2011 IT Outlook: Gotta Wear Shades 

We’re about to say goodbye to another year and the further we distance ourselves from the dark days of 2008, the better things look for the insurance industry as a whole and insurance IT in particular.

There are plenty of issues ahead, though, as we wrap up 2010 and look ahead to 2011. Tech Decisions asked several IT leaders to comment on these issues in a Q&A format we call the IT Town Hall.

Taking part are Stuart Tainsky, senior vice president and CIO of PURE; Kevin Gordon, CIO of corporate systems at Genworth Financial; Paul Ayoub, vice president and CIO of Hastings Mutual Insurance; Piyush Singh, senior vice president and CIO of Great American Insurance Co.; Tom Peach, CIO, Zurich North America Commercial; and Ernie Pearson, IT director, applications development, SECURA Insurance Companies.

Tainsky: While many insurance companies saw this as a recovery year, PURE continued to see tremendous growth as we expanded nationally in 2010. We’ve been focused on rolling out to new markets while also having a keen eye towards enhancing the company’s operational scalability, using the most innovative solutions we can find in the marketplace. PURE’s IT team has implemented some exciting new technologies that have streamlined the billing, policy issuance, and underwriting processes to require fewer manual steps. We have a very aggressive docket for 2011 that we very much look forward to tackling.

Gordon: As far as our IT department, in 2009 we weren’t doing many large IT programs, but we took advantage of that and worked on improving our fundamentals—operating technology within standards and controllership. I look at 2010 in two parts. I’d characterize the first half of 2010 as getting the machine oiled and running again—reviewing business goals and priorities and opportunities to leverage technology competitively. In the second half of 2010 we launched several significant IT programs.

Peach: The economy has very direct impact on our insurance business and our ability to make profitability targets. The conditions remain challenging and we expect this challenge to continue into 2011. Yet, Zurich has been fortunate to report exceptional earnings during one of the most difficult economic times in recent history. This success has been a result of proactive planning and measures taken well before the height of the economic crisis. Our executive leadership took early actions to focus on profitable growth, smart capital management, and operational excellence. Since these measures were taken years ago, there has not been much impact to the way we run our business in 2010.

From an IT perspective, we were also involved in early measures to reduce expenses and improve flexibility. We dramatically changed our staffing model and increased the scrutiny on technology investments to ensure they delivered value to the company. Starting in 2009 and continuing into 2010, we were able to really capitalize on these changes, improve delivery, and be an enabler of strategy. The technology focus has been on transforming the business to be more customer-focused, efficient and effective.

Ayoub: This has continued to be a challenging year for our company due to the weak economy and weather-related challenges in the Midwest. Our IT department has continued to deliver results with resource constraints, good planning and prioritization.

Pearson: As a P&C company, we’ve been more impacted during 2010 by the soft market, declining payrolls (for workers’ comp business), and weather events than by the economic recovery. Due to higher frequency and severity of weather-related losses in 2010, it will likely turn out that 2009 was a more favorable year for our company. It’s been business as usual for our IT department.

Tainsky: At the onset of this year, we made ourselves the process re-engineering client and did some redesigning of what it takes to develop a new state and the associated products. Through this, we are now able to deliver a new state in a very compressed timeline. Working side-by-side with our product management team, we are poised to continue to deliver PURE’s service offerings to many new markets next year.

This year, we also had a huge success with our electronic policy and bill delivery system implementation. We took on an aggressive strategy at the beginning of the year to make electronic delivery the default for the distribution of documents (policies and bills). We kicked the project off in January and distributed our first policy and bill electronically at the end of July. We are thrilled that as of the end of October, over 45 percent of our new business is distributed directly to a member’s e-mail inbox.

Pearson: We’ve been able to grow direct written premium better than what was forecasted for 2010.

Peach: Zurich’s continued strong financial results have allowed us to continue developing strategic programs where many of our competitors appeared to have had to slow up and retrench.

