When the economy soured three years ago, many decision-makers adopted the mantra that all discretionary IT spending had to be justified by return on investment. That is, a business case with demonstrable return had to be presented, first by a vendor and then by the manager pushing the project.By and large, this scenario continues to persist in business-the insurance industry is no exception.

But is this the sole criteria that "smart" insurance companies are applying to determine their IT investments? According to Gartner Inc., 70% of IT spending is still seen as a cost center rather than a value center. If that's true, the answer appears to be no.

In the insurance industry, some carriers-whether they realize it or not-are really thinking about their technology investments from the perspective of whether or not a specific expenditure is critical to integrating their supply chain. That chain varies according to the specific industry, but includes multiple disparate partners.

Savvy carriers

For example, the supply chain for auto claims and collision repair industries includes insurance companies, repair facilities, vendors, third-party administrators, appraisers, parts providers and suppliers, among others.

Savvy insurance carriers are continuing to apply the standard ROI criteria, but they are also looking at how technology is helping their partners along the chain more effectively communicate and ultimately serve their mutual end customers.

However, if a repair shop or salvage yard is unable to move a claim through expeditiously, the internal efficiencies of the carrier become irrelevant.

This scenario demonstrates vividly that while ROI must remain the primary criterion for IT investment, value added to the supply chain represents a critical secondary way to evaluate these investments.

Only by ensuring that every party along that chain is linked and providing the customer with value can insurers feel secure that technology expenditures are justifiable.

Delivering value

In today's world, customer expectations are extraordinarily high, particularly as they relate to dealing with insurance carriers.

Accordingly, each of the parties in the supply chain must be configured to deliver value to the customer. And, the carrier must ensure that it remains at the hub of a networked system that delivers value to its customers.

To achieve these objectives, many companies are seeking partners who can help them more effectively link that chain. They are consolidating vendors, forging stronger relationships with those that add value by improving communications along the supply chain.

When carriers evaluate their vendor relationships, they need to consider several drivers that contribute to a tightly linked supply chain:

  • Open integration. Typically powered by XML, Web services or network connectivity technology, open integration is an oft-stated goal of insurers. Open technology is critical to internal communication, linking the supply chain and enables other stakeholders and partners to synch with the carrier to provide enhanced service.
  • Time-to-market/innovation. Technology that can deliver new products to market faster or that provides speedier customer service will undoubtedly generate long-term ROI. However, because product development involves so many other parties, connecting the supply chain is critical to achieving this goal as well.
  • Risk reduction. The supply chain is only as secure as its weakest link, an important consideration when identifying potential third-party partners.
  • Outsourcing. More companies are outsourcing their operations to further reduce costs. This practice involves at least one partner, and adds an additional link to the supply chain.

Expectations continue to rise among consumers and businesses about the service they expect to receive from all organizations, including carriers: They want the right information at the right time.
In many ways, these rising expectations are being driven by technology and what it can accomplish. Consumers are becoming more sophisticated and the supply chain, at least in the insurance business, needs to address that reality for those companies that want to remain competitive and flourish.

Obsession with ROI

Against this backdrop, the obsession with ROI as a goal of all technology purchases must be merged with the understanding that linking the insurance supply chain is an absolutely essential component of achieving ROI.

In insurance, too many parties can impact the satisfaction of a customer-who typically only deals with insurers following an accident or other serious life trauma-to risk not having technology that supports what the entire supply chain is hoping to accomplish.

The lesson for insurers is to develop a broader set of criteria for the way they invest in technology-and to connect their supply chain in a way that enables them to deliver maximum value to their increasingly sophisticated and demanding customers.

Debbie Day is vice president of development for CCC Information Services.

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