October 21, 2010 – Against economic woes, insurance companies are facing some tough decisions when it comes to IT staffing and maintenance. In particular, flat premiums and reduced investment income are driving the industry into a competitive state not seen in 20 years, forcing IT organizations to deliver faster, deliver more and reduce or maintain costs, notes a new report issued by New York based research and advisory firm Novarica.

Based on Novarica research, experience and round table discussions and 2010 interviews with members of the Novarica Insurance Research Council, the report, “Best Practices in Agile IT Staffing,” points out the need for insurers to better align supply and demand in this high-pressure, competitive environment.

“Demand for IT resources peaks and wanes while many IT departments maintain steady staffing levels,” notes the report’s author, Martina Conlon, principal in the firm’s insurance practice.

Critical to succeeding in this environment is resource management and allocation – having the right number of resources with the right skills available at the right time. IT departments have long been dealing with viable resource issues by maintaining a flat resource level and constraining demand through prioritization and governance processes.

“This approach is no longer palatable when the success of the organization is dependent on delivering capabilities to the market ASAP – or to risk losing to the competition,” notes Conlon. “CIOs are looking for organization models and staffing partnerships to help transform their departments into a more agile organization and provide variable staffing levels as demand peaks and wanes.”

In a recent survey, CIOs cited slight increases in their 2010 and 2011 budgets after two years of flat or negative budget growth but with the expectation that much more would be delivered. For 2010 and 2011, CIOs have been given the directive to “do a lot more with a little more.”

The report maintains that from an earlier simplistic focus on outsourcing as a means of reducing costs, insurers are beginning to realize the greater usefulness of outsourcing in shifting to a variable cost/resource basis. In Novarica’s research and conversations with carriers, several are benefiting from access to as-needed skilled resources beyond the cost savings involved. While many carriers still prefer to retain accountability and control of key IT functions, there is a transition to a managed services model underway, especially in larger organizations, notes the report.

In addition to outsourcing, IT departments are meeting variable staffing needs by employing creative organizational approaches. These approaches include cross-business-unit resource sharing, functional staffing models, remote US development centers, captive off-shore development teams and virtual development teams. Many of these approaches do not introduce a true variable staffing and costs basis; however, they do impact the availability of making the right resources available in the right quantities at the right time.

Novarica, in its interviews and discussions with carriers, uncovered very different sourcing strategies across similarly sized organizations. Large carriers almost universally outsource data center operations, are generally happy with their partners, and feel they achieve cost savings that merit the perceived loss of control. More aggressive large carriers outsource most application development and maintenance, some business analysis and some project management. Retention of development and maintenance of data warehousing and business intelligence environments is also common.

Carriers that leverage outsourcing generally believe that it positively contributes to the agility of their IT organizations and business, allows access to the right resources with the right skills at the right time, and that it also significantly eased the downsizing process with the last economic downturn.

Midsize and smaller carriers tend to limit their use of outsourced resources for project work and specialized skill acquisition, although a good number have comprehensive IT services provided by one strategic partner. Smaller carriers do not report the cost savings from outsourcing that larger organizations are realizing.

This originally appeared on Insurance Networking News.

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