Survival Skills: Insurance CIOs Must Adapt to Changing Market

Insurance CIOs must focus on business strategy and results to survive, according to Michael A. Costonis, Executive Director of Accenture's North American Insurance Practice & Global Claims Lead, and Keith Lippiatt, Managing Director, Technology Consulting Financial Services, Accenture.

Insurance CIOs often live in the hot seat, pressured to run large-scale IT organizations efficiently while also expected to invest in innovation and enhance the business. And CIOs are feeling even more pressure in the current environment as insurance companies grapple with declining asset values, investment losses, looming regulations, and high churn rates as customers increasingly make cost-based buying decisions.

Given the economic downturn, IT budgets will likely be flat or in decline. Therefore, CIOs must set priorities judiciously and innovate. They also must navigate potential conflicts between IT and the business, such as attempts by the business to improve underwriting rigor and customer retention while simultaneously cutting IT and other costs.

How, then, can CIOs at insurance companies adapt their skill sets and approaches in response to these various challenges? Following are seven steps every insurance CIO should be pursuing:

• Develop greater business acumen to help set and execute business strategy, thereby positioning IT as an integrated and core component of the company's strategy.
• Scan the market to identify opportunities for competitive differentiation by visiting field offices and agencies to understand their technology needs.
• Adapt quickly to changing business priorities by proposing new application functionality to process claims less expensively or strengthening the role of business/IT relationship managers to work with business unit leads on evolving IT needs.
• Understand how IT performance drives core business processes and outcomes by reporting IT benefits and costs against business objectives and making IT spending more transparent.
• Manage the portfolio of IT projects and assets with the business case discipline by rationalizing and renewing legacy applications when there is a positive return on investment.
• Engage the business by establishing a common language, such as defining a catalog of bundled services that business users can understand and apply.
• Manage resources in a way that raises the skill level of the IT organization, such as requiring documentation of procedures and architectures to combat turnover of vended resources.

Armed with these capabilities, CIOs can position IT strategically to help accomplish overall business objectives. Executives such as Markus Nordlin, CIO at Los Angeles-based Farmers Insurance Group (a subsidiary of Zurich Financial Services) and James Knight, the global CIO for Chubb & Son (Warren, N.J.), demonstrate the proven skills of a business strategist.

The New Breed of CIO

This new breed of CIO focuses on aligning IT with the business and delivering positive economic results. For Nordlin, this was accomplished by establishing long-term road maps with each business unit that integrated business and technology initiatives to align Farmers' technology investments with business value and outcomes. For Knight, a strong track record of delivering new capabilities in claims has led to sustained improvements for Chubb.

Leading CIOs, such as Nordlin and Knight, are pursuing opportunities to reduce costs and optimize infrastructure by rationalizing services and technology projects, upgrading storage, virtualizing servers and providing tiered service levels. They are also taking other cost saving measures, such as using technology to streamline their distribution channels and increase back-office efficiency.

Some CIOs are also refining their companies' IT resource strategy to transform certain fixed costs into variable costs through, for example, selective sourcing arrangements. They are striving to balance the volume of services consumed with the number of strategic partners used and the quality of their services.

On the revenue side, CIOs can enable growth by improving business analytics to micro-segment markets and optimize pricing structures, thereby boosting underwriting profitability.

In the mergers and acquisitions arena, business-focused CIOs assist their companies in identifying and delivering on synergies through rigorous pre-deal planning and program management during post-deal integration. They are also creating application, information and technical architectures that readily scale as their companies enter new geographic markets domestically and internationally.

Over the past few years, the average tenure of insurance company CIOs has been trending upward, exceeding five years. But this dynamic market will be less forgiving of CIOs needing on-the-job training. CIOs that focus on the business strategy and results are more likely to succeed in the current economic climate.