Insurance: Strategic IT Investment Critical to Competitive Edge

Matthew Josefowicz

Director, Insurance

NOVARICA

Welcome to our forum Matthew. How important is strategic IT investment for insurance carriers in this current climate? Explain.

Unlike in the last financial downturn which came on the heels of a massive run-up in IT spending due to the dot-com bubble and Y2K, insurers generally view IT as part of the survival plan rather than a luxury that can be cut. We’ve used the metaphor that the last time the ship was in a storm this big, IT was thrown overboard with the extra cargo – this time it’s up there with the captain helping to steer. Continuous advances in information technology are critical to the information-based insurance industry.

What should be the goals right now?

Most insurers are focused on three things: operational efficiency, speed-to-market for new products, and ease of doing business. All of these are critical areas. But insurers should also be focused on effectively using their enterprise data to price risk, serve customers, and chart strategy through business intelligence initiatives.

What should companies avoid doing Matthew?

Although the instinct may be to hunker down until the storm passes, most insurers that do so will find themselves in a worse competitive position when the storm finally does pass. Like the president seems to be doing, insurers should see this time of crisis as an opportunity to make long needed reforms in their operating strategies and technology capabilities.

Tell us some of the new capabilities coming down the pike that insurance carriers should be most excited about.

While keeping an eye on future technologies is valuable, insurers should concentrate on fully leveraging today’s capabilities. Rich Internet applications, full-text data mining, cloud computing, business process management and business rules engines, collaborative platforms like Wikis, and the great mass of easily available data from new sources like GIS and GPS all have the potential to have strong positive impacts on insurers’ businesses.

What are the key lessons learned in the area of enterprise risk management?

I think insurers need to really understand the risks of their investment strategies. Not only do they need to invest in their own risk management capabilities, but they need to demand more transparency from their investment partners.

What do you consider the most critical elements of an effective ERM?

Transparency and an appreciation for what Nicholas Nassim Taleb calls “Black Swans” – the potential impact of an unforeseen crisis.