Long before the power of bits and bytes helped facilitate the insurance industry's growth, forward-moving companies adhered to disciplines and principles that focused on consistent, repeatable processes that enabled cross-functional groups to work more efficiently. In the 1950s, educators were already teaching these principles, and not much has changed in terms of applying good common sense to core business processes.The advent of technology, however, changed the playing field. With automation came simplicity: Paperless audit trails, straight-through processing, real-time communications, wireless, the list goes on. But few would argue that the simplicity offered by technology has brought with it a paradoxical level of mounting complexity. And, for the insurance industry, that complexity isn't just affected by increased competition; it's saddled with regulatory and reporting requirements that make IT management arduous at best. Simply put: the insurance industry's IT organizations are coming out of the cold room to embrace and share knowledge and expertise-via best practices.

"The use of best practices isn't just in vogue," says Jim Duggan, vice president of research at Gartner [Inc.], a Stamford, Conn.-based research and advisory firm. "It's the rage. In insurance it's particularly critical because IT has become so much of the fabric of the business operations."

Aside from the standards-based organizations that provide guidance and support to the industry, a plethora of IT best practice organizations exist, some reaching almost cult status. Carriers are participating in organizations that provide comprehensive process guides for infrastructure services delivery and support, methods of measuring the maturity of process disciplines, and advanced IT governance models.

Most notable of late is the Information Technology Infrastructure Library (ITIL), a non-proprietary approach for managing IT services. Developed by the U.K.'s Office of Government Commerce, ITIL offers a framework of 10 core processes (see "ITIL's Top 10 Core Processes," page 15). An international non-profit organization, the Information Technology Service Management Forum (itSMF), which opened its doors in 1991 in the United Kingdom and found its way to the United States in 1997, governs the model, its application and distribution.

Common sense

"The model helps make business sense of tools, standards and processes," notes Don McGinnis, itSMF director. McGinnis admits to being an ITIL disciple. Serving as the group's first U.S. executive director, he was sold on ITIL back in 1997, when, as State Farm's staff director of service management systems, he heard about the organization from IT employees at neighboring Caterpillar Tractor, Bloomington, Ill.

"We were asked to include all State Farm agents into our own private network," he recalls. "This was just as interest was building for the Internet. Faced with this task, we said, 'How the heck will we manage all these additional devices on a network and provide consistent and reliable availability?'"

McGinnis knew the IT team had to come up with a plan that would include, among other things, help desk, problem tracking, testing, change management, hardware and software.

"Our task was not so much high tech," he says, "but more service management common sense. We realized that by focusing on ITIL's 10 core processes-things that all IT departments already face, we had an opportunity to do it better." McGinnis confirms that the service-level improvements made as a result of State Farm's use of the ITIL model continue to demonstrate ROI for the company.

Now approaching 12,000 global corporate members and 25,000 individuals (3,000 in the U.S.), ITIL has experienced 7% growth per year. The model's popularity, notes Duggan, is in its ability to be used with other best practice approaches. "Most insurance companies use a systems approach and combine this philosophy with other methodologies," he says, "because without systems running well, the company can't survive. And although different best practice approaches yield different views of the problem, it's all about traceable, repeatable, controllable processes."

A proactive approach

For many insurance companies, keeping the systems running "well" is the minimum mandate. Between HIPAA, Section 404 of Sarbanes- Oxley, and the Gramm-Leach-Bliley Act, more and more carriers are called upon to be proactive in their IT management approach.

And companies are heeding the call: Blue Cross Blue Shield (BCBS) of Kansas City, Mo., combines ITIL with a best practice called Capability Maturity Model Integration (CMMI), a framework developed by Pittsburgh-based Carnegie Mellon University and its Software Engineering Institute (see "At a Glance," right), that studies the various maturity levels of key processes in systems and software engineering, integrated product and process development and supplier sourcing. The framework also includes a process that encourages the study of relationships between each area. To date, more than 36,000 individuals have participated in CMMI educational offerings internationally. Of the 567 organizations currently using CMMI models, 6.7% fall into the insurance/finance category.

Like McGinnis, Kevin Sparks, BCBS's vice president and CIO, learned about CMMI from an industry other than insurance. Joining BCBS from aerospace giant Allied Signal, Sparks admits that the importance of "total quality management" is still in his core DNA. He applies this philosophy to process improvements that enable the company to respond efficiently to, among other things, the latest reporting requirements.

"In this day and age, with all the changes afoot on the regulatory side, audit is our friend," says Sparks. "Our attention to these disciplines allows us to put the proper controls in place so we can manage our day-to-day business the way we are supposed to."

Duggan agrees. "From the auditor's perspective, regulators have a fairly clean target," he says. "Auditors say 'what is this?' It's no longer a 'wink-wink, nudge-nudge' kind of situation. They want traceable information with the CEO's signature on the books."

A cultural thing

SOX compliance may be the impetus for carriers to commit time and resources to best practice philosophies, but, according to David Ratcliffe, president and CEO of Pink Elephant, a Toronto, Ont.-based ITIL consulting firm, interest dates farther back. "We identified back in 1998-long before SOX-that the insurance and financial sector was already showing a great deal of interest in ITIL."

In the United States, a number of local interest groups have sprung up, where members regularly share experiences unique to their individual industry.

"We've been impressed with the number of people who have stepped up," says ITIL's McGinnis. "Our first group started in 2001 in Minneapolis, and we now have about 100 members at each meeting." Word spread to downstate Illinois near State Farm headquarters, where the second largest of 30 U.S. groups regularly meets. Puerto Rico has also shown interest.

