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Federal Regulation Drives the Need for IT Governance
June 2007The word "governance" has come to prominence in insurance IT circles in just the last few years, partly in reaction to the spate of federal regulation rained down by the Sarbanes-Oxley Act of 2002, the Gramm-Leach-Bliley Act of 1999 and the USA Patriot Act, which became law in 2001.
"The need for governance didn't become apparent until Sarbanes-Oxley and the others came along," says Karen Pauli, senior analyst in the insurance research practice at the Needham, Mass.-based TowerGroup. "SOX made it mandatory to know what's going on."
Congress passed SOX to establish accountability after a rash of corporate and accounting scandals; Gramm-Leach-Bliley opened up competition among banks, securities companies and insurers; and the Patriot Act, rushed into law after 9-11, expanded the federal government's power to search records and regulate transactions.
Then, on top of the regulations, the Federal Rules of Civil Procedure went into effect late last year, mandating that carriers produce electronically stored information in timely fashion when a legal case arises.
It seems that meeting all the new rules required "governance" from above. No longer could top management leave IT departments to find their own ways to automate business processes, manage data and conduct their own affairs. Oversight has its advantages, though, according to some.
"IT governance, if you're doing it right, is an enterprise thing that keeps IT from taking the rap for things that don't work," observes TowerGroup's Pauli.
Still, as Pauli would quickly admit, IT governance amounts to much more than a smokescreen for the department's ills. In fact, research shows the more a corporate board engages in IT governance, the better the financial results, says Larry Danielson, a principal at Deloitte Consulting.
And some insurers, Pauli notes, turned their attention to IT governance before the current era of regulation began.
The emphasis on IT governance began only partly because of regulation at Schaumburg, Ill.-based Zurich in North America, says Colleen Clark, the company's IT controller.
IT governance became a catch phrase at Zurich in North America in about 2002, as the company began striving for greater consistency and uniform standards for discretionary projects, says Clark. It was also a time of globalization for the company's IT function, which brought standards and practices that also required IT governance, she continues.
At Des Moines, Iowa-based EMC Insurance Group Inc., regulation intensified the need for IT governance, but the idea had been in place at the company since the mid-'80s, says Mike Freel, a bureau statistics manager there.
IT governance took precedence there so early because the company switched to mainframe hardware that wasn't IBM based. That meant the firm's staff began writing virtually all the software in-house and needed to assign priorities and adhere to them.
Those are examples of internal justifications for IT governance, an important aspect of the whole, according to Rajiv Gupta, founder and CEO of software provider Securant Technologies Inc., which has headquarters in San Francisco.
Many consider IT governance a subset of corporate governance, but others maintain that sorting the two into separate piles can prove problematic, says Gupta. The technology that supports some insurance lines has become so intertwined with the business rules that the two pursuits have nearly become one.
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