Business, IT divide is insurers' strategy risk

Conflict between business units and IT shops in insurance companies tackling their next IT planning cycle could result in flawed strategies.

A "disturbing" trend in IT and business planning showed up in research into many insurance companies which are about to start their 2003 strategic planning period, according to Meta Group analyst Chuck Johnston.

IT groups are developing plans around optimising operational efficiencies, but many sales and marketing divisions in insurance companies are reacting to changing market conditions, building plans around relationships with distributors, customers and extended relationship management (XRM) strategies, Johnston said.

Gary Dransfield, CIO of Australia's largest insurer Insurance Group Australia (IGA), said it was a constant trial for his organisation to align individual business group's business strategy with the IT group during planning.

The pressure has been higher over the last two to three years with IGA heavily focused on integration of its core business with insurance companies across the trans-Tasman and in NSW, the ACT and Queensland, Dransfield said.

"Strategic IT planning is always a challenge to our business in terms of what value people think they're getting from simply 'keeping the lights on', and also by the different priorities of a diverse series of service lines," Dransfield said.

He said IGA's other big IT planning issue is whether its technology "construct" can manage constant business change or is a barrier to it.

In order to minimise conflict in strategic planning and priority setting around IT projects, Dransfield said his company starts from a significant fact base, establishing what systems cost to run and support. Then it assesses the returns on the technology or system by pinpointing ratios such as loss ratios through insurance claims to operational expenses.

"By looking at high-level indicators like productivity and cost improvements, we can draw some comparables over time to help our IT planning process."

Meta Group's Johnston said insurance firms' IT groups should expect inconsistencies in business planning; however, IT units "must build a formal review of business assumptions into the IT strategic planning model".

"Companies must implement a strategy to reiterate the impact of IT cost and value," he said. "This must highlight potential inconsistencies through their impact on IT activities and priorities, not fuel political battles among business units."

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