A huge issue facing insurers of all sizes has been the historical (and often by-default) approach of creating silos, by line of business, for policy and customer information. That information hasnt been readily shared inside or outside the organization.

The silo challenge is compounded by the introduction of direct and Internet channels, or by integration issues following mergers and acquisitions. The end result is a mixed bag of systems, architectures and infrastructures. As a result, insurers are spending too much time and money on managing the chaos.

Sometimes I wonder if CEOs view IT as a cost to keep the lights on rather than a tool to re-engineer the business model? Perhaps they see their firms spending too many dollars for too few victories? Or maybe they prefer to invest dollars elsewhere for a greater return?

But I recall an advertising executive saying that one-half of his marketing budgets were a complete waste of money–the only problem was that he didnt know which half.

Part of the problem rests with the ability to focus on something specific that is not always clear. Try to assemble a one-thousand piece puzzle without looking at the picture on the top of the box. Too often, technologies can easily look like the puzzle parts when you first open the box.

CEOs need to “see” results, and CIOs are packaging the vision into focused, definable and measurable deliverables. Of course, this is not as simple when projects are more scattered, results are less concentrated, and benefits are just beyond the limelight of something more tangible.

Larry Downes, author of “The Strategy Machine”–who has been invited to speak at the ACORD conference next year (May 19 in Orlando)–is one of many strategists who use the word “portfolio” when it comes to technology. I attended a Meta Conference some time ago and they did the same. It makes sense because there is seldom a single solution in our business.

Chris Magee (former CEO of AMS and now senior vice president with e-policy) said to me that his firm is often part of a mix of vendors that come together to build a solution for one of their clients. Integration of disparate systems, coalitions of various vendors, and insurers' inclination to outsource back-office operations demonstrate the importance of industry standards in the mix.

When people invest money in financial instruments, they are told to spread their risk. Some are conservative, while others take risks. Mutual funds are used when one is averse to selecting individual equities. Even IT venture capitalists invest in a mix of startups knowing that the profits from the ones that win will far offset the losses from the ones that fail.

Looking at IT investments as a portfolio is a good play since the IT marketplace is volatile (constantly changing), good ideas do not always turn into good systems, and good systems need to give way to better ones.

I may begin to ask CEOs if they have “hedged” their IT investment portfolios like they hedge their investment portfolios. If you plan to invest several million dollars in a new IT system, how much will you invest to be sure that industry standards are part of the system and implementation.

Should your investment decision be flawed or your execution be faulty, are you locked into a customized proprietary infrastructure built by a vendor having difficulty? Industry standards is an IT portfolio hedge because it transcends vendors, technologies and platforms.

A dollar invested in standards is not a short-term but a long-term strategy. It protects your IT portfolio through the years by supporting all the software developers (internal and vendors) that build nimble and flexible solutions that work together and can be more readily changed over time.

An investment portfolio of software solutions built with industry standards introduces more flexibility into the IT strategy at a lower cost because, like stocks, better investments come along and todays darlings become tomorrow's headaches. And there is nothing worse than being trapped in a solution (investment) thats going nowhere or a stock thats tanking.

Investments in IT, like any other kind of investment, require constant attention. And IT investment decisions are ongoing, and thats not always obvious.

To do nothing or to make no change is also an investment decision that has both short- and long-term consequences for your organization. Its like holding on to losers waiting for the turnaround that never arrives. In these days of cost cutting or budget constraints, short-term dollars often get in the way of long-term returns. But good investors use difficult times to make adjustments and re-think scenarios, and they do not avoid taking action.

CEOs and CFOs will always be involved in IT investments for better–and, yes, for worse. So the more CIOs can frame IT in financial terms the better because, after all, IT is an important ingredient in the financial future of the company.

Lowering cost, improving service, growing income and increasing returns are the mantras of top management, and all those metrics apply to IT as well. We are gathering case studies and working with industry analysts who watch what IT does like the rating companies watch insurer financial performance. And industry standards will end this year on a positive note in this regard. There are more metrics tied to financial impact than ever before.

So as we close out the year and adjust our financial portfolios, we need to consider our “investments” in IT as well and be sure that an ACORD “hedge fund” is built into the strategy. By doing so, we can all look forward to a more dependable and prosperous New Year.

Have a Happy Holiday Season from all of us at ACORD.

Gregory A. Maciag is president and chief executive officer of ACORD, the non-profit insurance standards association based in Pearl River, N.Y., with offices in Belgium and the United Kingdom.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 16, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.