Brave New World for Insurance CIOs
Robert Regis Hyle | February 16, 2015
The one point that mirrors the way technology has changed how insurance carriers operate today is the rise of the CIO in importance. No longer is the CIO the one who keeps the lights on and the trains running on time, he’s the one who helps company leadership, particularly the CEO, develop strategies to enhance operations throughout the enterprise.
As these changes have occurred, CEOs have had to rethink their relationship with technology leaders and the result is a new respect among members of the corporate hierarchy toward the CIO.
Throughout his insurance career, Bob Otis, president and CEO of National Lloyds Corp., has developed a respect for IT leaders as peers with every other function within the enterprise. Early on, Otis has had an IT person involved in the business discussions. He doesn’t look back at this as foresight, but more as a result of past failures.
“If I was hiring underwriting, marketing or pricing people, right next to them I needed the IT person,” he says. “I didn't realize it at the time, but I was one of the only ones running major projects that had the IT person at the same table with the business folks. I always found that people separated the business side—traditional marketing, pricing and underwriting—from the services side where IT was always placed.”
National Lloyds was a non-IT company that needed to become one, according to Otis, particularly when it came to gathering the right information. The IT department needed to think about how the data flowed through the organization.
“I have to think about all those things when I think about strategy or I won't know where to go,” he says. “You won't have a complete strategy without IT. There's no doubt some IT folks I've brought to the table would prefer to be a simple service organization and would prefer—maybe not so much today—that I simply told them what we want them to do. That's not a helpful approach and IT gets a lot of grief for that. That's how they get left out in the first place. I don't want them in the room if they are not offering solutions.”
Over the last five years, there has been a fundamental change in the perception and operation of the IT department at Patriot National. The job of CIO is no longer strictly a service function. As technology has advanced so rapidly in the business, IT and its leadership have taken key roles to assist the business units of the Florida-based insurance outsourcing services provider in understanding all that technology can offer, according to Steven Mariano, chairman and CEO of Patriot National.
“The CIO position has taken on some of the characteristics of the COO role because the CIO not only knows what technology is available but also how operations will need to adjust and revamp its procedures and protocols to achieve a better outcome for the company,” says Mariano. “In the past, technology didn't move quickly in the insurance world, so the CIO was doing the work that other executive officers would ask of them. That has changed dramatically.”
Technology has changed the role of the CEO as well. Mariano explains there is virtually no business—insurance or otherwise—that a CEO can run effectively and in the best interests of shareholders if the CEO is not savvy about technology in some form or fashion.
Still, a close relationship between the CEO and the CIO is not completely there yet for many insurers, according to Frank Petersmark, CIO Advocate for X by 2. During almost all of his own tenure as CIO at Amerisure, Petersmark says he was lucky to have a close relationship with his CEO.
“I was fortunate and maybe blessed with that kind of recognition of the importance of technology through the reporting structure,” he says. “It was quite common for CIOs to report to CFOs or COOs, but it's not a relationship that just happens by reporting structure. That helps for sure, but in my own experience I had the best of both worlds.”
Even though Petersmark reported to the CEO, he feels the relationship didn't begin to click until the two spent more time together. Petersmark feels for the two sides to be in sync it has to be more than about a weekly meeting.
“That’s a good start, but a CEOs time is difficult,” he says. “[My CEO] was kind enough to carve out some time to create strategies and new things to do in IT. He would commit hours or up to two days because the key with these relationships is you have to get in each other's shoes and understand the issues that each other faces. CEOs run companies and in the end they are the boss and have the big worries. We would set up guiding principles for IT with a framework of things we believed in. It might sound silly, but there were things like one version behind the cutting edge and within those parameters it became something that was sown into the fabric of the strategic plan and a good way to set expectations year over year.”
Qualities of Leadership
Mariano believes there is a big shift taking place in insurance and technology is one of the reasons. Twenty years ago, he points out, if you were a 28-year-old, you would probably not have anything near a major management position at an insurance company. Today that's different.
“We have people five or six years out of college that, because of their technology prowess, are now at senior levels of the business,” he says. “The acceleration to a senior management position or a top regional position doesn't take 20 years these days. The prerequisite is they are all tech savvy and bring ideas to the table which show us new areas where we didn't think we could go several years ago. For students looking for potential careers, the insurance industry will be a great place for employment, especially if you are tech savvy.”
The fundamental skills are the same for most C-suite residents, but Rod Travers, executive vice president of The Nolan Co., believes insurers need someone with a real appreciation for the business and information, and an affinity for technology to be an effective CIO.
“Anyone running a claims operation is managing to the numbers and whoever is running IT has to be delivering not only those numbers, but translating the numbers into information to enable the business,” he says. “The qualities are the same, but you need someone with a deep understanding of technology and what it takes to deliver information.”
Travers feels the qualities vary depending on the company. Some carriers such as Progressive, for instance, are data driven. Someone leading an organization like that is going to be a very data-driven person and the CIO has to have a shared appreciation for that.
Some organizations aren't so driven by one or two things like that, so a shared appreciation for the strategy is important, not only with specific qualities that any good business person should have, but an appreciation for the strategy, explains Travers. If the strategy is more around customer service excellence, like Chubb for example, their priority is to take care of the customer no matter what, explains Travers. They have a different set of priorities so the CEO and CIO have to be on the same page.
