Some things change; some don't. A 2002 report from Boston-based Celent LLC, stated, at that time, within insurers' IT budgets, expenditures on internal staff consumed the lion's share, roughly 44% on average, with another 11% spent on consultants. Software licensing and support formed the next largest block, with a 20% share, followed by hardware with 15% on average. Connectivity and bandwidth consumed about 8% of budgets five years ago.What probably did not change in the five years between these findings is that CIOs' decision-making plays a big role in how these numbers come about. INN's first-ever issue in 1997 contained the article, "The New Breed of Insurance CIO," which concluded that more is being requested of the insurance company CIO than ever before. CIOs are not only being asked to have more business savvy, but also to be a communicator to senior management and an agent of technological change for the organization and its information systems.
According to Celent's "Insurance CIO/CTO Pressures, Priorities, Projects, and Plans for 2007: Survey Results," total budgets continue to average about 3% of premium, with the majority of respondents predicting single-digit percentage increases from 2006 to 2007-large P&C insurers being most conservative.
Average breakdown by category is: staff, 42%; hardware, 12%; software, 14%; external consultants and outsourcing, 20%; networks and telecom, 7%; and other areas, 5%.
Insurance executives face just as many decision-making challenges today, if not more, as they did 10, or even five years ago. "It's significantly different today than it was before," says Kim Bailey, director/vice president, IT Shared Business Applications Division for Columbus, Ohio-based State Auto Insurance Companies. "In the insurance marketplace, speed to market and the ability to deliver products quickly is tremendously different than it was five years ago." Bailey points to companies such as Allstate and Progressive as causes for the change. "They started down avenues where you started developing much more extensive pricing points, and they really forced the competition to follow that model."
Bailey believes the biggest challenge executives face when making decisions isn't necessarily that there are more decisions to make. "I think the time you have to make those decisions is much smaller today than it was-in particular with public companies," he says. "You have to be able to forecast your results. You have to be able to step in front of your investors and shareholders and know exactly what's going to happen if you're not able to predict your results well."
Kristine Klinger, assistant vice president of corporate project office at Providence-based Blue Cross & Blue Shield of Rhode Island (BCBSRI), agrees that speed is key. "The market is changing so quickly, and it's very dynamic now for the healthcare industry," she says, referring to the aging population and meeting their needs as well as those of BCBSRI's customers. "We need to be able to make those decisions quickly to compete in the marketplace."
These insurers aren't imagining this time crunch. According to the 2007 Celent report, one of the key findings is a continued focus on meeting market demands for speed to market and ease of doing business, as well as on new projects involving core systems, data mastery and distribution.
Time doesn't just matter to customers and members. Top executives are looking for numbers and important company results quickly. "It used to be okay to have your results 90 days [after the quarter is closed]," Bailey says. "Now they want them four days after the quarter is closed in some instances. It really emphasizes (that) you have to have good analytics."
From an actuarial sciences side, Bailey says, data needs to be analyzed much more in depth than a person could physically consume. "You're trying to set so many different pricing points based on a combination of many characteristics, so you need to use tools to go in and interrogate against that data and provide analytics information to distinguish those pricing points."
Klinger sees the evolution of technological tools-specifically project management tools-to help with decision-making. Tools for project management used to consist of mainly spreadsheets, she says. "Some tools [that used to be] out there only managed at a project level so it was really hard to take those tools and roll them up and make a portfolio out of it to make decisions.
"Now there are a lot of tools that help us do our job-more on the company issues and solving the company's problem," she adds. "The expectations of making faster decisions is really around pulling together the project suite and having the right information at our fingertips to be able to make those decisions faster."
BCBSRI is in the process of implementing such tools from Planview Inc., Austin, Texas. The insurer has already implemented Project Portfolio Management, one of three modules of Planview Enterprise, which also consists of Enterprise Portfolio Management and Service Portfolio Management.
"We will make decisions based on applications we have that maybe need to be maintained or projects that are coming in that require an 'X' number of resources with certain skills," Klinger says. "We need to be able to know when we can start or stop certain projects. Maybe something's not going right, such as we're not getting the return we want; we want to be able to stop that quickly so we don't put any more money into it and then shift our resources quickly to another project."
The tool, she says, will enable the executives to see the results of the decisions they made, which will, in turn, help them decide whether to adjust their decision-making or scoring capabilities. "Planview gives you that ability to score work and determine how risky it is against what you're going to get for return."
State Auto is also expecting better decisioning through a group of tools from Cary, N.C.-based SAS Institute Inc., which it began implementing during the first quarter of 2006. First though, the insurer is trying to anticipate where it has data in the organization, according to Bailey. "We're planning to use the SAS enterprise business intelligence tools and the SAS analytic tools to help us use that data, not only to be able to show people what our past results have been, but to be able to forecast and anticipate what future results will be," he says. "We have initiatives underway now to utilize our data for predictive modeling, particularly in the commercial lines space, and that predictive modeling will help us go in and anticipate uncertain characteristics, what the profit potential is for business and help us as we're looking at our underwriting criteria."
With the business intelligence tool, State Auto expects to provide all decision makers with a common view for their accountabilities of how they are doing, what their business results look like and what their trends are. "Within the business intelligence tool, we have the capability to produce graphs and metrics measures and we want people to be able to visualize-red, yellow, green-how things are going and then drill down into those," Bailey says. He anticipates creating a corporate scorecard that will help the centralized measure of the company's results.
Bailey is already seeing the difference in executive decisions. The tools have delivered improved enterprise-level operational reports that show business performance for core measurements. These reports include how the company is generating premium in terms of frequency distributions related to the premium and the composite of that. The reports also include claim frequency trends and what's happening within that space, a component of severity measurement, which also is a claim variable (it established what is the average trend of losses and how that trend of loss is going because frequency plus severity together tells you what the underlying quality of your book is, or what your trends are, related to that piece, says Bailey). They also include sales results, and policy and premium count trends.
"In the past we had this information, but it came from several different sources, and it was all either paper-based [reports] or, in some cases, a spreadsheet on demand," he says. "Whereas with this solution, all of the data comes from one central source so we are assured that everybody looking at results all make decisions from the same foundation."
Every year, State Auto executives forecast what their anticipated growth or loss ratio will be. These tools also enable the reports to include a comparison of what those results will look like versus what they planned to do. "That's really the first time we've had that bucket information [tied] directly into a viewable, consumable, on-demand report mechanism," Bailey says.
Bailey notes there are a multitude of data elements in the report at a high level, but the report is dimensional; the user can decide at which level he wants to view the reports. "So the executives may be looking at a company result as a whole, or a state result as a whole (or) maybe a branch as a whole," he says. "Our employees might be looking at a specific territory as a whole, or a specific state, person or agent as a whole."
Klinger sees the industry shifting to more sophisticated, user-friendly tools. "Now we're getting to roll [data] up into dashboards that are seconds away from your fingertips, where we were trying to do this with spreadsheets," she says. "What might have taken two to three resources weeks to pull this data together, we're now able to roll it up into a dashboard that can be available within a day."
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