Can investing in IT help to beat the slump? As the recession bites, Post gathered leading indus...
Can investing in IT help to beat the slump?
As the recession bites, Post gathered leading industry figures together to discuss whether the insurance sector can look to create more efficiences using technology and whether any drop off in IT investment now could be counter-productive in the long term. Jane Bernstein reports.
With businesses increasingly focused on strategies to beat the credit crunch, investment in technology is often cited as playing a key part in driving efficiencies. But how quickly can putting money into IT now see a return on investment? Have insurers and brokers done all they can already in terms of using IT to increase efficiency in the current economic environment? Industry experts gathered at a Post magazine event sponsored by SSP to respond to these timely and relevant questions.
The discussion kicked off with a consensus that now is not the time to make cutbacks in IT spend. It is, however, a time of change and the insurance industry is exploring new ways to develop effective IT strategies. As Michael Lynch, head of e-commerce for Kwik Fit Insurance Services, asserted: "I don't see cuts happening. Developments are being scrutinised more closely to ascertain why and where a project is going, but there is definitely a focus on using IT to ensure sustainability within a business."
So is the economic slump proving to be an incentive in itself to push IT projects forward? Is technology viewed as a magic wand in terms of helping companies survive? For Simon Cooter, Brit UK's distribution director, the point is that although a recession focuses business minds, technology is just one of many strategic considerations. Mr Cooter added: "I do not believe now is the time to be slashing investment in the business. You need to be making sure you can trade through the good times and the bad times."
Despite a belief that heavy cutbacks in technology spend are unlikely, it was also noted that businesses are understandably more cautious about spending money. Duncan Pagan, director with BPS, Bluefin, observed that projects are now "going through more pairs of hands and more committees".
Laurence Walker, chief executive of SSP, pointed to the significance of where businesses are within their budget cycle and observed that this is currently having an effect on investment decisions. He agreed that while firms are unlikely to stop spending money, "they are just being a bit more careful about where they spend it". He added: "People are looking at return on investment and value-led propositions, to balance the risk-reward profile."
The question is, are businesses largely making decisions based on short- or long-term gain? Nikki Daniels, director with Isis, reported a range of approaches and also observed that some firms were taking a more sophisticated approach to IT than they had done in the past. Ms Daniels noted there was a wider understanding about which projects represent a better fit for a business. "Decisions now are decisions that people want to stick with rather than having to change again next year."
Despite some debate over a preference for short- or long-term returns on investment, there was also a view that vendors should be looking at ways to help clients achieve both. Mr Walker observed that while this seems like a difficult trick to pull off, it is possible to take costs out of a business, offer access to new channels and improve speed to market with an investment in e-commerce. Mr Walker explained: "It is those kinds of projects that people are spending a bit more time qualifying, and those are the ones that are moving forward as opposed to being rejected against the backdrop of the economic downturn. The bang for the buck is extremely important at the moment. It is about getting that short-term gain as well as achieving the long-term strategic aim for the business - and making sure that your software vendor is up to the challenge."
It was also observed that many businesses are looking to work with the IT they already have, rather than starting from scratch. This reluctance to replace entire existing systems was summed up neatly by Jonathan Davey, director, SSP, who pointed out that people are not necessarily prepared to "throw the baby out with the bath water".
There was some disagreement around the table about how far businesses are still prepared to rip old systems out and replace them completely - the so-called 'rip and replace' approach. Mr Walker observed: "On the larger scale, the wholesale system replacement market for us, will soon be a thing of the past in this climate. It is going to be much more akin to a migration away from legacy back office systems, delivering value and reducing risk."
Aash Patel, principal consultant at Winchester White, however, had a different view. "There are big rip and replace projects on the table now," he asserted. But while Mr Walker conceded that there may be big deals out there, he maintained it was unlikely some would come to fruition in the current climate. "It's a brave man who looks at a £20m engagement with a return on investment spread over seven to 10 years and agrees to sign that off."
