Three years ago, when Jim Klotz became senior vice president and CIO of The PMA Insurance Group, the carrier's IT assets were purchased and managed in a decentralized environment. Consequently, some of the company's PCs were nearly 10 years old, seven or eight versions of operating systems were installed across the company, and technology assets were accounted for manually.
Now, the Blue Bell, Pa.-based commercial property and casualty insurer has more control of its IT environment. The company refreshed approximately 1,100 desktops, which run on Microsoft Windows 95 or NT. In addition, the company is tracking the hardware and software configurations on its PCs with an automated system called NetCensus from Tally Systems Corp. based in Lebanon, N.H.
Overall, The PMA Insurance Group-which provides workers' compensation and disability-income insurance to 4,000 clients in the Mid-Atlantic and Southern United States-is making more informed decisions about its IT assets, enabling the company to be more discerning and flexible-and save money.
"Our focus has been about moving the whole infrastructure forward, and to be more strategic with less band-aid spending," Klotz says.
An industrywide issue
The PMA Insurance Group is not alone among insurance companies trying to gain control of sprawling IT assets that embody significant investments.
Overall, the insurance industry spent $12 billion on information technology last year and is expected to spend $12.6 billion this year, according to TowerGroup, a Needham, Mass.-based research and consulting firm that focuses on financial services technology.
As one of the most technology-intensive industries, insurance has remained among the top five in IT spending over the past three years, says Dr. Howard Rubin, who conducts an annual worldwide IT trends and benchmark study in conjunction with Stamford, Conn.-based Meta Group.
Last year, insurance companies, on average, earmarked 3.8% of gross revenue for information technology, while banks budgeted 5.6% and financial services companies allocated 7.4% of gross revenue to IT, according to Rubin's study, which comprises 26 industries.
In addition to central IT budgets, business units in insurance companies are investing in technology on their own, Rubin says.
"The old court is still there, but there's this whole new universe of investment that's right out on the front lines of the business. You could almost say for every dollar spent in the IT department in this industry today, another dollar is spent by the business units directly," he says.
Therein lies the rub, says Brad Murphy, CEO of DigitalEsp, a Raleigh, N.C.-based electronic commerce consulting company. Today, accountability for IT has been pushed into the business units, even though there is a central organization.
Decentralization is not a bad idea, he says, but it introduces a level of complexity that can get in the way of capturing information that enables a company to understand its total portfolio of IT investments- what they are, where they are, and how they are managed.
"You end up with tremendous duplication of effort, and very often two groups in the same large organization are working on very similar things and they don't even know it," he says.
With a technology infrastructure that includes mainframes, more than 400 servers, 26,000 PCs, 600 cell phones, and phone switches that cost from $25,000 to $4 million apiece for installation and services, getting control of IT assets is a driving force behind the installation of an enterprise-wide asset management system at The Hartford.
An integrated system
The $13.5 billion, Hartford, Conn.-based insurance and financial services company this year is implementing a Web-enabled asset management system, which will be integrated with its enterprise resource planning (ERP) system, including e-procurement.
"With our ERP system, we can go from the e-procurement system to the fixed-asset system right through to an asset management system," says Tony Abate, vice president of IT acquisitions at The Hartford.
"The three can be connected together so we don't have any new data input. It originates with e- procurement and flows all the way through to asset management."
The Hartford's asset management system will enable the company to develop more realistic budgets and forecasts and better manage purchases, disposals, licenses and maintenance agreements.
The system, which Abate expects will take two to three years to fully implement, will track upgrades and location changes of PCs and enable the company to manage its lease portfolio and maintenance agreements on a device-by-device basis.
In addition, it will automatically supply disposal information to the fixed-asset system, which is part of the company's ERP system. The fixed-asset system will then perform a write-off for any remaining book value, or purge the asset from the system to eliminate the company's property-tax liability.
Expecting the system to supply a return "in multiples of what the cost is," Abate explains how the information it supplies will be used to make strategic decisions that will save the company time and money.
"If we anticipate that PBX technology is going to change and voice over IP is going to be the premier way to do call center business, then, at the push of a button, we should be able to tell what our exposure is on our PBXs-how many more months we have remaining on leases in key locations-and we can assess the impact of that technology from a cost perspective," he says.
"It really gives us the ability to understand what risk we have in the portfolio based on a technology decision, and we can proactively manage that risk instead of never really knowing what it is, and having to spend a whole lot of time trying to figure it out."
A sense of urgency
Many insurers are systematically managing their IT assets in "pockets" of their companies, but it's much more difficult to execute an enterprise-wide asset management system, such as the one at The Hartford.
That's because business units have to buy into the cost, accept responsibility for the rollout and be provided with incentives to maintain it, says Abate, who installed a similar system at United Healthcare-a business unit of Minnetonka, Minn.-based UnitedHealth Group-before coming to The Hartford approximately one year ago.
The "project management office" trend, which assigned accountability within a central IT department, has waned, DigitalEsp's Murphy notes. "Accountability for IT investments has been pushed into business units, and there's now a siloed view of IT assets," he says. "So there isn't always a vested interest in each business unit to support and help finance whatever costs are associated with having a more global integrated view of all organizational assets."
Raising the bar
The Internet, however, is changing that situation. Responding to consumer demand, insurance carriers are beginning to aggregate data and Web-enable their applications, despite the reluctance of business units to support asset management integration.
"What's happening with the Internet is a really big deal in the context of IT asset management," says DigitalEsp's Murphy. "It used to be you'd work for a big company and you'd have to deal with these really (awkward) systems with green screens that were not user-friendly."
Driven by the rapid growth of the Internet, he says, computer systems-even those used internally- are delivering data through some sort of browser interface. Therefore, the perceptions and the requirements of those systems are changing. "Users want an elegant interface. They want intuitive functionality," he notes.
