WITH IT SYSTEMS commonly divided by product lines rather than by customer and agent needs, many insurance companies are finding they cannot meet end-users’ increasing expectations of having a single point of contact. Now these companies are turning to CTOs and other leading IT professionals to transform technology silos into integrated and seamless systems, says Jeetu Patel, executive vice president of research at Doculabs, a Chicago-based consultancy. In an interview with InfoWorld Contributing Editor Susan E. Fisher, Patel talks about the market and budgetary factors challenging insurance-industry CTOs. InfoWorld: How many individuals in the insurance industry have the title “CTO”? While a CIO is responsible for overall IT implementation strategy, CTOs are in charge of the overall impact of technology on business. While CIOs have more of an operations responsibility, CTOs have more of a top-line, as well as evangelistic, responsibility. InfoWorld: How much money was spent on IT in the insurance industry in 2001? How much will be spent in 2002? Patel: There was a decline in spending in 2001 from 2000 [figures drawn from Doculabs’ experience working directly with insurance company clients], and it is currently projected that 2002 will be flat for the first half of the year, compared to the same period in 2001. Barring unforeseen circumstances, the latter half of the year is expected to experience an increase of approximately 10 [percent] to 15 percent. Spending has shifted from the acquisition of technology to more optimization of existing investments, as well as strategically planning the use of technology within the organization. InfoWorld: How much of this spending is related to e-business? Patel: If e-business is defined as utilizing the Internet, then a substantial portion of [IT] spending in the insurance industry will be e-business-related. E-business should also be defined within the parameters of emerging technology. In this case, a significant portion of technology spending will be influenced by e-business-related decisions. InfoWorld: What are the trends affecting IT spending in the insurance industry? Patel: IT spending increased from 1999 to 2000 in response to IT’s ability to affect revenue acquisition and impact customer service. While Internet hype and the economic downturn have slowed IT spending as it pertains to revenue growth, much of the emphasis in terms of IT spending pertains to enhancing customer service. The decrease in spending related to revenue acquisition is primarily due to the economic slowdown and the burst of the Internet bubble. However, the continued level of confidence in the Internet and related technology has allowed IT spending to level out in areas related to servicing customers. Our prediction is that while IT spending might not increase dramatically in 2002, there also won’t be a significant slowdown in spending, barring any unforeseen political and economic circumstances. InfoWorld: What percentage of insurance-industry spending is dedicated to IT? What’s the projection going forward? Patel: The percentage of insurance-industry spending dedicated to IT has only increased over the past few years in aggregate. Projections going forward point to a moderate increase in IT spending due to the nature of the insurance industry, which thrives on volatility and uncertainty — two characteristics that accurately describe today’s economic conditions. InfoWorld: How does the insurance industry compare with other industries in terms of IT spending? Patel: The insurance industry is aggressive compared to some other industries in terms of IT spending. Given that it’s a services business, customer experiences can be enhanced through technology, thereby creating greater justification for the insurance sector to continue IT spending. InfoWorld: How is the insurance industry impacted by the recession? It has been suggested that the insurance industry runs counter to the recession and actually fares better in tough times. Is that correct? Patel: It tends to thrive on volatility or in a fluctuating economy, but not necessarily in a recession. That it fares better in tough times is not always true; if overall spending continues to be low on a consistent basis, sales of certain types of insurance tend not to be as high. With auto insurers, for instance, insurance sales might be down if auto sales are down. However, in a volatile economy, other types of insurance, such as life insurance, may be impacted differently. InfoWorld: How has IT spending been impacted by September 11? Patel: Due to the instant chaos caused by the events of September 11, IT spending was actually frozen for several months because of the uncertainty of market conditions. But as more time passes, certain types of insurance, such as life insurance, will grow more popular as consumer behavior reflects more conservative thought processes. On the other hand, other types of insurance, such as auto coverage, might be impacted negatively depending on auto sales, which could decrease as families have less discretionary income available for such major purchases. InfoWorld: What types of projects draw spending in the insurance industry? What technologies are the most popular among insurance IT executives? Patel: Three areas where most IT dollars are currently spent include integration and IT infrastructure, customer-relationship management, and overall IT strategy/optimization. InfoWorld: Mainstream insurance companies were often stereotyped as laggards in terms of IT innovation, particularly in terms of e-business. Was that a fair perception in the past, and does it hold today? Why? Patel: While insurance has not historically been at the forefront of IT innovation, that behavior is changing, especially over the past year. We predict that the insurance sector will continue to see IT as a strategic investment that will enable it to grow more profitable going forward. Consumers are demanding more services, and customer retention is an increasingly larger part of ongoing revenue growth and profitability. Technology is seen as a great catalyst that enables organizations to achieve both objectives. Susan E. Fisher is a technology journalist in the Chicago area and runs a Web consulting firm. Contact her at susan@webbytes.com. Software Development