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A tree flayed the vinyl siding right off your house? Better get in Allstate's hands. A driver t-boned your car because he was paying more attention to his cell phone than to the stop sign? State Farm is there -- you hope. Caught in a flash flood of customer data that's long on quantity and short on quality? Call the IT department.
When insurance companies need someone to cover their backs, the "good neighbor" these days is the CIO. The IT department has what the business needs -- clean, relevant data -- to minimize risk and stay competitive in an industry that isn't facing acts of God as much as it's facing acts of capitalism.
Getting new products into the hands of agents and processing policies and claims quickly while adapting to a softening insurance market are among today's top challenges for midmarket insurance firms. The IT department isn't just helping the business unit meet these in a nimble, responsive fashion, it's leading the way by ensuring data is relevant and up-to-date in an industry where information is everything.
Breaking the Bottleneck: How One Insurer Tackles Time to Market |
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Since my arrival at American Community Mutual Insurance Co. two years ago, the No. 1 challenge for our IT department has been getting new products (primarily insurance policies) into our agents' hands faster. The trouble starts when our understandably eager sales people begin talking up new product plans and rollout dates to key agents long before a business plan is in place.
In an ideal world, we would not develop the IT requirements for these new products until after the research and development department had corralled the appropriate marketing and actuarial decision makers, coaxed them to separate fantasy from reality and pressed them to commit to a realistic plan.
The problem I'd like to solve is getting sales to hold off broadcasting a date until the rest of the organization agrees on a plan. But the bigger issue -- the one that's ultimately more critical to the organization and more within my direct control -- is how to shrink the product delivery process and reduce our time to market.
Is your department like mine? We're moving now toward midtier and Web-based customer-facing applications, but the core applications running the business are inflexible, generations-old, homegrown mainframe systems. They do the job, but adding a new product or a new pro-vider network is a major undertaking.
My challenge is really the same one every CIO faces: IT never seems fast enough for the business. We're perceived as the bottleneck, even when we're waiting for the business divisions to deliver on their related tasks. I'm convinced that the root of the problem is that IT is at the end of the development process, like the last runner in a relay race. No matter how far behind the team is, all eyes are riveted on the anchor runner who must find a way to win. As with banking and finance, IT is at the heart of the insurance industry, so the problem might be more strategically critical for us than for some other industries, but the difference is only one of degree. We're all in the same boat.
In the past two years, we've initiated a number of actions that could allow IT to do just that. They include:
Replacing aged systems.
Our first major effort was to replace the mainframe systems with an enterprise system from an application service provider. But we had to shelve this multiyear effort temporarily because of increases in project scope and cost coupled with a long delay in the availability of what now appears to be vaporware. Meanwhile, we're implementing a separate module that processes agent commissions.
Selecting outsourcing partners.
We are selecting a third-party administrator to process some new and dramatically different product offerings that will be rolled out in the coming year. We are retaining business-critical functions internally. This project has been in the RFQ response phase; we evaluated multiple partners last month for a final decision.
Simplifying system interfaces.
We have adopted service oriented architectures (SOA) to improve communications between our disparate systems and cut the time required to make changes. A pilot project (the agent commissions module) using Web Services has already demonstrated reusability gains across three platforms; it will be implemented in October.
Improving delivery process efficiency.
During the past year, we've strengthened requirements-gathering and increased our focus on recruiting skilled business analysts. The results are clearer, more reliable requirements and better business alignment. We've also redesigned our development methodology and piloted risk-based testing with the agent commissions module mentioned above. So far, so good.
Adding resources as needed.
We have added staff in some areas, but with limited success. It's difficult to make multiple changes to the same programs simultaneously. Too many projects, especially those involving new insurance products, touch the same key programs.
With voracious competition and an impatient sales force, the urgency of delivering a winning solution has never been greater. Ultimately we'll have to replace our mainframe systems to get the flexibility and maintainability we want. Now we must figure out how to do that quickly.
Lynn A. Phillipsis CIO of American Community Mutual InsuranceCo., a $380 million insurer based in Livonia, Mich. Write to him at InsiderView@ciodecisions.com.
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As the Market Softens
For insurance companies, a softening market means slower growth. This is because pricing pressure keeps rates low for the same level of risk. "Pricing seems to be weakening more rapidly than anyone anticipated," reports Robert P. Hartwig, senior vice president and chief economist for the New York-based Insurance Information Institute. His research shows a net growth of only 4.7% for 2004 in terms of premiums written, less than half the growth rate for 2003. Furthermore, the Institute predicts that number will slip to 2.7% for 2005.
Competition is one driver of the decline. According to Marc Cecere, a vice president and principal analyst with Forrester Research Inc. in Cambridge, Mass., last year's fitful hurricane season actually helped raise premiums, especially for property and casualty insurance. According to the Institute, 2004's four storms spawned a record 2.2 million claims and more than $20 billion in losses. However, as more people needed coverage, more insurers got into the game, which has ultimately driven premiums down.
This has been good news for insurance consumers, but poses challenges for the business -- and IT.
"On the IT side, CIOs are being asked to use IT to reduce business costs," Cecere says. "But at the same time, they are picking up added expenses for SOX [Sarbanes-Oxley] and other regulations. This is putting a greater cost pressure on IT."
Steven Linkous can feel the hard reality of softer times. The senior vice president of finance and IT at $113 million Hartford Mutual Insurance Cos. in Bel Air, Md., is doing his best to adapt his department to the changing business climate. The first step has been to rapidly research technology resources and push them out to agents in the field just as quickly. "We're providing agents with Web and automation services and trying to tie them in," Linkous says. "We see IT investments increasing as we go."
For Acuity Mutual Insurance Co. in Sheboygan, Wis., which wrote $693 million in claims last year, the focus is on creating new business and retaining customers. IT is helping by offering business intelligence (BI). "Where and how do we cultivate profitable growth as prices soften?" asks Neil Ruffalo, Acuity's vice president of IT. "We have built our own data warehouse and use a combination of tools such as Business Objects to mine the information."
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