As insurance companies move their applications to the Web, they are presented with a strong incentive for setting up enterprise-wide asset management systems that provide a more accurate assessment of total costs and total value of information technology.
"You're going to have to take some of the assets in your portfolio and you're going to have to re- purpose them to be browser-friendly," Murphy says. "If it's going to cost you $5 million to make an asset friendly and deliver that asset through a browser, and you don't know what its overall value contribution is to the company, that may be a really dumb thing to do."
The need for speed
Also, with the advent of the Internet, it is more critical for companies to refresh network equipment periodically, Abate says.
"You want to run your networks as fast as possible. In the Internet world, time is money. No longer can you run a network that is slow and inefficient because it will cost you a great deal of money in potential sales and in the ability to push information around your company."
"When we talk about `Internet years' and that sort of thing, we have to be much more on our toes and much better at making change," says Diana Beecher, senior vice president and CIO of Travelers Property Casualty Co., a $10.5 billion provider of commercial and personal lines of insurance based in Hartford, Conn.
"Having a clear understanding of your asset management inventory enables you to be much more facile in making changes."
In an effort to better manage its IT assets, Kemper Insurance Cos., Long Grove, Ill., is installing an automated corporate repository called AssetCenter from San Diego-based Peregrine Systems Inc., which will import electronic inventory data about Kemper Insurance's PCs and laptops from a system supplied by Tivoli Systems Inc., Austin, Texas.
One of the goals for the asset management system at the $3 billion mutual property and casualty insurer, which began systematically tracking its IT assets in 1997, is to help the organization move from a corporate allocation for PC support to a "fee-for-service" arrangement with the business units.
"Our PCs are billed on a per-unit basis back to the business areas, and there's a monthly charge associated with a PC, which covers the hardware and software operating system, Microsoft Office, Lotus Notes, all support staff, engineering staff, the help desk, the local and wide area networks, all that," says Michael Gibbs, director of e-commerce and LAN infrastructure services at Kemper Insurance. "The asset center is going to be our source of information back to each one of the business areas for billing of their PC assets."
Assigning charge-backs associated with an asset in a way that ensures business units pay for what they use is a "best practice" of IT asset management, according to The Hartford's Abate. "In large corporations, there are so many charge-back equations that a lot of business units end up subsidizing other business units for technology," he says. One of Abate's goals for The Hartford is to allocate expenses associated with an asset sitting on someone's desk or in someone's data center to those who are using that asset, "so they have a vested interest in managing it," he says.
To that end, business units at The Hartford will use the company's enterprise-wide asset management system to manage their own inventories, Abate says. "The finance person probably will be the key person to manage the inventory for a business unit-to understand what the depreciation is, what assets they are disposing of, what new assets they are buying, and to begin to manage the depreciation of their portfolio of assets or lease expenses at a business-unit level."
Getting a handle on fixed assets is the easy part of managing IT assets, DigitalEsp's Murphy says. "This is the piece of asset management that most companies already do and they do well-the physical inventory of hard assets. The accountants make you do it anyway, so that's a no-brainer," he says.
An empirical exercise
More difficult is accounting for the nonphysical assets, such as service, maintenance and useability of IT assets, which contribute to their real costs and real value.
"It has to be an empirical exercise," he says. For example, "we may actually put agents in a room to work with an IT system and videotape them. And we may say, `give us a typical scenario of your day and how you might interact with this system.' You would be amazed at the cost of interacting with a system that's not effective," he says.
"We may find we're burning 15% of field agents' time because were forcing them to work with a system that doesn't deliver very good value." That's an example of determining one data point associated with the effectiveness of a system, he says.
The Hartford's IT asset management system will enable the company to get a better handle on total cost of ownership of IT assets-an issue that was raised several years ago when the GartnerGroup, Stamford, Conn., announced that the average Windows desktop cost $10,000 per year-considering hardware maintenance, software updates, training, user support, lost productivity associated with downtime, depreciation, finance charges, administrative costs and more.
Determining total costs
But total cost of ownership is an extremely difficult number to determine, Abate says. Therefore, The Hartford is justifying its asset management system based on real expenses it can save by managing its assets more effectively.
"As we're justifying the cost of this system, we're not doing it based smoke and mirrors; we're doing it based on what we're really saving in out-of-pocket costs," Abate says. "How much can we negotiate out of the price equation when we're doing contracts? How much can we save because we know what we have and, therefore, we won't put old equipment on maintenance agreements because it costs more to maintain it than it does to buy it new?"
Although the financial case for corporate-wide IT projects is a part of justifying return on investment at Travelers, the process is not purely a financial exercise, according to Beecher.
In an effort to better manage IT assets, Travelers implemented an automated inventory management system and a software configuration and change management tool several years ago after conducting a comprehensive study of its asset management practices (see "Watching The Front Door, page 34).
"Instead of saying it's going to cost this much and bring this much revenue and this much savings, and subtract, I try to demonstrate the benefits of a technology in creative terms that the business managers can understand," Beecher says.
Making the connection
To make a case for a technology that would enable the company to automatically remedy system problems as compared with having technical support fix it, Beecher provides the following example:
For an underwriter who works eight hours a day-60% of the time with technology and the other 40% with a pencil and paper-Beecher tracks the availability of the technology the underwriter is using, along with every hour the technology is not available weighted by 60%. Then she illustrates the impact on the underwriter's productivity for every hour the technology is not available.
Given such an illustration, "It's really amazingly easy for the business managers to choose between whether they care if that guy sits on his thumbs for two hours, or whether it's a (major) crisis if the guy sits on his thumbs for two hours," she says. "Not even in dollars, but in knowing about their own business processes and workflow."
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
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access