It's no secret that for insurers, aligning technology staffs and business units into a full partnership has been challenging. Frederick Matteson, the newly appointed chief information officer for Novato, Calif.-based Fireman's Fund Insurance Co., isn't able to fully grasp the automation-related woes that have bedeviled insurers. That's because Matteson has deftly been able to avoid them himself.Having spent a number of years as an executive in the brokerage industry, Matteson championed the concept of total alignment between IT and business long before it became commonplace. A proponent of disciplined strategic scenario planning, Matteson has a keen sense of determining early on whether to expand or reduce a corporatewide initiative, including those centered on information technology.

The formulation of these disciplines occurred while Matteson served as an executive at powerhouses such as Charles Schwab, Morgan Stanley and Lehman Brothers. "At Schwab, business strategies lead the way, with IT providing infrastructural support," he says. "We had 300 people in the electronic brokerage department who developed products. As a result, they felt like owners. You see this in various pockets of insurance, but it's more of an evolving concept there," he says.

Some insurers are more ahead of that curve than others. When Matteson applied for the Fireman's Fund CIO position-one that had been vacant since William McCarter departed in 2002-he was heartened to learn that Fireman's Fund executives viewed a CIO's role as one that balanced IT and business competencies.

"I think there was a recognition with Fireman's Fund that I offered a business-centric background," Matteson says. "The last position I held was business-oriented. Fireman's wanted me to bring that emphasis. They did not want a 'techie' so to speak, and they happily talked to me about the alignment of business and IT at the company."

As Matteson mulled over the Fireman's Fund opportunity, he established one prerequisite that would determine if the position-if offered-would be compatible to him.

"I've never accepted a position where a company tells me, 'Everything is running great. All we need you to do is to come in and watch the dials,'" he explains. "And that was clearly not the case at Fireman's Fund."

Indeed, the job with Fireman's Fund represented a challenge-not only in that it was a new industry to Matteson but an industry still struggling to maximize its automation capabilities. A global insurance leader that has developed a reputation for its e-business prowess, Fireman's had endured a degree of IT upheaval over the past three years.

In 2001, the company outsourced its entire IT infrastructure assets-help desk, servers, printers-to CGI Group, Montreal. Then, McCarter left the company for a career opportunity outside insurance. Fireman's Fund executives, in the meantime, began to weigh their options for future IT ventures, such as enterprisewide application development.

Enter Matteson, who knew something about problem-solving, implementing new innovations and calculated risk-taking. "Back in 1996, when the decision was made to make the Web a primary delivery vehicle for brokerage products, there was no cost-benefit analysis that could have justified us getting into Web trading," he explains. "From a revenue standpoint, there really was no guarantee of uplift."

Enterprise tools

The uncertainty about Web trading in the mid-1990s is not unlike carriers' adoption of Web self-service capabilities today. Moreover, insurers have grappled with other IT investment issues-from customer relationship management to data warehousing.

From time to time, such initiatives have failed to meet expected ROI projections. As a third-party observer, and in his first few months at Fireman's, Matteson has assessed the deficiencies within the industry, observing the obvious: that insurers have multiple versions of the same systems-multiple underwriting systems, policy processing systems, and billing systems.

"Each line of business has developed its own system," he notes. "As a CIO, my team is entrusted with solving problems for specific lines of business through enterprise tools. The plan is to build it once and deploy it in X number of ways, depending on the needs of a business. It's a subtle but profound shift (in this industry)."

Matteson's IT spending priorities emphasize enhancing producer relationships through greater partner integration, improved underwriting and better data structures.

When Matteson thinks about the role of producers, he harkens back to his days at Schwab and the specter of consumer Web trading taking brokers out of the selling equation. With property/casualty lines, there will always be a segment of customers who demand the services of a producer, he explains. This is reinforced by Fireman's complex product line that often requires producer support.

"We want to say, 'For insurance clients who want the ability to control a transaction with Fireman's Fund, agents are not disintermediated.' In fact, having some degree of customer self-service actually lowers an agent's back-office costs because we assume the billing services rather than the agent."

But producers want more than a selling guarantee. They want the best tools and technologies to enhance workflow.

And Matteson is listening. "With the independent agents who do business with us, we need to do a better job of connecting agency management systems with ours," he explains.

"Presently, we have Web-based entry screens so an agent can 'short-circuit' the qualifying process by entering data and zipping through our rating systems, and then come back with a quote. But we need to go the next step, and that is to hook agency management systems up with our system. That's one of the initiatives we're funding this year for various lines of business."

