Benchmarking has long been used as a metric for insurers as they conduct strategic planning. In fact, notes New York-based Novarica, external benchmarking data is an important tool for insurer CIOs in both self-assessment and communication with senior business management. This benchmark data can provide critical support for spending and budgeting decisions, and can highlight potential areas of concern that may not be noticeable without external reference points.

But whether all insurers benchmark properly is a subject for discussion.  In its latest report, Novarica presents an analysis of responses to its Technology Research Council’s Quick Benchmarking Poll, which compiled responses from 11 life/annuity and 54 property/casualty companies to reveal how insurers gather benchmarking data and use it in a compare/contrast with their peers.

A study of these groups are useful to get a sense of overall trends, but, says the report’s author, Matthew Josefowicz, principal with Novarica, it’s recommended that insurers CIOs focus on benchmarks of tight operational peer groups rather than broad industry numbers.

In other words, companies must be careful how, and against whom, they benchmark. For example, a company that benchmarks against market competitors with totally different operating scales or models is unlikely to derive useful information, while those that benchmark against operational peers (companies in similar lines of business who operate at a similar scale even if they may not be directly competitive in the marketplace) are more likely to be able to draw useful comparisons, notes the report.

It’s also important that benchmarking data be presented and understood within the context of the variation between peer circumstances and business needs, cautions Josefowicz. “There are many reasons why Company A might be spending more than Company B,” he told Insurance Networking News.

Another example of this concern is in the types of data insurers are collecting.

“One of the things we see as a risk of benchmarking is that people look at unit costs. Yet enterprise IT doesn’t lend itself to unit cost pricing,” said Josefowicz.

The report reveals that rather than focusing exclusively on spending levels, insurers take a “Supply and Demand” approach to IT. The supply and demand approach contextualizes spending levels (supply) against company size, new project volume, and current state of the organization, technology infrastructure, and product volume and complexity (demand).

“Supply and demand benchmarking – a lot are benchmarking supply, but not demand (new projects for example),” notes Josefowicz. “Typically, IT is driving the process, so they need to make sure they are presented with the full picture.”

The report offered the following supply questions as examples of items to focus on while devising the benchmarks:

* IT Budget as a Percentage of Gross Written Premium

* Maintenance/New Project Split

* Operating Expense/Capital Expense Split

* Budget Categories
    Internal Staff
    External Staff/Services
    Hardware and Software Maintenance
    New Hardware and Software
    All Others

* Total number of Internal and External IT FTEs

In turn, the survey included these demand questions:

* Number of
    Employees
    Agents/Distributors
    Policies in Force
    Locations with Significant Business Activity
    Major New Strategic Projects (at least 5% of new project budget)
    Breakfixes and Programming Requests per Month
    Enterprise Applications Supported

* Self-ranking of
    Level of Business Process Automation
    Product Complexity
    Organizational Centralization
    Modernity of IT Infrastructure

For more information on related topics, visit the following channels:

 This piece originally appeared on the Insurance Networking News web site.

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