Whether or not the rip-and-replace approach is a thing of the past, certainly more businesses are looking more closely at how they can work with the systems they already have. Rachael Bishop, IT director at Barbon, said: "We are very much sweating the assets. That is, looking at what we have got and how it can be changed without necessarily getting rid of everything." This, she observed, may include initiatives such as renegotiating contracts, looking at support contracts, and not signing into particularly long-term contracts. Ms Bishop added, however, that: "On the other hand, we are looking at some longer-term views on system investment." The message is that where an asset can be re-used or adapted, that is viewed as a sensible option, but that this approach does not exclude necessary investment in IT.
Paul Cassidy, head of information systems development at Swinton, reported a similar approach. "We, too, have an ongoing theme of sweating our IT assets and maximising our investment," he explained. He added that this is accompanied by a long-term view of developments in the economy - including ensuring the firm is in good shape when things begin to turn around.
Mr Cooter emphasised the importance of the long-term view, asserting: "It is very easy to make a decision not to spend money today, but what people often overlook is the effect on their business two or three years ahead. And IT technology generally is something you can't stop investing in. The moment you stop investing in the business, particularly in the way it is run, is the moment you damage your business for the future."
IT requirements will continue to vary widely within the insurance industry, depending on particular firms' needs and how far their own business has developed, and there was widespread agreement that providers must find new and innovative ways to work with their insurer or broker partners to meet those specific needs. As Ms Daniels observed: "All our business is cyclical and lots of brokers out there are at different stages of that cycle." Ms Daniels added that there will be technology requirements at all stages of the various cycles and pointed out that technology providers must be nimble enough to provide the right help. Moreover, firms need to be able to communicate with their technology providers. "It is important to say this is what we want to do, what do you have in your tool bag that we can bolt on, turn on, ramp up, to help us to deliver that business need?" explained Ms Daniels.
However, there was also a view that the sheer number of systems on offer and the level of know-how required to enter into discussions can make it difficult for brokers to engage with the technology providers effectively. As Mr Pagan commented: "Small brokers can find it difficult to make decisions about systems. They are sold systems, they don't buy them. And they find it incredibly hard when they have got all these IT offerings in front of them to decide which one is right for them. Numerous brokers that we see are on the wrong type of system for their business profile." Mr Pagan put forward the view that the networks will have an increasing role to play: "We are going to see the networks of the future providing that expertise and that guidance and that leadership in IT. The networks of the future will be IT led and will be partnering with single software houses."
As far as finding new ways to add value is concerned, Mr Davey commented that there was room for innovation in the way IT providers charge for products and services. "We can look at transactional pricing models, we can look at sharing the upside of the growth in the business with a client rather than simply looking to sell our licence fee and then ongoing services." He also predicted a sea change in the way software houses work with their clients, with a more partnership-focused approach emerging.
Mr Walker put forward the view that a greater focus among the insurance industry on where money is spent has, in fact, allowed the technology providers to become engaged on a more constructive level. "Historically, we have had a more transactional engagement, with software providers simply asking what can we do for you? But the tightening of the economy has meant that we need to be more collaborative in terms of where we are going. And if there is that risk reward-profile where a software house is putting its revenues and its profitability on the line, based on the customer's success, then there is that joint responsibility to pull the organisations together and define a working strategy moving forward."
Dave Cheeseman, head of business systems for Arista Insurance, pointed out that while communicating with the software house is welcome, a vital factor continues to be speed of delivery. "The reality is that while it is good to have high-level chats - and, yes, we engage with our software houses on a quarterly basis to review strategy with them - at the end of it, we want to avoid delays in delivery."
Mr Cheeseman added that in the current climate, insurers are going to be looking more closely at who can deliver quickly and that this may outweigh other considerations. "Generally we need to see more focus on saying 'I have picked the right partner - one that will actually take the project from start to end as opposed to coming up with a vision without having the nuts and bolts that sit behind it to deliver that vision'."