The growth seen by ITIL and CMMI isn't just within insurance, although the industry certainly fits the genre associated with best practice culture, maintains Pink Elephant's Ratcliffe. In fact, insurance is one of three distinct business sectors that continue to show more interest in ITIL than others (the others being utilities and government), claims Ratcliffe.

"It's a cultural phenomenon," he says. "ITIL is all about a long-term, holistic approach to integrating a lot of activities from a process point of view."

Pink Elephant asks companies deciding whether best practice models such as ITIL are the right approach to evaluate their IT operations based on the following cultural elements:

* Mutual support between teams: Do they depend on each other? Work well together?

* Innovation and creativity: How much freedom do IT employees have to "do their own thing?"

* Quality of information flow: Does the IT organization effectively keep track of data, keep it secure, and make it available at the right time?

* Respect for rules: How do people behave? If you have charts and a vision, are they followed? Is there an official way of doing things? Does management support it?

"Insurance fits the classic profile," notes Ratcliffe. "The industry is concerned with understanding risk, furnishing a predictable product. As an industry, insurance is not particularly innovative or creative, especially when compared to a dot-com, Google or Microsoft. Insurance embraces order and discipline and takes a long-term view of its investments. It's part of the culture."

The hallmark of best practice methodologies, adds Ratcliffe is that even if you don't reduce costs, they optimize the services you provide. "Sometimes you find out you aren't spending enough. That's why your services are in the toilet."

CMMI follows suit: "The idea is to put structure in place," notes BCBS's Sparks.

Ratcliffe says insurance companies are not afraid to make a significant commitment to best practice models such as ITIL and CMMI, citing Nationwide, Pemco, Safeco, Great-West Life Assurance, and Manulife Financial as examples.

Pushback encountered

Making an eventual commitment doesn't mean companies don't experience pushback. Sparks recalls his first experiences with BCBS: "The IT organization was embattled and we didn't have a lot of credibility with the user base," he recalls. "We were not in a position to politic for change in terms of the core processes required by CMMI or ITIL, but it was a 'Catch 22', because you had to prove you could get things done to earn a spot at the table."

For proponents of ITIL or CMMI, pushback typically occurs in the form of statements such as "I don't need process, I have great people; I don't need process, I have great technology; process work hinders our ability to keep up, etc."

"People said we would slow down and it would cost more," Sparks recalls. So he made the executive team a promise. By applying the ITIL framework to improve the company's IT infrastructure and CMMI to aid in development efforts, he would be able to provide completion dates on future projects with a plus or minus that was accurate.

One year after implementation of the best practice models, the company broke a throughput record, and has since closed out projects that had lingered for some time, Sparks reports. The company now holds vendors to the same quality process standards.

Using best practice models for BCBS's systems development lifecycle, the company can do things that are repeatable, adds Sparks. "I would argue that that makes them sustainable," he says.

Gartner's Duggan says the best way to prove long-term sustainability is to align IT with corporate objectives. "The key here is to acknowledge that companies are becoming increasingly dependent on IT in order to satisfy corporate objectives," he says. "This leads to increased demand for quality services and lower total cost of IT ownership. The business side cares deeply about these issues."

Enter yet another best practices organization, the BTM Institute's Global Leadership Council. At press time, the Stamford, Conn.-based group had amended its name to The Michael Nobel Harriet Fulbright Institute of Business Technology Management. Still known as BTM, it brings together industry and academic experts to provide a structured approach to decision-making that allows enterprises to align, synchronize and even converge information technology and business management.

The goal is to ensure better execution, risk control and profitability.

Dennis Callahan, executive vice president and CIO at Guardian Life, New York, joins Michael Boyle, vice president and CIO of Allstate Financial, Northbrook, Ill., as a new BTM member. For Callahan, it's an industrywide "give to get."

"This affords me the opportunity to contribute the benefits of my experience and success to the industry that has treated me so well, and lets us capitalize on the knowledge and experience of some of the finest minds in business technology management, government and academia around the globe," he says. "We all stand to gain from such interchange and participation, which will advance the effectiveness of our profession and our industry."

Gartner's Duggan says this best practice philosophy is inching closer to the core of overall business success. "Technology doesn't lead, it follows," he says, "Companies using best practice frameworks that leverage the benefits of understanding the relationships between events and processes, while at the same time aligning communications between the business side and the IT side, will do well."



* Business Technology Management

Institute's Global Leadership Council

(The Michael Nobel Harriet Fulbright Institute of Business Technology Management)

* Founded: 2003

* Headquarters: Stamford, Conn.

* Membership: Limited

* Focus: A structured approach to decision-making that allows enterprises to align, synchronize and even converge IT and business management.

* Web site: www.btminstitute.org


* Information Technology Service Management Forum

* Founded: 1991

* Headquarters: (U.S.): Dallas

* Membership: Global: 12,000 corporate; 25,000 individual (3,000 U.S.)

* Focus: IT service management: global organization responsible for advancing IT best practices through the utilization of the IT Infrastructure Library (ITIL).

* Web site: www.itsmf.com


* Capability Maturity Model Integration

* Founded: 1997

* Headquarters: Carnegie Mellon University/Software Engineering Institute, Pittsburgh

* Membership: 567 (341 commercial organizations, 68 of which are U.S., 6.7% finance/insurance)

* Focus: Identifying key process areas and exemplary practices that comprise a disciplined (repeatable, consistent) software process.

* Web site: www.sei.cmu.edu/CMMI


Service Support Service Delivery

Incident Management Service Level Management

Problem Management Financial Management for IT Services

Configuration Management Capacity Management

Change Management IT Service Continuity Management

Release Management Availability Management

Register or login for access to this item and much more

All Digital Insurance content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access