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Joe Guastella, Global Insurance Leader, Deloitte
Joe Guastella, Global Insurance Leader, Deloitte
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Doing ’More With Less’ Requires Selective IT Spend Targeted at Short-Term Gains

Insurance Tech Outlook 2009: Focus investment on short-term cost reductions and/or customer experience enhancements, suggests Deloitte's Joe Guastella.

Insurers, like companies in other industries, will need to learn to do more with less in 2009. In the current economic climate, how can insurers continue to have a meaningful impact on revenue growth and expense control? The answer is to do things more efficiently and effectively — and technology is a key tool to make that happen.

Joe Guastella 
Global Insurance Leader, Deloitte (New York)Given the current financial challenges being faced by insurers, especially those in the life and annuity lines of business, carriers will need to increase their focus on containing expenses of all types, including technology investments. However, wholesale cancellation of technology expenditures would be short-sighted. There is a very direct correlation between certain types of IT spend and subsequent reductions in operating costs.

It would be naïve to think that IT budgets should remain untouched by today's realities — rather, more than ever before IT leadership needs to demonstrate the value of selected investments and know where to cancel efforts. These selected investments should focus on ways technology can lead to short-term cost reductions and/or quickly enhance the customer experience, leading to improvements in customer acquisition and retention measurements. As part of this, technology executives must provide a clear and supportable explanation — and subsequent demonstration — of return on investment.

As the size of technology budgets are discussed, technology decision makers often consider how much of their team should be a fixed versus variable cost. Too often technology managers fit their "must have" projects to the size of their organizations. Aligning supply and demand with the right mix of fixed and variable costs must be determined by applying sound IT leadership judgment. No tool or formula can help here.

Projects in which IT is a catalyst for growth — such as customer segmentation, producer support tools and customer retention investments -- will be more difficult to approve unless also accompanied by lower-cost processing or other cost-reduction opportunities. One increasingly important topic of interest in this area is applying algorithmic solutions — also known as predictive modeling or advanced analytics — to a number of business problems associated with client acquisition and retention. Their track record has proven that using data more effectively will allow "better, faster, cheaper" — a key set of objectives for the current climate.

Another challenge will be the increased pressure to do more with less when it comes to business as usual — IT organizations are going to need to look more carefully at their operating models and capability requirements. As an example, a number of insurers are starting to think through the process of "right sourcing" to obtain a better balance of value and savings. Over the last couple of years, there have been investments and significant improvements in the management processes intended to align IT expenditures with business strategies — and this focus likely will increase going forward.

M&A Mind-Set

IT governance, another important consideration, needs to take on an M&A mind-set and focus on shorter-interval deliveries. In today's economy, companies need to understand the long-term strategy but appropriately "chunk" the project to deliver benefit every quarter. Innovative leaders will be served well by driving their teams to continually deliver value. To succeed in this environment, technology executives must have the correct mechanisms in place to make sure allocation of investment capital is made appropriately — for example, using more-rigorous measurement techniques to track benefits and outcomes like those typically seen during M&A transactions.

Though it will be a challenging time, 2009 could also be a turning point for insurance from a technology standpoint. Long thought to be a less innovative industry in terms of technology, insurance may find that appropriate investments in IT programs are part of the foundation that will support the industry through the difficult months ahead. With customer satisfaction levels higher than other financial institutions, the additional capabilities that could result from the technology investments could make for a winning combination.

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