The Continuing Importance of Business and IT Alignment: Where Do Insurers Stand?

The importance of business and IT alignment within an insurance organization was a common theme discussed by both our Tech Savvy CEOs (June 2007) and Elite 8 honorees (November 2007).

And apparently, the call of those leading CEOs and CIOs has been heard throughout the insurance vertical. But while most business and IT executives agree upon the value of IT as it relates to the strategic success of a business, a relative few are able to convert those mutual feelings into positive results.According to the Diamond Digital IQ Study, a recently report by Diamond Management & Technology Consultants, 85 percent of business and technology leaders within the insurance industry agreed upon the value of IT in strategic success. However, nearly 36 percent of those business leaders were dissatisfied with the IT strategic planning process, while only 15 percent of IT leaders shared that sentiment.

"There are some disconnects between statement and action," says Paul Blase, co-managing partner of Diamond's insurance practice.

Blase points out that a low percentage of insurance business leaders are satisfied with IT department results, in terms on-time, on-budget project delivery. On the flip side, 70 percent of business leaders believed that post-merger and acquisition (M&A) business integration processes were effective, as opposed to almost 35 percent of IT leaders.

Further, despite most acknowledging the strategic importance of IT, few business leaders have offered IT a seat at the table. Case in point: only 36 percent of the Diamond survey respondents "totally agreed" that the CIO was involved in the business strategy development process.

Those disconnects between theory and practice, Blase says, affect how insurers view IT-related ROI and performance. As a result, IT budgets can be thrown out of whack.

"If IT and the business aren't working together on the areas where IT can drive down maintenance costs, the budget becomes bloated in the wrong area and there is less money to free up for IT strategic investment," Blase says.

While the above illustrates that the insurance vertical has a long way to go, the industry is not alone. In many ways, the discrepancy between plan and practice within insurance is in line with the overall findings of the Diamond study, which included results from 456 C-level business and technology executives across a wide array of industries.

In fact, insurers stack up quite well against the whole. From both an operational and strategic standpoint, the study has found that insurers have demonstrated a strong commitment to IT, outpacing the consumer packaged goods and retail; manufacturing and distribution; and utility industries in these regards.

Further, Blase suggests that insurers are leading the way when it comes to analytics, a concept where the industry's IT and business sides have found common ground both operationally and strategically.

"One area where insurance is ahead of the game is using the vast amounts of data in the market to provide very granular risk-based pricing for their products," Blase says. "They're also experimenting with data in the market to monitor risks and help prevent or respond to risks as they happen."