Gordon: The outlook is very positive for our IT operation as we have an opportunity to play an increasingly important role. The desire to better predict future business performance is driving investments in business intelligence and analytics. We continue to have opportunities to better connect with customers and automate processes. The regulatory environment, specifically Solvency II, IFRS/US GAAP Convergence, Dodd-Frank, and Principles Based Reserving, also have technology implications that present opportunities for IT to prove its value to the organization.

Peach: I don’t expect much change to how we will run our IT operation next year. I expect we will continue to keep expenses low and focus our key resources on our larger-impact projects. One of our primary focuses will be on the continued building of enterprise level technology products, while reducing legacy systems. This provides us with more efficient and effective technology platforms, with improved functionality and reduced maintenance costs. We will also continue to strengthen our data analytics.

Tainsky: We will continue to use our re-engineered processes to launch quickly into new markets in 2011. Aside from that, we continue to focus on straight-through processing, streamlining our business processes, and underwriting decision support projects leveraging our state-of-the-art system architectures. We’ve taken some initial steps in 2010 and we’re now ready to take more of a leap forward.

For the industry at large, I see a lot of my peers still focusing on core system replacements. More is being asked from IT groups and many of these requests are just not possible on older technology. Combine that with the issues of retiring workforces and some of my peers have some pretty big challenges. Core system replacements and the ongoing maintenance of these legacy systems will still be on the docket for many carriers. Additionally, I hope a lot of insurance carriers will continue to look at ways to better connect with their clients. There’s a big opportunity to improve retention rates through better relationships with agents and insureds.

Ayoub: In IT we are still going to be constrained from an expense standpoint and will work to do more with the same. In general, the industry is beginning to come out of the recession, but is being cautious about spending.

Singh: The biggest issue that concerns me is there is not enough venture capital being invested that will lead to innovation concepts materializing into solutions for the industry. There also does not seem to be an appetite among the larger players in the software-vendor industry to invest dollars and be transformational in the insurance industry.

Ayoub: I believe there will be greater focus on mobile computing and the use of social media in insurance technology. This is only a concern because of our ability to focus efforts in these areas while managing the demand for more traditional IT projects.

Peach: My biggest concern with the future direction of insurance technology is the ability to support speed-to-market opportunities. The insurance landscape is pressing for new insurance products to be in the marketplace at a lower cost and with greater efficiencies than ever before. The technology landscape as currently defined is having a hard time keeping up. This increases manual operations, which in turn drives up the total cost of product ownership.

Tainsky: Instead of concerns, I actually see this as the most optimistic time for technology leaders working in the insurance sector. The technology available today far exceeds anything we would have thought possible just five years ago. Having open architecture systems available where you can easily pull data in and out allows for capabilities we didn’t anticipate a few years back. In the past, all systems being closed and having to write difficult interface programs to get them to speak was just a fact of life.

Now with these upgraded software solutions opening up to allow for SOA, being able to do difficult integrations easier and in real-time is something that makes it quicker to deliver tremendous value to our business partners. At PURE, we are taking advantage of Web-service architectures in a number of ways. We’re saving man hours each month not having to do manual look-ups as the data flows directly in from outside services.

Pearson: Our company continues to focus primarily on our relationships with our independent agents. Our ranking as fourth in the nation in the most recent ease of doing business survey by Deep Customer Connections is strong evidence of the success we’ve had in building these relationships.

Tainsky: We are currently marketing with both co-branded as well as just PURE-branded pieces. We have a strong partnership with our independent agents and have developed some interesting programs with them. In the past year, we launched a Web-based tool to facilitate our independent agents’ development of co-branded marketing campaigns. We’re going to continue to develop interesting methods of helping our agents get PURE’s and their names out there.

Peach: We have clear strategies to provide better service to our consumers. In most cases its not an either/or situation, but a combination of consumer improvements in conjunction with our independent agents.

Ayoub: We are focusing our efforts more heavily with our independent agents.

