Making IT's 'to-do' list: adequate resources are a growing concern.

As insurers face pressure to reduce costs and do more with less, allocating resources and aligning business and information technology top insurers' IT priorities this year. That's according to a recent survey by the research and advisory firm Celent Communications.

"Resource adequacy is a growing concern among insurance IT groups, while staying competitive and meeting new compliance requirements are also high on the list," said Matthew Josefowicz, manager of Celent's insurance group and author of the "Insurance CIO/CTO Pressures, Priorities, Projects, and Plans: 2003 Survey Results Report."

Often, insurers also are faced with being able to support some type of growth strategy. In addition, insurers feel the pressure to deal with new regulations, such as Sarbanes-Oxley and the Patriot Act; handle some internal organizational issues such as reorganization; and tackle increased IT demands.

To deal with these pressures, only slightly more than half of respondents expect their overall spending to increase this year, by an average of 5%. Staff support also is needed to help meet these growing demands; however, nearly half of insurers expect flat staffing levels in 2004.

Much of insurance IT groups' time is now spent around business/IT alignment to ensure that spending is occurring in the right places, Josefowicz said. "In addition, they are making sure this spending supports the overall organizational strategy as opposed to just letting IT make those decisions in a vacuum. That might result in doing what is right from an architectural or technical point-of-view but it would not necessarily be the best use of IT dollars within the company's overall strategic plan."

In a 41-question survey, Celent asked 20 senior IT insurance executives, most of whom were chief information officers of chief technology officers, about their priorities, behaviors, initiatives and infrastructures. About 40% of respondents were from the life/health sector and 60% from the property/casualty industry. More than half of those surveyed were from carriers with annual premiums of more than $1 billion, Josefowicz said.

Security concerns are top-of-mind among life/health insurers, followed by regulatory compliance, business intelligence/data warehousing, agent/adviser portals, and commissions/distribution management. Property/casualty insurers also give high priority to security-related issues, in addition to investing in more flexible and powerful rating engines; embracing Web services; and moving to direct online sales and wireless initiatives.

Over the past three years, insurers have gained significant return on investment from policy administration systems and data mastery initiatives, such as business intelligence and data warehousing. "These are longer-term projects that require significant investment," said Josefowicz, "but the returns are real." Nearly one-third of respondents said they had received a good ROI on investments in imaging systems. "This isn't surprising because [imaging] has a very quick return because it eliminates paper and manual processing. There has been lots of imaging investment across the industry."

Respondents said insurers are moving toward less expensive infrastructures, with Microsoft products of particular interest. About 63% of insurers said they plan to increase use of Windows, compared with only 21% anticipating growth in either UNIX of Linux. "This shows how successful Microsoft has been in moving Windows up the value chain into enterprise-class solutions," said Josefowicz. "We've seen a lot of hesitancy in the past to put enterprise-level systems in a Windows platform, but we're beginning to see a lot more willingness to do that now."

In addition, only a few firms are committed to Java 2 Platform, Enterprise Edition--a programming standard that uses Java language to support applications that enable enterprise programs to work together seamlessly--as a company standard. No insurance enterprises are yet standardized on .NET, which helps companies build enterprise Web services. Instead, most insurers have an equal preference of no preference between the two platforms. "While J2EE still has a bit of a lead in terms of being perceived as better for systems' interoperability, they are both perceived as equally good in terms of ease of implementation and support for Web services," said Josefowicz. He doesn't believe the issue of a single technology being on a standard platform is really valid in terms of how the insurance industry is thinking. "Instead, insurers are thinking about using the best platform for particular applications and making sure that whatever they're going to use will play well with the rest of their infrastructure."

In addition, ACORD XML will likely have value for insurance IT groups over the next 18 months. Nearly half of respondents indicated that the main value their ACORD XML initiatives would deliver over that time would be in enabling partner-to-partner integration. One-third cited the internal systems integration benefits of using the standards. About 80% of insurers, including both ACORD members and nonmembers, now use ACORD XML in live or pilot projects.

Outsourcing remains a hot topic among insurers, most of whom plan to increase their use of outsourcing, particularly for systems software development. The top drivers for outsourcing include overall cost savings, shorter development times, exposure to IT best practices, improved systems quality and improved control over resources. However, there's now a growing shift in the industry to move systems maintenance and core hosting, particularly help-desk activities, back onshore. "There seems to be some dissatisfaction with offshore providers in these areas among the early adopters, perhaps around the response times of the kinds of service levels they are receiving," said Josefowicz. India remains the biggest offshore player in meeting the demands of insurers' outsourced IT and back-office processes. In fact, India has nearly 85% of the global offshore technology outsourcing business.

With the expected rise in outsourcing IT functions and services, many insurers are concerned about maintaining staff morale. In addition, some insurers are concerned about partners' lack of vertical experience. "However, a lot of IT outsourcing firms are now focusing on improving their knowledge and experience of insurance, so that concern may be alleviated in the future," said Josefowicz. About 35% of respondents said they were unsure about the ability of outsourcing partners in general, while only 20% cited potential instability overseas.

While usage of business process outsourcing among insurers is less common than onshore and offshore IT outsourcing, the demand for offshore business process outsourcing is expected to increase slightly, according to the survey.

Legacy systems continue to impede business effectiveness for maw insurers, but replacement is "still years off for most of them," said Josefowicz. Only 6% of insurers plan to replace their legacy systems in the next two years, while 29% plan to replace systems within four years. "For the 30% who said they will replace systems after six years, it could mean that they believe it will be someone else's problem by that time," said Josefowicz.

Legacy issues remain a big issue that most companies don't have clear plans on dealing with, said Josefowicz. More than 70% of insurers believe their legacy systems negatively impact their ability to conduct business, while only 28% disagree. Common ways that respondents said legacy systems negatively impact business include prohibiting workflow improvements, impeding systems integration, slowing product introduction, inhibiting data mastery and high maintenance costs.

Josefowicz also said that insurers' "buy-vs.-build pendulum has swung firmly back to the 'buy' side." Most insurers said they prefer to assemble best-of-breed solutions from multiple providers, if necessary, rather than buy end-to-end systems from a single vendor.

Outsourcing Trends

Many insurers plan to increase their use of outsourcing in 2004, particularly for systems software development. Some may shift systems maintenance and core hosting back onshore.

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Top It Priorities

Allocating resources and business/information technology alignment top insurers' IT priorities in 2004.

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