Insurance Networking News - November/December 2009

From cloud computing to legacy systems, carrier CIOs discuss areas affecting their careers and ability to perform. By Carrie Burns and Pat Speer

ECONOMIC CHALLENGES CONTINUE to plague insurers, affecting their day-to-day decisions, their corporate objectives and even their budget projections for 2010 and beyond. CIOs, tech vendors and industry experts gathered at IASA’s annual EDGE conference held in Dallas in mid-September to share their thoughts about these issues.

At one of the breakout sessions, Steven Boyd, CIO of San Diego-based Arrowhead General Insurance Agency, led a discussion among insurance technology professionals trying to tackle economic and business challenges affecting IT spend.

While the majority of the industry experts present expected 2011 budgets to go up, they confirmed that 2010 budgets will remain the same. Where they spend that limited amount of money will vary. Matthew Josefowicz, director of insurance at New York-based Novarica, said IT is taking on projects that have quick return, and is heavily evaluating systems and processes right now.

One area in which insurers are investing is virtualization, Josefowicz said. “There is a lot of server virtualization going on,” he says. “Many people are turning their mainframes to Linux.”

One such company investigating virtualization is Princeton, N.J.-based Princeton Insurance. “We are in the planning stages—we are looking at which servers are best to virtualize,” said Darby O’Neill, the insurer’s CIO. “The company we hired has to show cost savings and results.”

Cost savings is important to Gainesville, Fla.-based Tower Hill Insurance Group, which has a large VM farm, said Brian Elsmore, CIO. However, he warned, “If you are not careful, it’s cheap on the front end, but it can become very expensive on the back end.”

The discussion about virtualization naturally progressed into talk about cloud computing, which Andy Scurto, president of San Jose, Calif.-based ISCS Inc., claimed will be the next “dot-com.”

O’Neill maintained that because her No. 1 priority is data quality and integration, she was not quite ready to embrace cloud computing. “There is no way I am putting my data out there,” she said, which was accompanied by a few nods of agreement from other CIOs in the room.

Boyd, however, said he sees some value in it. “This model is good for small to mid-sized companies versus an on-premise solution,” he said.

Novarica’s Josefowicz echoed the thought. “Comparatively, the power of the on-demand model has appeal, especially when you are doing multi-year loss runs,” he said. “You can ship data out and get it back. Larger cloud Web 2.0—where you ship some here and some there—is not being embraced by insurance companies, and I don’t expect it to be.”

system replacement. “Since we started three years ago, we keep close tabs on it,” said Jane Bracken, SVP for business unit enablement at the insurer. “You have to manage expectations—that’s one of the top three challenges.”

LEGACY SYSTEMS

The use of Open Source for development was also discussed. Tower Hill’s Elsmore said much of its development is being done using Open Source.

“Open Source has the reputation of appealing to the yogurt-and-nut-loving, tree-hugging crowd,” said Phil Hargrove, insurance technology adviser at Vertafore Inc., Bothel, Wash. “Yet, all the brilliant shops are contributing to this. IBM is even embracing it. The fact is that it is well-tested software.”

Craig Lowenthal, EVP and CIO at New York Marine and General Insurance Co., said his comfort level was challenged by Open Source. Hargrove suggested that IT execs should institute a policy as to how they will use it (i.e. governance). “There are also copyright laws coming out, so you need to control how it’s implemented,” he said. “Know what you’re getting into.”

Arrowhead’s Boyd questioned whether insurers currently are replacing or maintaining those systems. The consensus among session attendees was that they are working with what they have.

On the other side, Great American Insurance Co., Cincinnati, is currently involved with a major legacy

SOCIAL NETWORKING

CIOs in the session agreed that another challenge facing the industry is social networking, and how to—or even whether to—leverage it.

“You need to look at it as part of a distributed strategy,” Lowenthal said. “If you want to attract agents and do business in different ways, it’s important to think about it.”

Liberty International Underwriters, New York, is starting to use Twitter and Facebook, said a cautious Carlos Correa, AVP, U.S. technology manager. “We’ll see how it goes.”

Other challenges and concerns include productivity issues among employees spending too much work time on social networking sites, and the need for strict oversight of how and what employees communicate about company business. INN