What have you done in the past year to improve the knowledge of your business users through data projects and predictive analytics? What lies ahead in 2011 for this initiative?

Peach: We have newer predictive modeling capabilities and we will continue to roll these out to different products over the next couple years. We also plan to continue to mature our data analytic capabilities. We plan to further solidify aspects of our data governance model and better engage the business partners to own customer and distributor information.

Pearson: We are currently implementing major projects in the areas of business intelligence and predictive modeling. Both of these projects will continue in 2011.

Ayoub: We’ve been developing multi-variant rating in personal lines and doing research into predictive analytics for our commercial lines in 2010. In 2011 we will continue down this path to determine what is appropriate for our organization.

Gordon: Genworth is making significant investments in improving our actuarial and risk management capabilities. In 2010 we began work on a program to upgrade our actuarial valuation and projection systems and built the data and analytics infrastructure to support them. In 2010 we also delivered the first generation of an economic capital modeling system. Further investments are
planned for 2011 in both areas.

Tainsky: We spent a considerable amount of effort ensuring we have good data quality throughout the organization. We committed some of our best resources to validate data and ensure that the entire company was operating from "one version of the truth." We’ve incorporated some advanced data cleansing and governance procedures that have already started to show value in the analysis of the operations. In 2011, we are going to continue to use analytics to help drive business decisions. We are currently evaluating partners to help us get up and running quickly with robust dashboards and predictive analytics. The availability of some of the new solution providers enables us to have options in selecting a model that fits our size and growth plans.

Singh: Addressing core systems as well as systems that are peripheral to the core and taking them to the new world is a responsibility that is squarely on the CIO’s shoulders. It is imperative that CIO’s address the issue for the long-term sustainability of the organization as it has a direct impact on a few aspects: ease of doing business, time to market, eliminating non-value add activities in the information supply chain, and most importantly enhancing the data quality so that it can be mined for information. We at Great American have addressed the issue head-on and are well on our way to replacing the core and all the peripheral systems. From my individual perspective my argument for folks who say it is too big an issue is to ask them to answer this question: Is it bigger than the long-term competitiveness of the company?

Pearson: In some cases we’re improving our core technology by extending legacy systems that are generally meeting our needs today. In the case of our commercial lines policy administration system, we are working with our vendor partner to migrate off their legacy system to their most current version. In the case of reporting and analysis, we are currently engaged in a project to replace our legacy systems and myriad data stores with a data warehouse and business intelligence tools.

Peach: Since Zurich in North America is an assembly of different smaller companies, reducing legacy systems is a big opportunity for us and something that we have been addressing for a few years now. We are moving away from a conglomerate of specialized underwriting tools to a small group of core underwriting platforms that will handle the bulk of our proprietary and ISO-based business. We have almost completed efforts to consolidate to one core back office and expect to reap the benefits of this effort in 2011 and take this to the next level. Legacy systems still remain an issue, but it is one that deserves the attention. We are constantly pushing to move our application fixed costs to more strategic focused project investments.

Tainsky: At PURE, having started business operations in 2006, we were able to work with leading-edge technology solutions from the onset. We are, however, always focused on what extension products we can add to enhance our internal and external constituents.

Ayoub: This is currently not too big an issue. We have a strategy to use and leverage our legacy systems in the short term while we plan our longer term strategy.

Tainsky: We use cloud computing extensively when it comes to supporting our infrastructure and the critical systems on them. We do not employ a true SaaS or ASP model for this primarily because there isn’t an offering for the systems we use. If there was an offering for our systems—which we are very happy with—we would certainly entertain it.

The taboo topic when it comes to the cloud is security. When PURE evaluates a partner as a service provider, we perform a tremendous amount of due diligence on them. We confirm that they have the right level of security and controls inherent in their environments. We review their SAS70 reports and spend time to understand their user control considerations for what our responsibilities are.

