Insurers Need Tech ROI, But Cant Afford To Be Left Behind

At a time when most insurers are desperate to lower expenses, the information technology department provides a tempting target. After years of relatively free spending on big-budget tech projects–sometimes without any definite business process justification–many carriers are cutting back considerably, while making their chief information officers and vendors work a lot harder to secure funding to update or replace their tech infrastructure.

While insurance companies spent a considerable sum on IT last year–$19.7 billion–that represented a cut of 8% from 2001, according to IDC, a market intelligence firm. Although tech spending is expected to recover somewhat this year, budgets should only grow 1.6%, IDC added.

Techies gathered at the recent ACORD conference lamented the loss of funding along with new demands to demonstrate a definitive return on investment before carriers green-light any significant IT projects.

While we do not enjoy seeing insurers struggle to make ends meet or CIOs squirm, the fact that tech spending is getting a more critical look is a positive development. There is no reason why the standards for approval of substantial IT investments should be any lower than those applied to other departments within an insurer.

Insurance company CIOs always should be thinking strategically and pragmatically when proposing IT investments. There is no time or resources to waste developing applications that may or may not pan out in the real world of insurance company operations.

Senior non-tech executives have every right–indeed, they have a responsibility–to insist that every department, including IT, lay out a clear, supportable vision of how (and how soon) their projects will improve efficiency and profitability, while delivering a reasonable return on investment.

One of the reasons non-tech executives are becoming more demanding of their IT departments, outside of pure expense concerns, according to those speaking at ACORD, is that they are far more knowledgeable buyers. They know what questions to ask and they want more facts to support IT assertions after being burned on too many projects that were either late, over-budget or did not work out as planned.

However, despite these positive trends, insurers must be careful not to overreact by choking off technology investments to the point that their companies, and the industry as a whole, miss out on the benefits of upgrading antiquated systems. The insurance industry, never a leader in the technology race, cannot afford to fall any farther behind other financial services sectors.

For example, those at the ACORD conference agreed that insurers are trying their best to extend, rather than junk their legacy systems. Its amazing these dinosaurs are still around–especially since those with the skills to maintain these systems rapidly are retiring or dying off. These clunkers can only be nursed along for so long.

So, while its about time insurers are paying closer attention to the ROI on their tech investments, they must be careful not to stick their heads in the sand while the tech world continues to pass the industry by.


Reproduced from National Underwriter Edition, June 16, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.