Triple axis

As he settles into his new position, Matteson plans to refer often to what he calls the "three axes" of being a successful CIO.

"The first axis is the business relationship. Are we focused on the right problems? And, do we have the right partnership?"

The second axis centers on the idea that IT professionals mainly think of themselves as developers who build new applications, he says. "I'm trying to implement a product discipline whereby someone in charge of underwriting systems owns the whole life cycle-they own the new features."

The third axis is the technology platform and the process itself. "What do we run on (J2EE or .NET)? Then, is there a methodology to assure we move from business inception to post-implementation review? The derived benefits must equal the expected benefits."

By leveraging the triple axis, Matteson is expecting an IT budget increase of about 8% this year, with most of it in the development area. But he tempers this projection by adding: "I want to make sure we have the capability to deliver the dollars effectively before I accept the dollars."

One key initiative on Fireman's Fund's radar screen is improving the quality of its data to enhance underwriter performance.

"For underwriters, our goal is to make sure that they're making the best decisions as they choose whether or not to accept a risk," Matteson says. "We have much opportunity to make strides in that area by implementing a case-based work management rules environment that can help us choose the right risks."

Matteson says that involves establishing a tight process.

"When we make an underwriting decision around a certain class of questions, we need a tight loop back to an actuary that says, 'Yes, this may have an effect on loss ratios.' We need to fine-tune the questions we ask about risk to make sure we're focusing on the data that has a relevant effect on our loss ratios."

He also keeps a watchful eye on the proliferation of data in Fireman's systems. "Our agents, customers and employees all need access to this data, so we have to find a way to standardize the data delivery mechanism."

Fireman's Fund has lived on what Matteson calls "the light side of what the property/casualty industry spends on IT-because of the focus we had on cutting costs. But we're making a conscious effort to reinvest in IT. It's a calculated approach to IT spending rather than a scattered approach."

One area where Matteson will tread conservatively is in outsourcing and offshoring opportunities. The company began its third contract year with CGI, and Matteson says the carrier is in the midst of doing a "tune-up."

"CGI and Fireman's Fund have realized over two years that we have to realign accountability," he says.

As it relates to future outsourcing opportunities, moving toward this strategy will depend on a host of variables. Overall, Matteson believes the way some insurers go about outsourcing is akin to the tail wagging the dog.

"You can buy packages. You can outsource an entire process from the business down to the technology. You can build something in-house under an insource-outsource situation. Or, you can truly outsource-and one of those options is offshoring," he notes.

"But it's ill-advised to start by asking: Should we engage in outsourcing or offshoring? You have to start with another question: What problems are we trying to solve and what capabilities can we deliver internally to the organization?" Matteson concludes.

Matteson Draws Comparison Between Brokerage and Insurance Risk

In his first few months as the chief information officer at Fireman's Fund Insurance Co., Frederick Matteson has had a chance to compare and contrast the dynamics of the insurance and brokerage segments.

First, risk management binds both, he says. "When you look at the property/casualty business, we're obviously in the underwriting business, and we make decisions based on a risk pool that we feel will maximize our margins and position in the marketplace," he explains.

"In brokerage, the trading side also involves making decisions within a risk pool, much like underwriting, except on a shorter duration. You must examine the buy-sell picture, you have to determine how much risk to bear and how much you should put off."

The brokerage industry differs from insurance in that it's highly transactional. Revenues come from handling transactions and managing portfolios on the back end. "We can take a fund at Schwab and we have to understand what the weighted average duration of that fund needs to be from an investment standpoint," he says. "It's really the brokerage version of the actuarial part of insurance. It's about taking a dollar in versus when you have to pay it out."

Matteson says it's important to remain fluid in the brokerage world, and possess a vision that can see warning signs ahead.

He provides an analogy: "At Schwab I learned that the strategies that worked in the past are the same ones that will cause you to fail in the future, because they're only competitive for a little while," he says.

"It would be as if I made a lot of money investing in dot-com stocks in 1999 and then decided that was going to be my investment course for 2000. If I had done that, I would have lost my shirt. On Wall Street, you get feedback very quickly when you're losing money. So we want early warnings that can alert us of this. And that's where (information) technology's role can help."

One dramatic difference he's noticed between brokerage and insurance has to do with customers. "I've said almost half jokingly, when we got a new customer at Schwab, we couldn't wait for them to start transacting with us. But when you get a new customer in the insurance industry, from a claims standpoint, the customer hopes they never have to deal with the company and the company hopes it never has to deal with the insured."

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