Collision Course

The challenge for companies is to enable both business and IT to address new regulations in the quickest, most effective manner. "Responding to a regulator's oversight needs isn't necessarily easy for financial services companies," LaPenta says. "It's up to us as technologists to translate requirements in a way that allows our companies to meet compliance through the most effective, cost-efficient model. Every company in this environment is pressed to do more with less."

New regulations will exacerbate a problem with which the industry continues to contend: having a flood of data but limited knowledge. In this aspect, there are several parallels between insurance and other financial services businesses, LaPenta says. "There is a proliferation of data every corporation has, whether you're a bank or an insurance company. Data leads to information, and information leads to insight, but only after efficient rationalization and optimization of data. That is both the challenge and the opportunity."

Given recent economic developments and their far-reaching impact, the importance of insight never has been greater. "There's more and more of a need to pull data into the organization, starting at the point of contact," says LaPenta. "Whether driven by a company's own strategy or by new regulations, there is a greater and greater need to use data for operational excellence and risk management going forward."

Another struggle for insurers that involves both sides of the tug of war is the need to integrate new technologies into an existing infrastructure. "Companies need to position themselves to operate heterogeneous environments, whether that involves moving beyond one operating system, one programming language, or one of any particular platform," Gay says. "The days of having a monoculture in your IT environment is over. You should use the best tool for the job. Sometimes that tool is Java or C++; sometimes it's Erlang or Ruby on Rails; sometimes mainframe and COBOL."

Utilizing this strategy frees a carrier from "vendor lock" and helps it support new and innovative ways of product delivery, Gay says. It's also a strategy MileMeter successfully has utilized: The company built its core systems in a combination of Ruby and Java to operate in the "cloud," using Amazon's Elastic Compute Cloud (EC2) infrastructure and Web services.

However, Gay admits this approach would clash with traditional development and IT governance. "IT departments often are constrained by organizational policies or sunk infrastructure investments. For instance, they might have rules that systems should be written in the same language because they believe a decoupled, heterogeneous environment would cost more. While that may have been true 15 years ago, the ability to interface various tools today, to deal with different languages at different layers of your 'stack,' or even to have different languages in the same layer, is feasible and cost-effective," he says.

Financial services companies also need to develop a heterogeneous strategy, enabled by IT, for marketing to consumers, adds LaPenta. "One thing both banks and insurers have in common is we went into a reflective period after the dot-com meltdown. Today, if you look at the explosion of social networking and 'Web 2.0' capabilities, we've fallen behind the expectations of the current generation of consumers," he says.

It's time for insurers to make investments in these capabilities despite the current economic climate. In fact, LaPenta argues the difficult economy has raised the importance of investment in consumer-focused technology for all financial services companies.

"Financial services traditionally has aimed its efforts at an older constituency with the most net worth, but now economic conditions are forcing companies to look at ways to get new customers from Generation X and Y," he says.

That means reaching out to consumers who increasingly are expecting not just any time access but anywhere capabilities. "Phones quickly are becoming full-fledged computers. That presents an opportunity to provide immediacy to consumers as well as to lower the cost of acquisition for carriers," Gay says.

Dealing with a legacy systems environment while positioning a company to meet and anticipate future needs will continue to be a strategic challenge. Those carriers that strike the best balance between these competing forces will emerge as market leaders.

"The world has become a giant global village, Web technologies continue to proliferate, and companies need to capitalize on them to service and sell to customers better," LaPenta says. "The opportunities are there."