The IT Spending Paradox

As the economic crisis eases, the question of whether carriers should invest in technology upgrades has been supplanted by the question of how.

At the 2010 ACORD LOMA Insurance Systems Forum in Las Vegas, a trio of industry analysts assessed the merits of different avenues of technology spending.

Matthew Josefowicz, director, insurance, at New York-based Novarica, said carriers should put a premium on technologies that enable agility.

“If the last few years have taught us anything, it’s that things can change rapidly,” he said, citing market crashes, the sudden demise of competitors and shifting regulatory landscape as reasons a carrier might need to quickly alter business processes. “Insurers should invest in IT for capability more so than cost efficiency.”

Kimberly Harris-Ferrante, VP & distinguished analyst at Stamford, Conn.-based Gartner, agreed that carriers need a forward-looking investment philosophy.

“You need to think about how to get information to the customer of the future,” she said, adding that technologies that foment agility are desirable but need to be paired with sound decision-making. “Being fast doesn’t help if you have the wrong product mix.”

Craig Weber, SVP at Boston-based Celent, agreed with the need to build out for future business, but argued the emphasis should be on optimizing existing business processes. Weber said that improving existing processes was vital given the competitive realities of the marketplace as insurers battle for a shrinking pool of premium dollars. “You only grow at someone else’s expense,” he said.

Josefowicz countered that carriers that focus too much on existing processes and technologies are in danger of fighting the last war. “You risk inventing the best buggy whip ever,” he said. “Insurers need to think more about the big picture, and use that to make tactical adjustments.”