While the financial crisis that savaged other pillars of the financial services sector largely bypassed the insurance industry, the reverberations were felt keenly by insurers, especially those long accustomed to padding premium income with investment income. This hit, coupled with the lingering soft market, forced carriers to look within and redouble efforts to run more efficiently.
"The pressures on the industry in the last year are unprecedented," says Rick Roy, CIO of Madison, Wis.-based CUNA Mutual Group. "It has required CIOs to really examine if there are technologies that can give them breakthroughs in their service models or cost structures."
Roy says insurers have to exercise rigor in spending, but still take advantage of things that can add business value. "Nobody has the discretionary funds to go chasing the next shiny toy," he says.
So, with technology budgets tight, where are dollars best spent? Michael Fergang, CIO at Columbus, Ohio-based Grange Insurance, says carriers have focused on making their IT operations leaner. "People are trying to get more efficient, and take that spend you've recouped and apply it to more thriving business opportunity," he says.
Roy says he also sees the industry adjusting to new economic realities by focusing on finding incremental opportunities to better service both internal and external customers. "There's definitely a trend toward speed-to-value," he says. "There's certainly less of an appetite for the intergalactic, long-term projects that take forever to return value. That's a healthy thing."
Despite these financial strictures, opportunities abound for insurance carriers to use leading-edge technologies in house to help them better run their businesses and interact with customers. CUNA Mutual recently adopted voice signature technology in a business-to-consumer call center. The technology enables the carrier to close a transaction over the phone, and save the voice imprint directly into their policy administration system. "Close rates are dramatically higher when you have a caller engaged on the phone," Roy says. "We can quantify the close rates and revenues generated using that technology. It's been a very nice win for the business, but we used pretty cool technology under the hood to make it happen. It differentiates us, but at the end of the day, it's a productivity tool."
The Hype
Another consequence of the macroeconomic climate is increased interest in delivery models that eschew up-front capital investments, such as Software-as-a-Service (SaaS) and cloud computing.
"SaaS can be a strong model, but it may be the most over-hyped," says Roy. "It's the service bureau model of the 1970s reincarnated. It was a good idea then, and can still be a good idea today, but only if the value proposition is there."
Jeff Goldberg, senior analyst, at Boston-based Celent, says while the well regarded customer relationship management (CRM) offering from Salesforce.com shows the potential of SaaS, the model may not translate as well to other parts of the enterprise, especially complex areas such as policy administration.
"When you are talking about SalesForce, there's a lot of carriers that don't have a CRM system in place-they've been struggling without it, or using spreadsheets," he says. "They're essentially starting from scratch. With policy administration, you still have the old systems and all those old policies to deal with, and converting is often as expensive as implementing the new system."
Goldberg is equally circumspect about the near-term prospects for cloud computing. "We're seeing the push around cloud computing coming more from vendors, analysts and journalists than from the carriers themselves," he says. "I won't say it will never take hold, but it's going to be a long time coming."
Grange's Fergang is more bullish, but concedes widespread deployment is still a few years off, predicting adoption won't start to pick up until 2012-2013.
"It's a great opportunity to manage spikes in your business, and offload fixed costs and make them variable," he says, but adds that the primary use will be for non-mission critical functions such as e-mail servers. "You are not going to see people hand over the keys to the kingdom."
Citing issues around audit compliance, Roy too foresees the eventual impact of cloud computing limited to applications that carriers don't need to run or support within the enterprise. "You can never say never, but when I think of core underwriting, claims and policy administration platforms, I just don't see it," he says. "Your ability to get your arms around risks and mitigate them is better inside."
Cloudiness
Yet the debate whether to move applications "out to the cloud," obscures larger issues, says Brian Wallace, CTO for the Financial Services Group of Falls Church, Va.-based CSC.
"Cloud computing will eventually impact every aspect of how IT services are provisioned and consumed," Wallace says, but hastens to add that he's not suggesting everything that is currently done in internal data centers will someday be done by a cloud provider such as Amazon. "When I think about cloud computing, I think about the characteristics that make something cloud-like: elasticity, speed-to-value, rapid or even self-provisioning."
Accordingly, Wallace says he expects data centers to eventually internalize central principles of cloud computing, such as flexibility and ease of deployment.
"Cloud computing is an example where you are not inventing anything new, but just exploiting proven capabilities and concepts at a higher level," he says. "It's a natural evolution, so I think we'll stop talking about cloud computing in a relatively short time."
In that sense, cloud computing dovetails with ongoing efforts to virtualize hardware and to establish service-oriented architectures.
"In the end, where the blinking boxes are located doesn't matter that much to us if you properly secure it," acknowledges Roy.
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