I’ve read a lot about pundits predicting that cloud computing will be the end of the technology need in an organization. Frankly, I just don’t see it. I see cloud computing as an opportunity to commoditize some non-strategic components of an IT enterprise. It does however, have a direct impact on the staff that is responsible for the day-to-day management of the servers and infrastructure. Those resources will need to be re-purposed to act in more of a design, project and/or relationship manager role. An outsourced partner is never going to know exactly how to deliver the best value to your company. It’s going to be these resources that will keep the vendor partners focused on what’s important and ensure quality is delivered.

Pearson: The use of cloud computing is peripheral to our core systems. For example, we access information for VIN verification, medical bill review, FNOL/SROI reporting, and insurance risk scoring through services provided by external vendors. Security of information exchange is our primary concern.

Gordon: Genworth is currently utilizing cloud computing under a single tenant SaaS model for financials, human resources and investments applications, as well as multi-tenant SaaS, for our salesforce application. Moving beyond the "cloud" buzzword, we continue to find many opportunities to utilize high-leverage technology operating models both internally and externally.

Ayoub: We are not using cloud computing for our core systems. The concerns about security, availability, and integration are factors that have kept us from pursuing this strategy for core systems.

Singh: No, we are not using cloud-based systems to address our core systems. We are currently evaluating or using cloud-based systems for utility-based functions (help desk, customer relationship management, etc.). The primary reasons for not using cloud-based computing for core systems are two major areas: lack of foundational support for easy integration with other existing systems and challenges with single sign-on capability.

Peach: We are leveraging the external cloud to support commodity services such as barcode generation, CRM functionality, and development-environment support. Like others in the insurance industry our greatest challenge is information security, and so our efforts will be concentrated on developing a private cloud. This will ensure we have the flexibility of the cloud without the security concerns of a public cloud.

Ayoub: We utilize contract resources to fill gaps during the recruiting process. We always look at opportunities to provide internal training to grow the skills of our existing resources to make them more valuable to the organization.

Pearson: Our IT division has been very stable. We do use contract developers from time to time. By implementing packaged solutions we are able to effectively outsource much of the heavy lifting to a vendor.

Peach: We moved to a sourcing staffing model several years ago and have fully adapted to this change. We utilize several vendors for sourcing and are able to match the right resources to the right projects. It was a challenging transition as we balanced expense pressures with appropriate knowledge transfer, but we are now operating in a true variable staff arena.

Tainsky: Our IT staffing levels remain small by design. Through the use of a cloud-computing model, we’ve been able to keep our internal employees focused on the business analysis and project management activities instead of server maintenance and upgrades. We have a team of smart and talented people who have a deep knowledge of insurance and of technology. In the next year, we plan to increase our staffing by adding more people capable of bridging the gap between IT and insurance.

Tainsky: It seems like the last few years the priorities for many of the IT leaders in insurance seem to be like the movie Groundhog Day. Each year, they include the same item of core system replacements and other similar projects. Now, deciphering social media appears to be a repeat list item. The technology available in 2010, 2011, and beyond provides so many opportunities to deliver some really needed information to those making tough decisions every day. For PURE, we are going to continue to be focused on using our data more proactively. Our core systems allow for us to integrate freely with these open sources and create rules and workflows around the data received through Web service feeds. The use of the data and continuously refining those rules will be on our plate for many years to come. That will be our Groundhog Day item.

Ayoub: How we will manage demand for projects that have been delayed due to cost constraints in 2011 and are now critical to complete in 2012.

Singh: In my view, truly enriching the underwriting experience using publicly- or subscription-based disparate data, converting the data to information content, and using it to enhance the process of decision making for risk selection will be the transformation that will differentiate between leaders and laggards of the future.

Peach: I see data security and privacy as top issues that all IT leaders will have to deal with not only in 2011, but also ongoing. It’s a never ending battle to secure consumer data given the desire for more data analytics. This, coupled with the explosion of new device computing, will put a premium on data security initiatives. TD