The great change in insurance over
the last decade has been the ability
of carriers to gain better insight
into their customers and potential
customers. A recent report from
Novarica, though, also points out
the need for carriers to gain better
insight into their own operations
and those of their competitors.
“It’s important insurers think
about both sides of benchmark-
ing,” says Matt Josefowicz, presi-
dent and CEO of Novarica. “When
you benchmark costs without
benchmarking capabilities you create a picture that provides a
roadmap for a race to the bottom. If you consider what you are
delivering as opposed to what your competitors are delivering
you have just a one-sided view.”
Josefowicz explains the purpose of the Novarica study was to
assist insurers in looking beyond benchmarking costs, budget break-
downs, spending trends, and staffing levels, but also to put informa-
tion into the context of what capabilities they are delivering.
“Insurers need to make sure they account for the complexity
of their operations and the capabilities they deliver when they
look at what kind of costs they incur,” says Josefowicz.
Insurers traditionally rely on a particular percent of premium dollars to determine the IT budget and Josefowicz points
out the formula, which he calls “supply-side IT spending” is still
in place. Carriers determine what their supply of dollars is and
how they to meet the demand of the business units with that
supply of dollars.
Some insurers have begun to think about the demand for
new capabilities and what kind of business results they expect
from those new capabilities or what kind of strategic importance those capabilities have before they determine how much
they can afford, according to Josefowicz.
“It’s a question of whether you can only spend this much on
IT and what you can get for it or is this what you want to spend
in a perfect world and how do you whittle that down to meet
the resources available in order to address these issues,” he says.
The differences between life and P&C insurance are not
great when they face some of the same macro issues in terms of
the potential impact of analytics, the demand for more interactive channels, and the demand for more straight-through
processing, points out Josefowicz.
Apples and Oranges
Benchmarking numbers need to go beyond IT budgets to include insurer capabilities.
Average Budget Breakdowns for
Insurers in 2015
K All Other
K New Hardware and Software
K Hardware & Software Maintenance Fees
K External Staff and Services
K Internal Staff
Source: Novarica Survey of 69 Insurer CIOs, 2015Q1
11% 10% 10% 8% 12%
9% 7% 6% 9% 10%
20% 33% 22% 27% 15%
20% 16% 22% 18% 20%
41% 41% 39% 39% 43%
P/C (n= 9)
“Those differences are common across lines of business
and sectors,” he says. “How they are implemented is different.
As broad industry averages, it makes sense the percentages of
respondents are consistent with each other.”
Another point exposed by the report is a significant portion
of midsize companies have yet to embrace blended sourcing.
Josefowicz feels it is partly for cultural reasons and also because
some believe blended sourcing is a management challenge.
“There are some companies that don’t feel they have the
competency to do that effectively,” he says.
Top tier companies have spread the workload of managing
legacy systems, so they are eager to outsource and use blended
staff to address other issues. Smaller companies, with less of a
legacy burden and fewer enterprise applications, are more comfortable keeping that work in house, explains Josefowicz.
One thing carriers should consider is to build in more
discretionary funding for needs as they emerge, especially for
smaller projects related to digital or analytics.
“Big transformational projects are funded far in advance,
but one thing we’ve started to see is emerging areas like mobile,
cloud, and analytics there is more flexibility in the budget process and the requirement for hard-dollar ROI,” he says. ITA