Does Fear of Process Change Impede Carriers' Ability to Reap Tech ROI?

With insurance technology professionals in the midst of the 2009 trade show season -- the ACORD LOMA Insurance Systems Forum having taken place last month and the IASA Conference and Business Show running this week -- a new study from TowerGroup raises some interesting questions about technology investment strategies in the industry.Specifically, with budgets tight and caution the watchword, is it realistic to expect insurance companies to make the kinds of big IT investments that can truly be game changing?

The reality, according to research director Karen Pauli, is that the continuing difficulty many insurance companies have in addressing inefficient and fractured processes is a huge obstacle to achieving the kinds of IT/business alignment that is needed to drive -- and get a return on -- strategic technology investments. Pauli recently released a Research Note analyzing five technologies that TowerGroup believes to be the most valuable and sustainable for carriers' business operations in 2009 and into 2010.

The technologies that the Needham, Mass.-based research and advisory services firm covered in the Research Note, "Transformational Technology and Organizational Change: Insurance Carriers' Chicken-or-Egg Question," are electronic signatures, business process outsourcing (BPO), predictive analytics, business process management (BPM) and knowledge management. But to realize the benefits of these solutions, Pauli says, organizational and cultural changes must first occur at many insurance companies.

"We still have cases of IT trying to convince the business side that investment is absolutely necessary," Pauli reports. "Some organizations just instantly gravitate toward spectacular technology use, but the bulk of carriers still struggle with how to balance a good technology initiative -- they still want to do things in traditional ways."

BPO is a prime example of this missed opportunity, according to Pauli. "People have not used BPO in an aggressive, positive way. It is such an opportunity area." However, she adds, "On the business side, I think carriers do struggle mightily with looking at process. They are afraid if you look at the processes it will reveal management weaknesses, [and that] they do things inadequately."

Add to these institutional insecurities the fact that, despite all the rhetoric espousing business/IT alignment, very few carriers really understand what it takes to achieve this state, Pauli says. She identified Harleysville Insurance, Selective Insurance, Amica and The Hartford as examples of companies that do understand -- and benefit from -- alignment. "The business people understand that technology is a given in life, they value the collaboration [with] their IT counterparts, it's a daily and weekly collaboration, a different way of looking at technology," she explains. "There's a difference between viewing it as a project versus viewing it as a core business process."

But with recession-related financial concerns forcing all businesses to take a more cautious, transparent and time-sensitive approach to technology initiatives, aren't the odds against insurers rethinking their technology strategies? According to Pauli, the current popularity of more modular, "quick hit" solutions -- much on evidence at last month's ACORD LOMA Insurance Systems Forum -- is actually a good thing that could help close the gap between business and IT. "I actually think there are a couple of silver linings to the financial crisis," she says. "Carriers are needing to slice and dice technology for immediate deliverables. The problem most carriers and complex technology vendors have is initiatives that are 18 months long. No carrier has the guts for that.

"They now are being forced to look at technology initiatives in quicker hits," Pauli continues. "This is going to give carriers a new mindset for looking at technology deliverables. You might have an 18-month plan, but with three-month deliverables. This is forcing a number of vendors who came in with massive solutions to look at their offerings differently. Projects have to be more manageable, so you don't throw out a project at the nine- or 12-month mark because maybe something has changed in the environment. It's going to force IT and business professionals to look at technology differently. And because they are getting benefits faster, they are going to get more joy, instead of looking at it with trepidation."

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