San Francisco

In what will likely come as a great surprise to information technology professionals and insurance business professionals, IBM said its research has revealed that the amount of IT spending an insurance company does bears no relation to how successful the company is.

According to William Pieroni, General Manager, IBM Global Insurance Industry, White Plains, N.Y., IBMs research takes in the largest insurers worldwide, including both life and property-casualty carriers. Their combined $2.5 trillion in gross premiums represents a 99% global share, he said.

The IBM research sought to identify “winning insurers” with “winning strategies,” based on numbers that included total shareholder return, return on equity, combined ratio, and premium compound annual growth rate, said Pieroni. Out of some 10,000 total companies examined, about 5% are “winners,” according to those benchmarks.

Technology spending among the winners, however, was only slightly above the average, Pieroni reported, and about two-thirds of that spending was on “old technologies.”

When comparing IT spending with total shareholder return and other measures, he explained, “Its not predictable. There is no real correlation, either good or bad.”

Asked why IT spending doesnt seem to be a factor in overall success, Pieroni observed: “There are some problems money cannot solve. You want to build a state-of-the-art claims system, but does the companys structure and resources allow you to do that?” The key question, he said, revolves around what a company is “able to do” within its resources and structure.

Much of the issue depends on what kind of customers you have, he noted. “Its OK to under spend on technology if youre [a company like] Geico–a price competitor.” If a company is catering to high-income individuals with greater expectations, however, it might want to invest in technology such as phone systems that make sure customers dont have to wait too long for service, he said.

“The key is that insurers need to think about how to minimize the total [technology] capability cost as a percent of net written premium,” he continued.

Pieroni also observed that, “Insurers dont do IT spending because they dont think they can measure the results.” He maintained, however, that such results could be measured through controlled studies.

Who should be spending money on technology? According to Pieroni, carriers who need increased productivity in baseline areas like underwriting and distribution are prime candidates.


Reproduced from National Underwriter Life & Health/Financial Services Edition, September 26, 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.