Many endorsed this view, and there was also agreement about the importance of a more united approach from the various stakeholders. One question raised was whether the commercial lines sector could find itself in competition with aggregators if insurers, brokers and IT providers cannot achieve the right efficiencies and sell commercial insurance at a realistic price. Ms Daniels, in fact, was certain that small commercial would become aggregated.
"If you take a tradesman or a shop or an office policy, tell me why that is any different to a household policy?"
Mr Cassidy identified the importance of customer relationship management in responding to changing buying patterns. He observed that while customers are inevitably less loyal in tough times, there is now a much greater level of sophistication in terms of customer insight than in the last recession. He observed: "The credit crunch will accelerate changes in customer behaviour," and predicted we are likely to see small to medium-sized enterprise customers looking for cover online. "The whole area of customer relationship management systems is something the industry has not embraced. There is a way to go in that area."
With regard to adding value, claims service, of course, continues to be a key differentiator. As Ms Daniels asserted: "Give customers a good claims experience and they renew for life." Mr Walker added that claims is certainly an area with the potential for synergies and cost savings. But are insurers in danger of losing customers and potential profit by failing to invest in claims technology?
For Mr Cooter, one of the main problems is a "herd mentality" within the insurance industry when it comes to claims. He explained: "Everyone does the same thing - they offshore or they outsource, they vertically integrate or whatever the consultants are telling them that week. And the reality is it is not as simple as that. For example, how do you manage fraudulent claims? Is it by installing the latest technology or is it by having a first response unit with properly trained people who actually know how to weed out those claims in the first instance?"
There was much agreement with Mr Cooter's view that while technology is vital in claims, it is also essential to have the right people in place in order to provide an excellent claims service.
Ms Daniels put forward the view that the insurance industry could still learn much from the use of technology in other industries. "Others are more efficient, they communicate better with the public, you only have to look at the way that Ebay communicates with you if you purchase something to discover what keeping a customer up to date is all about. We don't give our customers enough information. We don't even tell them about their purchasing process, let alone about their claim process."
So is there a reluctance to invest in claims technology in a recession? One point that was raised was whether even great claims experience can, in fact, attract customer loyalty - or will price still be the main driver when it comes to renewal?
"People are investing in claims," asserted Mr Patel. "It is a misnomer that there is no investment." One of the most time-consuming issues for many insurers, he said, is the status check call - that is, for example, customers wanting a status update on their car repair. Mr Patel asserted: "You can tie up 40% of your resources just answering those very simple questions and if you could push that out, and use technology to drive the customer to perhaps link into a central hub where they can see the status of their car, and see when it is going to come back, that should free up a lot of investment."
Mr Patel went on to observe that insurers have suffered from "years of disinvestment", which makes it difficult to move forward. "We know there are a lot of solutions out there, but many people are just saying they don't know where to start and this is a big problem in claims."
The industry experts present at the roundtable discussion were in no doubt that investing in technology continues to be a good idea but how long should a company expect to wait before it sees a return on its IT or software investment? The responses to this question ranged from "tomorrow would be nice" to "it depends on the type of project". Mr Patel added: "It depends very much on which part of the IT process you are trying to change and on the size of the company." He elaborated: "If you are looking for an end-to-end strategic solution, it is going to be over a much, much longer period."
One of the over-riding messages to come out of the roundtable discussion was that a considered approach to investing in IT and software can help a company to come out of the economic downturn stronger - and some steps ahead of - the competition. Investing in technology - as in all areas of the business - will inevitably come under closer scrutiny as businesses tighten their belts, but as Mr Cooter concluded, "It is when you stop investing in IT that it starts going wrong."
- Rachael Bishop, IT director, Barbon
- Paul Cassidy, head of information systems development, Swinton
- Dave Cheeseman, head of business systems, Arista Insurance
- Simon Cooter, distribution director, Brit UK
- Jonathan Davey, director, SSP
- Michael Lynch, head of e-commerce, Kwik Fit Insurance Services
- Duncan Pagan, director with BPS, Bluefin
- Aash Patel, principal consultant, Winchester White.
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