according to Tracy Smith, chief technology officer, Nationwide Insurance. However, he pointed out, the benefits of giving customers more points of contact is something that is hard to quantify when it comes to doing ROI analysis. "The softer costs are harder to estimate and that is a real challenge for IT," he said. "But when you implement technology to reduce cycle time so we can rapidly respond to a catastrophe, the hard benefit is difficult to quantify" and the soft benefits-increased customer satisfaction-actually becomes the driving force for many initiatives.
Another hot topic related to tech ROI is outsourcing, and speakers emphasized that the cost savings associated with outsourcing are no longer simply enablers of competitive advantage, but necessary for the survival of an insurer's IT organization. "The ability to outsource is a matter of survival, as long as you do it right," said Mark Reynolds, SVP and chief administrative officer, Lincoln National Life Insurance Co. To have a successful outsourcing deal, said Reynolds, IT executives must be able to understand their own costs, as well as the competition's costs. Also, when embarking on an outsourcing deal, it's important to map out exactly what the organization is trying to accomplish. If management can't define what it is hoping to accomplish by outsourcing, "don't outsource," advised Reynolds.
Although outsourcing isn't a solution to all of an insurance technologist's problems, "if we didn't outsource, surviving would be a lot less comfortable," said Russ Bostick, EVP and CIO of Zurich Life, who noted that for a mid-sized company such as Zurich Life (an aggressive outsourcer to India), "we have to figure out our core competencies-it's even more critical than for larger companies. And we have to access the global marketplace for IT skills." Another objective is to be able to respond to rapidly changing business conditions.
Although political and economic risks go along with the low costs of global sourcing, according to Bostick, there is a strong business case to be made for sending information technology to emerging markets such as India. These include the largest pool of English-speaking foreign nationals in the world, as well as increased quality and low unit costs. For instance, he said, in-house programming costs can range from $85 to $100 per hour. Through the use of global resources, programming costs can range from $20 to $60 per hour. Ultimately, Bostick says, shifting to a global outsourcing strategy "clearly will have the greatest impact on our competitiveness."
Mix of Science & Art
Ultimately, calculating and measuring technology return-on-investment is not strictly a science or an art, but rather "a bit of both," according to James K. Watson Jr., CEO of Doculabs, Inc. The art requires that technology executives gain the respect of their business counterparts, while the science has to do with mechanics and metrics that measure payback, such as cost-benefit analysis. Unfortunately, the fact that ROI is not a simple, cut-and-dried concept has left insurance technology executives with something of a "credibility gap," Watson noted. "We have to build a conceptual vision and back it up with hard numbers," he explained. "But the lack of hard numbers is frustrating."
But there are limitations in the concept of ROI, Watson argued. "One absolutely critical trend we see is that people are looking at the impact of IT investments on a firm's balance sheet. The emphasis used to be on savings and revenue-it was focused on the income statement." He advocates broader use of the "return-on-asset (ROA) metric-the productivity of your capital stock. The IT function probably doesn't have enough understanding of how the CFO thinks about the productivity of capital."
The theme of "doing more with less" was also sounded by keynote speaker Billy Beane, general manager of the Oakland Athletics baseball team-a small-market team that has achieved notable success in recent years despite the fact that its revenues are only $80 million, compared to the league-leading New York Yankees' $250 million. Beane told the Summit attendees, "We have no choice but to do things differently. We started taking a very objective approach, to create risk-free management of the team and take advantage of the inefficiencies in the market."
Another highlight of this year's Executive Summit was the Elite 8 2002 Awards dinner, which honored the eight leading insurance technology executives profiled in Insurance & Technology's annual special issue: Carl J. Ascenzo, Blue Cross and Blue Shield of Massachusetts; Dennis Callahan, Guardian Life Insurance Company of America; Paul Donovan, ING US Financial Services; Ken Jaffe, MetLife Investors; Bill Levine, AXA Financial; Sherry A. Manetta, The Phoenix Companies; John P. Sommerwerck, Erie Insurance Group; and Billy McCarter, Fireman's Fund Insurance Co. (who just after the Summit announced plans to join ePolicy Solutions as senior vice president, client engagement).
During a panel discussion at the Summit, some of this year's Elite 8 honorees discussed the challenges they face at their companies in maximizing IT budgets. For example, at ING US Financial Services, "my budget was $350 million last year, $317 million this year, and will be $304 million next year," reported Paul Donovan, executive vice president and CIO. Part of the decrease comes from efficiencies gained through an ongoing series of systems consolidations, part of the insurer's CIO (Consolidate, Integrate, Optimize) initiative. Still, Donovan said, "it's tough to achieve these integration goals with our budget challenges."
In addition to dramatically scaling back the company's reliance on outside consultants, AXA Financial has implemented what executive vice president and CIO Bill Levine described as "a zero-based process, to see how we can retire old systems." This involves cost assessment of processes, including requiring the business owners of legacy systems to calculate the true total cost of ownership (TCO).
Sponsors of Insurance & Technology's Executive Summit 2002 were: Blaze Advisor from Fair, Isaac, CSC, Cap Gemini Ernst & Young, CheckFree i-Solutions, CGI, Deloitte Consulting, IBM, NaviSys, Questerra, SAP, SeeBeyond, Selectica, SOLCORP, Steel Card, Sun Microsystems, Tata Consultancy Services (TCS), and Wipro Technologies.
For information about Insurance & Technology's 2003 events portfolio: Executive Summit 2003 (Nov. 9-12, 2003), as well as the Customer Service Leadership Forum (April 2, 2003, New York City) and the Insurance Standards Leadership Forum (Sept. 24, 2003, Chicago), contact Katherine Burger, Editorial Director, [email protected], or visit I&T's Web site, www.insurancetech.com.
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio