With their backs against the wall to stimulate profits and revenues in the face of poor economic times, senior-level executives in insurance companies are turning to their chief information officers to breathe new life into their static operations.As IT spending begins to inch upward-industrywide expenditures are projected to increase gradually each year, peaking at about 7% by 2007-industry experts believe it's incumbent upon CIOs to capitalize on the additional dollars they'll have at their disposal. Having learned from experience, CIOs indicate they are poised to reach a higher level of IT spending stewardship, with many pledging to convert IT from what is now regarded as an art into a science.

But having more free reign on IT spending, which currently grows at about 2% a year, doesn't assure a safe landing. Barriers remain to establishing a strong IT spending strategy-with one of them being the inability of CIOs to cope with change management. Another is the ongoing quest to consummate full partnerships with internal business units.

"I think the gap between IT and business is getting better," says Marek Jakubik, managing director of the Information Technology Group, a coalition recently formed to foster in-depth and impartial intelligence for IT-related strategizing (see "New IT Advisory Group," page 5).

"IT executives that have business acumen and understand the dynamics of business and know how to navigate the politics of the business environment are the ones that have established the best working relationships between business and IT," adds Jakubik, a former CIO at Zurich Financial Services.

The relationships between business and IT are still not epoxy-tight, but industry experts believe inroads are being made each year. In fact, a survey conducted by Giga Research, an operating unit of Cambridge, Mass.-based Forrester Research Inc., reveals that CIOs are generally optimistic about the ability of IT to meet business-unit priorities." The report, "Improving Business and IT Efficiency," culled insights from CIOs across the United States and Canada.

Partnership strong

Overwhelmingly, 70% of the Giga survey respondents stated that IT and business groups have attained a full partnership, where either of the two entities are free to set an agenda at any time. None of the CIOs surveyed believed their IT departments were perceived by business units "as a barrier," and only 20% of CIOs stated that business dictates orders to IT (see "Is This Relationship Working?, page 15).

Several CIO who were not involved in the Giga survey reinforced Giga's findings on partnership status, but some conceded that work still needs to be done.

Matt Piroch, CIO of Pittsburgh, Pa.-based Highmark Life & Casualty, explains that IT and business is "close to being a full partnership, but I still don't think it's at the level it needs to be. More and more, the businesses recognize the value IT brings."

Jan Franklin, CIO for Los Angeles-based Farmers Insurance Group, who took over the position earlier this year, indicates that Farmers' IT group has a strong relationship to the business. For example, she says, "IT-wide, individual IT department, and individual IT employee goals are based and measured against the main business goals."

Some CIOs believe that-from a general industrywide perspective-there are still issues that need to be reconciled before a full partnership can come to fruition.

Paying lip service

"We have an excellent working relationship with the business groups, but I still don't consider it a full partnership," says Rory Read, vice president of information technology for Columbia, Mo.-based property-casualty insurer Columbia Insurance Group. "From an industrywide perspective, insurers pay lip service to the notion that IT and business consists of a full partnership."

CIOs are grappling with other internal challenges that are separate from the IT/business situation, but also interlinked. One is change management, which CIOs are striving to meet head-on both internally and externally, according to Giga.

"Changes in business requirements are so rapid, it's hard to keep up," said one of the surveyed CIOs. Another indicated managing the culture change needed in the organization and making the case for change were problem areas.

"We've been able to handle change management because we don't get swept up in nonpriority initiatives," says Highmark Life's Piroch. "There is great prioritization of projects and excellent steering from senior-level management," he says.

"This might sound simplistic, but prior to embarking on a project, we consult with the business groups and say 'here's what our resources and capabilities are.'" Piroch says. "We use the phrase, 'operational excellence.' We do all the fundamental blocking and tackling required to handle any change that the organization implements."

Emphasis on selectivity

Presently, CIOs are not pushing major new IT projects that were all the rage several years ago. At Columbia, for example, "enterprise systems replacement is not on the radar screen," says Read.

"Projects with short-term ROI are a priority, such as projects that take less than a year to implement," he says. "A few years ago, large-scale projects often were taken on as a form of peer pressure-a way to keep up with the Joneses."

A couple years ago, Highmark Life began a complete back-end legacy system replacement, which enabled the insurer to obtain a single data source for its customers. Having performed the heavy lifting at that time, Highmark now initiates smaller but vital projects.

"Our IT budget is up about 8% to 9% over the past year, with spending on hardware and software on the rise and consulting running flat to slightly higher," Piroch says.

CIOs have various ways to approach adding application functionality to their processes, with more and more opting for custom-built platforms that can add a best-of-breed solution.

Piroch's approach for adding new functionality is mixed, with best-of-breed incorporated in a custom-built master strategy.

"Our back-end legacy overhaul has given us tremendous flexibility to quickly add a best-of-breed solution if we need to, which we have done. Senior level management keeps a close watch on our request to add new applications, probing into why they're needed, the value they're adding, and the distinction (they're creating) in the market."

Columbia's Read say that his IT group incorporates application functionality with an emphasis on customization. "Best of breed is an option," he says. "We will acquire a best-of-breed solution and incorporate it within the customized application platform."

In its survey, Giga uncovered gaps that exist between the business issues insurers face and their IT investment plans. For example, insurers have gone to great lengths to improve employee efficiency, but are not investing in employee- facing portals or advanced human resources applications.

Similarly, insurers are striving to grow market share and increase customer loyalty, but they are approaching customer relationship management in a piecemeal fashion, Giga discovered.

While Giga doesn't endorse investing in holistic CRM suites, "a clear overall CRM strategy is still needed-but lacking," according to the firm.

Not the be-all and end-all

Highmark Life resisted the temptation to invest in customer relationship management because, the company evaluated CRM and Piroch recommended not to place its money there. "We are not forecasting any spending for CRM products," he says.

CRM is not "the be-all and end-all that others thought it was," Columbia's Read says. "There's great applicability for CRM on the servicing side, but using CRM to cross-sell and up-sell is fraught with its own set of circumstances. That's because there's been resistance to one-stop shopping," he says. " Individuals don't want to acquire all their financial services products from a single source."

Giga also found that insurers have indicated that improving efficiencies for their agent channel is a priority, but they seem to be underinvesting in the integration and workflow technologies for tying their systems into the agency management systems.

Columbia's Read says making IT decisions will always be a challenge. "This industry has been attempting to make IT a science for years," he says. "But it is still an art. We still struggle with managing projects, and there are times we might miss."

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