Jamie Bisker, research director in the insurance practice for TowerGroup, feels optimistic about the future. We still have some hardness in some of the markets, but its softening, he says. The fact is the economy is responding, whether its because of governmental impact or not. I think everybody was ready for a recovery, so theres an optimism that people have. Theyre tired of the bad news, so theyre trying to create some of the good news themselves, from a general economic standpoint.

Jack Tyniec, managing director, TCi Consulting and Research, isnt quite ready to throw off the veil of caution from any of his predictions. I think we need more history of economic upturn before people will move from cautious optimism, he says. Well probably never see actual exuberance again, but certainly were less cautious about our optimism today than we were [a year ago].

Many carriers find themselves in the same shoes as Grange Insurance Group, a regional property/casualty insurer that is continuing to focus most of its financial attention on lowering costs. We still are in the expense-reduction mode and probably will remain that way through 2004, says Ralph Carlile, vice president and CIO with Grange.

Labor Savings

Allianz Life has been a high-growth company the last few years, reports Reynolds, and he believes there will be a continuing IT investment in the company to add levels of automation. The problem with quick growth is having the necessary staff to get the job done. We grew so fast the only way to get work in one door and out the other was just to hire people, he says.
With labor being an IT departments largest expense, insurers arent ready to start writing checks freely. Companies still are keeping a sharp focus on expense levels, says Tyniec. [Carriers] are funding some new initiatives, but the spigot is not wide open.

In the area of IT staffing, that means a continuing look at outsourcing, although the loss of technology jobs to countries such as India and Pakistan has made this a political hot potato in an election year. Outsourcing still is being evaluated, says Tyniec. Unless theres a prohibition thats enacted legislatively, companies are going to keep looking at itoverseas primarilybecause thats where the biggest bang for the buck is right now.
Allianz Life is not conducting any outsourcing to any large degree on the IT side or the business process side, states Reynolds, and he doesnt see any significant change in that strategy over the next year. People are so immobilized by the election that nobody wants to take a formal stand on anything relating to outsourcing, he asserts.

What insurers will have to do, though, is better articulate what value is being derived from outsourcing, Reynolds suggests. Such explanations need to be made within the company and to stockholders. In the past few years, companies didnt have to think a whole lot about positioning [an outsourcing decision], he says. But I think positioning is going to be far more important because of all the attention, so you better have your facts straight, and you better understand what youre doing [outsourcing] for and what outcome youre trying to reach. You need to be very crisp around the business need.

Bisker understands the political nature of the outsourcing discussion but admits he looks at the issue as a globalist. While many Americans are concerned about the loss of technology jobs to other countries, he says, protectionist legislation historically has backfired. He also indicates labor rates in countries such as India, Sri Lanka, South Africa, and Russia have been on the rise. The fact there is more demand for their services is causing the classic market response, and [offshore outsourcing firms] are increasing their prices, he notes.

How Are We Doing?

Insurers will be reexamining the entire business equationparticularly where IT fits induring the coming months, claims Tyniec. It means going back and looking at how many products are being sold actively, which ones are selling well, which ones are profitable, and which ones are costing more to support and maintain than the company has been realizing from a revenue-stream standpoint, he says.

Tyniec believes distribution channels will be an area carriers examine closely, as well. How many [channels] do they have, which ones are expensive, which are more productive, and whats the cost of maintaining all the distribution outlets an insurer has? he asks.

Particularly in life insurance, Tyniec asserts, there has been a clear trend to move away from the career (or captive) agency force to move to third-party distribution channels. The career channel is relatively expensive to maintain because you are providing 100 percent of the support, he says.

An insurer should take this reexamination a step further, Bisker advises, and look at the entire process in which it operates. Its not just operational excellence, its not doing what youre supposed to do better. Its saying, Is this the way were supposed to be doing it? he explains, adding, Is it [correct to assume] the way youve done things always has been the right way, or is it relevant to review the basic nature of how things work?

