Not many would dispute the role that IT resources can play as vital strategic assets in the hands of insurers. Yet we are witnessing IT departments struggling in one key area that has the potential to give insurers longevity and competitiveness in the “Age of the Algorithm”: business intelligence.
Business intelligence/advanced analytics is a core competency generally not associated with the insurance industry. As Gartner’s recent study points out, P&C and life insurers are still not ready for capabilities like big data. That study identifies a set of pain-points, which can be broadly categorized as:
- Data integrity and quality issues
- Ownership and control issues
- Inertia and inability to adapt
It appears that poorly defined and executed data governance sits at the root of pretty much all of these problem areas—if we view data governance not just as an enforcement of compliance-enabling practices, but also as an all-encompassing discipline that leverages people, processes and technologies to achieve the strategic use of data for the business. Once we start viewing data governance in this broader light, it’s easy to see how it follows the same trajectory that IT governance has followed over the decades.
IT governance arose partly out of the need to control wastage and failures associated with IT projects. While the degree of its success varies from organization to organization, there doesn’t seem to be much contention around the need for IT governance.
Nevertheless, wastage from BI projects is rampant; some studies put the failure rate of BI at a whopping 80 percent. It seems there are some intrinsic aspects of BI projects that the IT department cannot effectively handle, given its mandate and composition. Therefore, it seems to make sense that data governance be elevated as independent arm of the business.
External factors, such as legislation like HIPAA that pervasively affected healthcare IT during the last decade, are other important catalysts in the evolution of IT governance. Starting in 2012, we’ve witnessed an even bigger tide of change unrolling in healthcare IT, targeting insurers in particular. It’s noteworthy that reform, by establishing initiatives like health information exchanges, raises the bar especially for data-readiness of insurers. These new initiatives may look daunting to data-challenged businesses, but they also offer enormous rewards in terms of competitive advantage if embraced wisely.
It wouldn’t be a stretch to admit that BI (or at least aspects of it) is mostly an unchartered territory for most insurers. And applying proven IT patterns and resources isn’t an automatic recipe for success. It requires a particular specialization often missing in IT departments, and a monomaniacal focus on data that many organizations still lack. Therefore, streamlining of data governance under a unified stewardship seems like a logical first step toward tackling the BI conundrum.
In most organizations, especially larger ones, it seems that the stakes are high enough—both in terms of competitive benefits and penalties—to justify this unified stewardship under the office of a Chief Data Officer (CDO). In this new ‘Age of the Algorithm,’ data and information is a competitive and financial issue, so it seems to make sense to pt the responsibility and accountability for leveraging this valuable resource where it belongs—at the top.
Next time, I'll discuss the mandate of the CDO from an executive perspective.
This commentary originally appeared at Insurance Networking News.