Carry-over initiatives include projects in distribution, such as agent portals for application submission and service; projects in cost containment, such as claims efficiencies; and projects to upgrade or replace existing applications. In 2004, actual new development will include projects to reduce costs, streamline operations, and improve effectiveness in core systems, distribution, service, and data migration (see Exhibit 3 on this page). For example, P&C insurers must improve underwriting results to increase net income and reduce operating costs in claims. L&A insurers must expand distribution to increase scale and reduce operating costs in policy administration.
The leaner-and-meaner IT organizations will continue to feel pressure from their boardrooms to reduce overhead and administrative costs associated with IT. In 2004, insurers must introduce similar budgetary control measures to the maintenance budget that are resident in managing the development budget. The discipline put forth to control new development project costs and measures to value return on investment must be replicated in the maintenance budget in order for insurers to accurately assess total IT expenses. Many insurers report excessive IT costs in maintenance of existing systems, and many would spend more on new projects if overhead costs were under control.
However, few insurance companies can accurately classify maintenance costs and pinpoint areas for improvement. Consistent budget controls in maintenance and development are necessary for insurers to parlay their budgets in both of these areas.
Infrastructure Improvements Bring Savings
Certain areas of an insurer's IT operation will deliver more cost-effective benefits when compared to other options. For example, insurers can find hard dollar savings in infrastructure improvements such as system software, hardware, and networking devices. Other savings come from application and server consolidation and utility computing.
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