Insurance: Strategic IT Investment Critical to Competitive Edge

Don Canning

Director of Insurance Worldwide Financial Services Group

Microsoft Corp.

Let’s go to Microsoft’s Don Canning. Welcome to –our forum Don. How important is strategic IT investment for insurance carriers in this current climate?

Maintaining a focus on strategic investments is critically important right now. The natural tendency may be to focus on cost cutting, but the imperatives for our industry have not changed – we need better insight into our businesses; more modern platforms for policy administration, new product development, and underwriting; improved risk management; and technologies that will allow us to retain and attract customers, especially the next generation of customers who consume media in vastly different ways and who will have technology expectations that include improved Web channels, mobile device access, and aspects of social networking. If you look at past economic situations, the companies that maintained their strategic investments are the ones that came out ahead of the pack when the recovery occurred – and by sizeable leaps. Insurance carriers that continue to make strategic investments in these areas will come out ahead of the pack when the economy recovers.

What should be the goals right now?

Broad goals to consider today include putting in place more modern platforms that lower costs while increasing agility, especially for new product development; adding business intelligence capabilities that improve risk management and customer and performance insight; and improving workflow, distribution networks and channels to improve producer productivity, agency relationships, and customer relationships.

What should companies avoid doing?

IT remains a strategic asset. So many carriers demonstrate that fact every day – Aviva, Pacific Life, Progressive, to name a few. A great example can be seen in how many carriers are using improved business intelligence systems to identify opportunities to offer usage-based insurance products in P&C auto, and then configure and release those products to market more quickly than competitors. They’re weaving real driving data into their rating models, better identifying loss indicators, and achieving improved loss ratios while also increasing customer loyalty. You don’t achieve that kind of game-changing product strategy by outsourcing what is strategic to your business, or cutting costs at the expense of capabilities.

What are your thoughts on new capabilities?

Some of the more exciting technologies include high-performance computing and grid computing at price and performance points that will dramatically change the nature and reach of actuarial sciences; Web 2.0 channels that move Web sites and mobile devices from transactional systems to relationship-building channels; and business intelligence systems that help carriers, agencies and brokerages gain more visibility into their business, in real-time, and spread that visibility further across the organization yet through the software they already have.

What are some key ERM lessons learned?

We’ve already seen many important lessons from the recent economic situation. One, system risk management has emerged as a key component of enterprise risk management – you are only worth what your value chain is worth; stress testing has emerged as a pillar of risk management; we’re returning to the basics when it comes to liquidity management; and capital adequacy measures and ratios such as Solvency 2 will be applied to the industry across the board. Technology will play a critical role in addressing all of these lessons learned.

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

I think the economic situation will reinforce the need for our industry to better leverage technology to improve the capabilities for risk analytics and reporting, and regulatory compliance and controls. Enterprise risk management will not be viewed as something a company has to do, but something that a company must view as a critical capability and source of competitive advantage.