CIOs Stress Prioritization in 2009
Somewhere in the December 2008 issue of GQ (hidden like a needle in a haystack of fashion and expensive watch ads) is a letter from the magazine's editor-in-chief, Jim Nelson, that explains the prognostic nature of the magazine business. In GQ's case, that meant naming Barack Obama as one of its Men of the Year, despite not knowing as of press time if he would win the presidential election. "In these hurly-burly times — when not even economists can agree on whether we have an economy — it's damn near impossible to predict anything," Nelson noted.
Perhaps a similar sentiment could be expressed by insurance industry CIOs as they forge ahead into 2009. In the late third quarter, most insurers were busy creating their IT budgets for the coming year. And yet, at the same time those budgets were being constructed, the very economic foundations upon which they were built were undergoing seismic changes.
"With many insurers basing their IT budgets on a percentage of written premiums, if premiums decline, so do budgets," explains Chad Hersh, an Austin, Texas-based principal with Novarica. "But this is offset by a couple of factors, such as the moderate hardening — or at least flattening — of P&C rates expected in 2009 and the fact that many carriers specifically allocate dollars to strategic IT projects outside the IT budget."
As a result, many CIOs are entering 2009 with a sort of cautious optimism. While almost everyone acknowledges that the current economic environment will lead to tough decisions and a need for IT spending discipline, few CIOs foresee the kinds of drastic cuts that could cripple their IT shops' innovation or operational effectiveness.
NYMAGIC ($1.1 billion in total assets) CIO Craig Lowenthal, for instance, says he doesn't expect the business to ask him to make cuts in IT, but he's still preparing to do it. "So far, sitting where I'm sitting now, the effect of the financial crisis at the moment is minimal," Lowenthal says. "Knock on wood that it stays that way."
Most CIOs appear to be looking at the current state of the industry as a challenge to complete the IT projects that are most critical to their organizations' long-term goals, while still preparing to meet potential requests from the business for more hard-dollar savings. At its core, 2009 will be a year of prioritization for insurance carrier CIOs. Which IT initiatives need to be completed as planned, and which can be postponed? Which projects will improve the bottom line?
For Lowenthal, prioritization has meant increasing focus on the New York-based carrier's legacy replacement effort that began in January 2008. Much of the investment in that major initiative has already been made, and it would be to the company's detriment to delay the system's mid-2009 release date, he points out. As a result, Lowenthal projects a 5 percent increase in his 2009 IT budget over last year's. "Because I've already started [the legacy replacement] and I'm really invested in it, it needs to be completed," he relates. "I don't want to compromise on that, because we're so close."
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