Enterprising Developments

3 Unevenly Sized Buckets for IT Spending

Joe McKendrick
Insurance Experts' Forum, October 6, 2010

As just reported by my colleague Alex Vorro, IT spending in segments of the insurance industry is on the upswing.  According to a joint report issued by Gartner and the Property Casualty Insurers Association of America (PCI), P&C insurers' spending is expected to grow by more than seven percent this year, a more-than-expected jump.

This is good news, isn't it?

Well, dig deeper into the Gartner/PCI numbers, and you will see that 63% of the insurers' IT spending is on plain old maintenance—up from 59% of the total last year. So they're spending more, but even more of it is going to just keeping the lights on and managing legacy systems.

The challenge is to keep the maintenance costs in check, and free up as much funding as possible for new business-focused ventures.

At Aflac, for example, IT and business executives are very aware of this challenge. I had the opportunity to speak with Bahija Noell, Aflac VP for IT business partnership management, who talked about keeping what he identified as “three buckets” of IT spending in their proper perspective. The first bucket, keeping the lights on, is “going to be a constant for all IT shops within the industry,” he says. “Every technology, the day you implement it, becomes legacy.”

The second bucket IT spending needs to be focused on is business growth strategies, Noell continues. “Toward the things that are going to be in place to launch the business into a direction that it needs to go. These items are usually the backbone of technology—they are the ones that are going to be the business value of IT, that's going to be the enabler for the company to reach its goals in the coming year.” Such spending may be on new technology to support call center operations.

The third bucket of IT spending, which is often overlooked and under funded at many companies, is innovation or R&D. At Aflac, Noell says, there are constant innovations “that are on the horizon that we are researching to see how they can be leveraged to position the business toward achieving its strategy and its business objectives.”

The key to keeping funding focused on business needs, versus just dropping money into the maintenance bucket, is to work as closely and as frequently as possible with the business. “As far as deciding where the money goes, we have a very robust strategic planning and governance process,” Noell says. “We launch our strategy planning effort and revise it throughout the year. We decide what are the items that are going to help us grow our business, and where do we want to focus the company in general in terms of goals and objectives, regardless of whether it's IT, business activities, marketing activities, and so forth.”

The rise in maintenance spending, no matter how essential, is disturbing because it means IT's—and the business'—hands will continued to be tied in mandated spending. A strategic and business-centric approach is needed to keep resources flowing to the innovation and growth side.

Joe McKendrick is an author, consultant, blogger and frequent INN contributor specializing in information technology.

Readers are encouraged to respond to Joe using the “Add Your Comments” box below. He can also be reached at joe@mckendrickresearch.com.

This blog was exclusively written for Insurance Networking News. It may not be reposted or reused without permission from Insurance Networking News.

The opinions of bloggers on www.insurancenetworking.com do not necessarily reflect those of Insurance Networking News.

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