Show Me The Money, IT Departments Are Being Told
Insurers, pressed by a tough economy, are examining automation projects with a “show me the money” attitude, insisting that information technology departments quantify and speed up the return on investment, tech industry leaders here warned.
Bottom-line concerns have prompted carriers to cast a much more skeptical eye on initiatives proposed by their IT departments to upgrade or replace any part of their tech infrastructure, speakers on a series of panels noted here during the annual conference of ACORD, the insurance standards organization based in Pearl River, N.Y.
“Were caught up in a tornado of ROI demands the past 18 months,” said Robert Cooper, a vice president at ILOG Inc., a multinational business process software firm in Mountain View, Calif.
Speaking on a panel featuring “First Movers: Leaders In ROI,” he added that “the emphasis is on IT projects that can achieve results very quickly. Were being compelled to take on bite-size chunks instead of the bigger, more ambitious projects that were more of the norm two and three years ago.”
Insurance companies spent $19.7 billion on IT in 2002–down 8% from the year before, “with hardware taking the largest hit,” noted IDC, a market intelligence and advisory firm, in a report released right after the ACORD conference. For the current year, IDC said insurer tech spending is expected to increase by an anemic 1.6%.
“This is an industry that has been troubled with uncertainty for the past year and a half, and it will take time for profits and the market to stabilize, and even longer for significant IT investments to be made,” according to Jessica Goepfert, an IT program manager for the U.S. financial services sector at IDC, which is based in Framingham, Mass.
“However, barring any unforeseeable catastrophes, the groundwork is laid for more favorable IT spending,” she added in an IDC press statement. “We expect the insurance sector to slowly return to normal growth” over the next five years.
IDC said IT projects most likely to gain funding will be those that help the companies run more efficiently (like outsourcing), drive profitability (like improved underwriting capabilities), or help achieve differentiation in a crowded market (like enabling brokers and agents to improve service).
Some panelists at the ACORD conference spoke nostalgically of the “gee whiz” days when “tech ruled” and major investments for long-term projects were relatively easy to secure from insurers.
“During the booming 1990s, CIOs got lazy. All they had to do was say e-commerce or Y2K and you got your funding,” said Gary Beach, publisher of CIO magazine in Framingham, Mass., at ACORDs closing CIO panel.
Now, however, carriers are far more stingy with all their expense decisions–technology included, the panelists agreed.
“The days of insurers throwing logic to the wind and pursuing a new tech project before you have a solid business process justification for it are over,” Kimberly Harris, research director at Gartner Group, a research and consulting firm in Stamford, Conn., said during ACORDs opening panel on industry IT trends.