The Risky Business of 'Doing More with Less'
Insurance Experts' Forum, October 28, 2011
Maybe it’s just me, but it seems like we have been talking about “doing more with less” in insurance IT for decades now. I know it’s really only been since 2008, but come to think of it, that’s three years ago.
In a recent issue of The Nolan Newsletter, Ed Fenwick, SVP at Robert E. Nolan Company, points out that there is “intense pressure to reduce operating expenses,” a trend that indeed reaches back at least to 2009. He also notes that “this sustained pressure on operating expenses has dried up several traditional sources of improvement—low-hanging fruit and budget variance.” He quotes one client as saying, "Low-hanging fruit is now 25 feet up the tree and can’t be reached without the IT ladder, which we don’t have access to.” Hope for favorable budget variances, meanwhile, has been replaced “with many heading into 2012 with an undefined, unfavorable budget gap.”
Notwithstanding Thursday’s stock market rally, the future for insurance companies’ investments (a primary source of revenue) is not looking particularly rosy. It’s probably true that most areas of an insurer's operations are still being told to tighten their belts, but one has to wonder how tightly the belt can be drawn before we get down to skin and bone. Hard as these economic times are, it seems evident that sitting back and hoping things will improve is not a prudent strategy in a stagnant market, and that’s too bad, because in many quarters it has been the strategy.
Fenwick also states that “growth is the main challenge most insurance organizations are focused on these days.” Growth, he says, can ease pressure on expenses, but somewhat paradoxically, it is expense reduction that often funds growth initiatives. This is an excellent point, and one which is not being overlooked by insurers replacing or upgrading their policy administration systems.
We are facing unprecedented challenges in a treacherous global economy, and solutions seem to elude us. Yet those with the drive and will—and yes, I mean insurers—to forge ahead with well-strategized IT improvements will achieve the much sought-after growth despite the dreary climate.
Insurers and others must walk the delicate line of cutting costs just enough to fund aggressive growth initiatives while maintaining the health and vitality of the company. Technology will undoubtedly play a key role in how resources are allocated, but (and Fenwick makes this point as well) whatever a company does, it must remain aligned with its primary business goals and objectives.
So while “doing more with less” seems a rather straightforward strategy, the truth is that it involves a precarious balance between risk and safety. Those who take risks often come out on top, but just as often they overplay their hands and end in failure.
It is a scary time.
Ara C. Trembly (www.aratremblytechnology.com) is the founder of Ara Trembly, The Tech Consultant, and a longtime observer of technology in insurance and financial services.
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