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Gearing Up for Long-Term Growth

On the record this month with Wayne Ratz, senior vice president and CIO at Harleysville Insurance.

Almost everything that IT does at Harleysville Insurance (Harleysville, PA, $2.7 billion in assets) is part of an effort to support the company's goal of becoming the premiere provider of insurance to small P&C markets, according to Wayne Ratz, senior vice president and CIO. Ratz oversees IT management for the entire 14-company organization. In addition to managing the centralized infrastructure, Ratz oversees integration of the systems of merged and acquired companies.

I&T: The Harleysville Insurance organization is made up of 14 companies. Do your CIO responsibilities encompass all of the members of the group?

Wayne Ratz: I manage the IT for all those operations. There are about 300 employees in the IT department. The technology infrastructure is centralized, so as Harleysville buys companies, my job is to integrate those companies into our centralized environment. So even though we have a number of different companies, we operate them technologically all out of one site.

I&T: During the dot-com boom Harleysville gained recognition for an IT retention rate that reached 95 percent, despite the payment of mid-point salaries. How has the IT work environment changed since the economic downturn? Have there been any IT layoffs?

Ratz: Actually, we have had very little impact on IT during the economic downturn. I would say the insurance industry as a whole has been pretty stable during this economic period. Even though the dot-coms were exploding, financial services companies, and primarily insurance companies, were stable and actually growing during that time, so we've had no layoffs and we have probably maintained our retention at the same rate as it was before. Last year we were voted one of the top 100 IT shops in America to work for by Computerworld. Part of the reason for the award is that we have been on a very aggressive technology infusion plan over the last four or five years. We are introducing a lot of new technologies, doing a lot of neat new development projects, and that actually keeps people enticed and happy with their jobs. Plus, by infusing a lot of new technology we've been able to provide training on these new technologies to our employees.

I&T: As of January 1, Har-leysville completed the acquisition of Penn Mutual Insurance. What are the steps you go through to determine the technology implications of acquisitions, and how are these expenses budgeted?

Ratz: Normally we go through a due diligence process to make sure that we understand the technological environment of the company that we may acquire or merge with.

Once we understand that, we develop a plan that says how we will operationally infuse their business into ours. We also ask questions like: Is there technology that an acquired company has that we might want to use? Is there technology that the acquired company has that we don't want to use but we will merge its processes into our technology base?

Penn Mutual is a reasonably small company—they only have $33 million in written premium. Because we are a $2.7 billion company, the odds are that our technology is probably a lot more industrial strength. Not that they have bad technology, but normally the scalability of the technology of a small company isn't the same as the scalability of a billion-dollar operation. So we normally evaluate it and then decide how we will infuse an acquired company's technology into our operation. Normally after a due diligence we come through and make up a budget and determine what it will take and how long it will take for us to infuse the acquired company's policies and systems, such as accounting and human resources, into our systems. Harleysville always determines the budget at the time of due diligence.

I&T: What are some challenges faced by carriers underwriting personal and commercial P&C insurance, and how are they affecting IT strategy at Harleysville?

Ratz: In today's underwriting environment for both personal and commercial lines there are a lot more factors that need to be taken into consideration. Harleysville Insurance would certainly like to have many more connections to third-party information sources in order to collect information concerning motor vehicle reports, credit scoring information and lifestyle characteristics.

Harleysville has been able to expand our systems to capture and retain information for underwriting capabilities. And we have already begun the next step by building underwriting systems that take those factors and add value to the judgments that the underwriters make. So, expanding the amount of information that we take in, expanding our systems to be able to keep and retain that information and then being able to massage that information into some decision-making capabilities for underwriters is a Harleysville objective.

I&T: How has Harleysville's long-term growth business strategy affected your personal technology philosophy?

Ratz: Knowing that Harleysville's goal is to grow faster than the industry means that every time we make a technology decision we have to make sure the decision is truly scalable to double our capabilities to support the business. If I currently have one million policies and I think Harleysville will need to be able to support 1.8 million policies over the next five years, I have to make sure that my decisions, whether they are regarding hardware, software, processing time or connection speeds, are long term. Having such a strategy actually makes you invest a little more money now, because that way you know it will not be necessary to switch things out constantly every one or two years.

I&T: How are business objectives communicated to you and Harleysville's IT team? Is it done both formally and informally? How often does such communication take place?

Ratz: It's done in both ways, but we have a very active information technology steering committee that I chair. The committee is made up of all the senior vice presidents from all of the various areas: personal, commercial, billing, claims, investments. Also, Harleysville's CFO and president sit on that committee.

That committee meets every six months, but I also sit on the company's executive committee, so I feel pretty close to what's going on in the business side. Harleysville's business side counts on IT and doesn't make too many decisions without involving IT. Harleysville has a pretty integrated environment. It is probably better than most companies that I've seen from the standpoint of involving IT as a critical part of the business. I think that in today's environment there aren't too many big insurance companies that can survive without making IT a critical component of their decision-making process.

I&T: What are some of the technology initiatives that you have planned for 2003?

Ratz: One is to integrate Penn Mutual Insurance with Harleysville. We have also had a consolidationprocess for two of our other acquisitions over the last year (The Lake States Insurance Co. and Minnesota Fire and Casualty). We are finalizing the integration of all of their operations back to our central location right now. We are just beginning to revamp our billing system. We haven't decided whether to buy, build or reengineer, but we are in the process of working on that. We are also looking at rebuilding our entire business owner's program. Another focus is to maintain the rates and regulatory issues that have cropped up rather recently.

I&T: Have the financial resources that have been allocated to Harleysville IT in 2003 been reduced, increased or stayed the same? How do spending strategies in 2003 differ from those in 2002?

Ratz: For 2003 our IT budget has increased by about three percent over our 2002 budget. Harleysville's IT budget is determined through a planning process that is heavily influenced by our business objectives, as well as the IT steering committee. We begin planning processes in the late summer and use a three-year rolling schedule, since many of Harleysville's major projects involve multiple phases and cross over multiple years.

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