Insurer technology leaders must push true agility and flexibility for real transformation and to successfully reap the benefits of today’s digital-enabled opportunities.
Most insurers acknowledge that their complex IT estates and platforms are inhibiting their ability to transform themselves to compete in the digital world. With their patchwork of legacy infrastructure, applications and core systems that are too fractured and rigid, it’s time for insurers and their CIOs to take a bolder approach to transformation, to inject real agility and flexibility and rethink their IT operating models.
Insurers have been taking aggressive steps to catalyze fundamental change across their IT organization and estate. Most have focused on improving the agility and responsiveness of their IT delivery capability. In fact, in a recent global survey of 160 insurance IT leaders conducted by Harvey Nash and KPMG International, almost seven out of 10 CIOs said they were implementing Agile methodologies within the IT function.
At a country and business level, we have seen insurers undertake significant change programs to transform the IT estate, including replacing their entire core systems and moving platforms to the cloud to embed flexibility and agility.
Yet few insurers have successfully and sustainably scaled their transformation programs up to an enterprise or group level. Despite successful implementations of new core systems within business units such as claims, few have produced an end-to-end integrated transformation. The level of technology integration required, together with business process change and shift from a functional view to customer journey perspective combine to create a level of complexity that is difficult to attain.
Insurance business and IT leaders also face challenges becoming an agile organization. This may be caused by traditional mind-sets and ways of working, but also by insurers inability to instill the right level of rigor to their approaches. To achieve the benefits of Agile at scale, insurers need to establish the fundamentals of the methodology and provide the structure to drive real results. They must recognize that truly becoming agile calls for new ways of business and IT people working together.
A number of insurers are now making significant progress in their transformation initiatives, in part due to a tangible shift in expectations for the IT function. Insurance CIOs and IT leaders recognize that the business now expects them to not only manage costs, but also help drive innovation and growth. They recognize that their role is less about controlling the entire IT estate and more about collaborating and building trusted and value-adding partnerships with the business and external service providers. They want to provide the business with access to digital capabilities and offer the right core IT environment and service levels to succeed and innovate in a safe, secure manner.
Our experience suggests that CIOs and IT leaders will need to move more aggressively and decisively if they hope to scale up their transformation initiatives.
Insurers CIOs and IT leaders will need to be ruthless about rationalizing their current IT estate. Every effort must be made to reduce IT complexity, simplify systems and processes, and improve accessibility and agility.
They will also want to take a hard look at their current sourcing agreements and partnership. Having moved aggressively towards outsourcing over the past decade, some insurers now find themselves constricted by their cost-driven service agreements. And few possess the appropriate skills and capabilities to drive sustainable innovation across the enterprise. CIOs may recognize the need to create a more balanced relationship with their providers, and rewrite traditional insurance outsourcing agreements that do little to support agility or innovation.
By simplifying the IT estate and reviving their control over their supplier portfolio, insurance CIOs and IT leaders can move towards enabling many of the technologies and approaches that will deliver sustainable transformation. For example, Agile and dev-ops approaches, require automation and thrive on simplification and digital labor (including robotic process automation and cognitive automation) can offer new ways to improve quality and responsiveness at lower cost.
Ultimately, we believe that insurance CIOs and IT leaders will need to think more strategically about how they build the business case for, and deliver the execution of, a fundamental IT transformation. And they will need to focus on building collaborative business partnerships across the organization. By doing so, they can deliver effective IT transformation, build a more agile and flexible IT environment, required for insurers to succeed in the digital era.
A global composite insurer has strategically invested over the last two years to significantly simplify their technology estate to support digitization. Creating a clear vision for a simplified and standardized IT architecture, this organization has driven down their annual IT run costs by more than US$50 million through initial data center rationalization and has created a foundation to support an Agile technology capability.
The program will ultimately result in a simplified architecture where more than 70 percent of users are supported by virtual desktops, data centers will be reduced by a factor of 10 and servers will be more than 80 percent virtualized.
Building a clear vision from the start with a strong mandate from the board has been an essential factor in driving this success.