Insurance companies that have learned to use technology to become information users rather than information gatherers have a decisive competitive advantage over their peers. But few insurance companies have "turned that corner."This is the assessment of John Bareiss, senior director at Fitch Ratings, New York. Fitch and Pearl River, N.Y.-based ACORD recently released a strategic briefing to provide insight into how the rating agency evaluates the technological capabilities of insurance companies, reinsurers and intermediaries.

"There is little correlation between the amount an insurance company spends on technology and the success of the company," according to Bareiss. As a result, technological investments receive credit in Fitch's rating assessment after the benefits of that investment can be demonstrated through lower cost or additional sales.

Key to an insurer's success is its approach to data management, he adds, which includes data architecture and standardization.

Questions for the CIO

In the briefing, Bareiss provides a list of questions that Fitch normally asks the chief information officer during a management meeting, as well as the type of response the rating agency is looking for in the CIO's response.

  • What is your company's information technology philosophy and operating principles? Fitch expects companies to have documented and implemented IT principles that guide IT decision-making based on best practices and enterprise consistency.
  • What is your data architecture: How many systems do you have and how old are they? How many interfaces surround your core systems and are used with your trading partners? Fitch is looking for the company to actively manage the number of systems and interfaces it uses.
  • Is senior management supportive of technological innovation? Fitch likes to see support, along with appropriate financial controls.
  • How do you make build-versus-buy decisions? Fitch generally prefers to see an insurer buy technology tools that are already proven, rather than build its own.
  • Why did you choose to use a mainframe or PC-based platform? Fitch is looking for the factors that influenced the decisions, including staff knowledge, software compatibility, flexibility and utility costs.
  • Are you familiar with XML strategy, industry data and XML standards, and best practices? If not, what formats are you using? Fitch believes companies that are aware of these issues are better positioned for long-term efficiency and productivity gains.
  • Can technology be used as a basis for a competitive advantage in your markets? This question is designed to elicit information on the insurer's examples of cost savings and improvements.
  • How do you make IT cost/benefit decisions? Is there ongoing tracking of results versus benchmarks? Fitch views companies that have tight controls in place as generally more successful.
  • How do you allocate IT costs throughout the company? Fitch believes companies benefit from allocating corporate expenses to the appropriate profit center or line of business.
  • What is your ratio of resources spent on maintenance versus development? What part of development is going toward annual support and what is going toward new strategic initiatives? Fitch is looking for an appropriate alignment. If a company has solid systems, it may be justified to spend more on maintenance, whereas is may make sense for a company that is behind the technology curve to invest more in new development.
  • What is your disaster recovery plan? Fitch wants to see that systems are backed up at least every night, and data is stored in two geographically diverse locations.
  • How do you prioritize requests? Statutory requirements and broken processes are most important.
  • When putting a major new system in place, do you roll out at once or in stages? In most cases, Fitch finds it best to roll out in stages.
  • After a merger, how do you decide which systems to use? Fitch advocates using the best current systems available throughout the merged entity, not building or buying a new system.

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