Questioning the status quo usually is a good practice, as is an understanding of the metrics that impact business. Do you really understand the facts and figures that will impact your business, or are you simply reacting to those metrics and statistics youve been trained to follow? Bisker asks.

Quick Return

Because of its growth, Allianz Life might be in a more enviable position than other insurers when it comes to quick returns on investments, according to Reynolds. But many of the old rules still hold true. Theres no question the old discussion about limited resources/unlimited needs always has been there, but with the increased attention and focus on cost, it kind of exacerbates the whole area, he says. I think that is whats pushing a lot of companies into a better job of portfolio management, so they can make sure all the things on the plate are being done and they are absolutely identifying the highest value.

Allianz Life has some large initiatives under way, and Reynolds says the Internet continues to be an interesting opportunity for us. The company is putting a great deal of effort into creating a better way of shrinking the space and time between the carrier and its customers, Reynolds points out. Were looking at rationalizing our legacy environmentbuilding some middleware and tools that will allow us to be more agile and more leverageable within the infrastructure, he says.

He sees an increased level of attention within the industry around middleware tools and a companys security. Clearly security, with the onslaught of attacks, is a significantly more important issue today than it was two years ago, says Reynolds.

Grange is focusing much of its attention on customer-facing technology, primarily through the Web, reports Carlile. Strategic infrastructure projects still are being worked, but we are making the shift to externalized projects as a general priority, he says. Some of those proj-ects are providing more Web-based services and information to customers. We also are investing in voice/speech-recognition-based technology to provide a multichannel capability for those same Web services.

Continuing Partnership

One thing that wont be changing in the next year is the continual melding between IT and the business units within the carrier. IT and business leaders need to examine the technology issues and how they can rationalize the complexity to reduce costs, Tyniec points out. In most instances, these kinds of decisions are not ones that can be made by IT management alone, he says. [IT needs] to go back to its business partners and say, Heres where the business complexity is driving IT costs. There needs to be a strong partnership between IT and the business side to achieve the efficiencies people are looking at.

At Allianz Life, there are four primary business units and two ways the carrier looks at making IT investments. One is the technology everyone in the enterprise shares equally, says Reynolds. In that space, its a very collaborative process. The IT organization is looked at to be a recommender, not just a provider. There are enterprise projects where were clearly in the lead.

The second focus of investment involves the specific business units, which determine their own key initiatives, and IT collaborates with the units to derive efficiencies. [IT does not] have the capacity to [pursue] all the good ideas that are thought up, says Reynolds. Some things require sequencing. You have to have certain things in place on a technical level.

Insurers need to go back to the basics but with a technology twist, according to Bisker. We can be more efficient, but we have to stop fighting ourselves, which is a way of saying maybe its time to review our old processes, he says.

Processes are more of a problem for insurers than code because code and applications reflect the process the business unit wants to occur. What were seeing is a recognition that something done for a particular reason six years ago doesnt necessarily make it right, infallible, or unchangeable, says Bisker.

Promise for the Future

What excites Reynolds about the future is he finally is seeing some of the old promises made by technology providers start to come to life, particularly in the areas of object-oriented and component-based technology. Thats been the Holy Grail forever, he says. Im actually seeing some traction there for the first time in a long timewhether its message-based services or Web-based services. Were seeing some of that promised efficiency in IT. Im cautiously optimistic were going to be able to leverage that in a business setting, not just in a purely technological architecture.

The message Reynolds and others have given to technology providers is to put their money where their mouth is. Show us where its worked, he says. Show us where its been effective. And show us the ROI. The insurance industry is not leading edge. In fact, Id argue were not even fast followers. We tend to lag a little bit and wait for things to be proven. We werent going to jump on that early bandwagon, but now that were starting to see some success, I think that puts things in a bit different place.

The way to accomplish something today, Bisker says, is not to throw money at it. [Carriers need to study] the basic underpinnings. Is the company prepared? Will it check back more frequently? And does it have better metrics everyone can agree on? he says. Metrics is a key watchword for the next six to 18 monthsnailing down the metrics and making sure everyone understands and agrees upon them within the company.