Insurance in the age of agility

What are the pressures currently experienced by insurance industry CIOs and CTOs who are required to support business change, differentiation and innovation while maintaining a stable system of records - and all in these times of austerity? Richard Williams, CIO of Mitsui Sumitomo Insurance’s (MSI) London and European operations, explains.

Innovation - The insurance CIO’s conundrum

For the CIO charged with cutting costs and protecting an organisation’s data, innovation has not been an investment priority. The well-known irony is that for an industry that takes risk, insurance is extremely risk averse. As a result, innovative IT investments have been allowed to languish in the in-tray.

While considering technology that may give the business a competitive edge, CIOs have to deal with the fact that maintaining and updating legacy systems can easily consume most of a company's IT operating budget. Gartner’s Worldwide Enterprise IT Spending Forecast from November 2012 reported that many companies spend up to 70% of their IT budgets on infrastructure and application maintenance or “keeping the lights on”.

Despite this figure, I believe we are at a turning point of accelerated IT adoption and innovation in the insurance industry. Deloitte’s Global Insurance Outlook 2012 highlighted that, while these are difficult times for insurers to grow their business, there is a fundamental need to change how the industry meets rapidly evolving consumer expectations; with transformation coming in the form of products, distribution, service and technology.

The growth of online and social media is driving a seismic shift in expectations of how products and services are marketed, priced, sold and serviced, and how companies are perceived. This disruption has been coined by Gartner as the “Nexus of Forces” - the collision of cloud, social, mobile and information. The power of customer service has shifted into the hands of the customer, and to the most agile organisations that can adapt to and master these converging forces.

The CIO’s role in this shift is paramount - in making it happen, and in justifying investment to the board. Now charged with maintaining competitive advantage, improving productivity and protecting against risk, CIOs must demonstrate which innovations work for the business and accelerate new initiatives.

Related:

Innovation - The architect’s guide

The challenges for the insurance CIO/CTO are clear: drive innovation without the luxury of significant IT budget increases, and be more agile without disrupting legacy-based operations.

Insurance firms typically have several generations of applications, each designed with technologies that were both state-of-the-art for their time and appropriate to the business needs of the time. A complete technology overhaul is risky and expensive. Given that business and technical requirements will keep changing, companies today have to accept change as a permanent factor and start building in agility gradually.

The best way for a CIO to tackle this challenge is to differentiate clearly between ‘systems of record’ from ‘technology that will provide competitive edge’. Gartner’s Pace Layering strategy is one that allows the CIO to have design goals for different parts of the organisation to address the fundamental business needs while introducing innovation.

Pace Layering is based on an architectural approach where a building is designed to tolerate change at various frequencies. Some aspects of a building are built to last a lifetime, while others are reconfigurable. This concept is applied to the enterprise application portfolio, dividing it into layers, allowing changes to each without disrupting the other.

The layers in enterprise technology are:

  • Innovation layer – User interfaces, emerging applications.
  • Mid layer built for change  - Systems of Differentiation.
  • Core base layer built to last - Systems of Record.

With this model, insurance companies can embrace innovation because it does not have to impact the systems that underpin their organisation. With data’s overriding omnipotence in insurance, systems of record have to stay stable and strong. The mid layer can easily be changed at a cost, independently of the record layer, without causing any disruption to the core base. The product suite and workflow system sit at this mid layer.