“Those fundamental qualities make a good business person, but also shared values around what the business is trying to accomplish,” he says. “That's when the CEO has found the right CIO.”
Mariano also believes members of his executive team and top managers need to be tech savvy because so much of the insurance industry today is being driven by technology. The ability to change the way things have been done in the past to the benefit of carriers and producers is not just a role for a CTO or a CIO.
“The whole management team must buy in and be part of the team to make it totally successful,” says Mariano. “Whether it is underwriting, claims or any of the different business functions, the more that people in those business units know about technology and the options available to them, the better off they are going to be. It’s tied to efficiency. Insurance companies need automated procedures and in order to eliminate a lot of inefficiencies especially on the claims side. Technology will be a major part of achieving those efficiencies, and Patriot sees a real advantage in being able to offer cutting edge technology solutions to our customers.”
Mariano explains his philosophy on technology’s value isn’t hard to sell to members of the executive team. Whether they consider themselves tech people or not, anyone who lives in this society is tied to understanding and knowing technology.
“Technology has started to drive even the docile insurance industry,” he says. “There are major advancements going on because of the ability to drive efficiencies through technology.”
Over the last decade, Mariano explains Patriot National brought in executives that bought into that culture and understand the direction the company was headed.
“We weren't building a bigger mousetrap; we were building a better mousetrap,” says Mariano. “We hired based upon getting people that were bright and experienced, but also knew we had a lot of work to do on the technology side. We always have things we can do better because technology advances quickly; new things come out every day. Insurance is such a big industry that there is a lot of money to be made in insurance technology to provide better efficiencies.”
Are all C-suite executives treated alike by the CEO? Travers believes it comes down to the amount of mutual trust and confidence the executive team has.
“The CEO is going to have the expectation that his CIO can manage to a set of goals,” he says. “Generally, the CEO does not have his nose in the data center because it's not the right use of his or her time. If the CEO becomes engaged in discussions around specific technology or platforms, then they are too deep in the weeds. That's the CIO's job.”
By contrast, if the CIO is bringing those types of issues to the CEO, they don't have a good fit, according to Travers. When a carrier makes a five- or 10-year commitment to a core system with a large investment, the CEO obviously will have a role there, but when it comes to running the IT function, the CEO shouldn't have to be involved.
“There are a few areas the CEO has to pay closer attention to, such as risk management or data or information security,” says Travers. “They play a bigger role there because of reputational risk and they are the face of the company. But unless the CEO came out of IT, which happens occasionally, they shouldn’t play a large role in the day to activities of IT.”
“I expect my IT folks to have the exact same strengths and characteristics as my head of marketing, head of underwriting or head of finance,” says Otis. “I expect them to understand the business so they can be fully engaged in finding solutions for the needs of the business.”
Like any of his direct reports, Otis expects IT leaders to be experts at their trade, but also business intelligent. He views this as a combination of knowledge of their trade and a level of experience that can help connect the dots.
“If you are engaged in the business you can apply that to underwriting, marketing, and finance and help them see a better way to get things done,” he says.
Changes in the CIO role
The definition of the role of CIO has changed, particularly in the last five years, points out Travers. In the past, they held the title, but many CIOs were really CTOs, focused on platforms and infrastructure. That is essential, adds Travers, but the role is Chief Information Officer and those with that title should be focused on information, business enablement, and helping key functional areas of the company accomplish their mission.
“The person steering the ship doesn't want to understand what is going on underneath them, they just want to be able to turn the ship when they use the wheel,” says Travers.
Technology solutions have matured and Travers believes unreliability and complexity have diminished. The role of a CTO remains important, but the CIO has the opportunity to step into more of a strategic role than they have in the past.
“There are a lot of CIOs that are sitting at a strategic level, but they have to earn it,” says Travers. “They have to know the business and the key functional areas. They have to think like a CEO to some degree to differentiate the company in the market, internally, to help the cost structure, and enable employees.”
“If the CIO and your technology executives are not part of your strategic circle for the advancement of ideas, you put a low ceiling on your ability to grow,” says Mariano. “If you are not taking the technology available and strategically working with the CIO on three-, five- and 10-year strategic plans, you will end up in the middle of the pack when it comes to efficiencies. The CIO and the CTO are at the forefront of the strategic conversation about who you want to be and how you want to get there.”
Petersmark admits to his bias, but he believes the CIO is the person that is expected to know at a pretty deep level of detail every other person's business. When CEOs are looking for CIOs, they are looking for some depth, but when they are looking to hire a VP of claims, they are looking just for depth in claims.
“I think it is incumbent on the CIO to know more about everyone else's functional area than for them to know about the CIO's functional area,” he says. “I used to kid with the CFO that with a few minor tweaks, accounting has been the same for 400 years. Technology turns over every year or 18 months. It would be difficult for the VP of claims to stay up even on insurance technology, as slow as that seems to change. CEOs are looking for someone who has all the table stakes stuff—knows the technology, knows the insurance space, has run complex organizations, and has a working knowledge or actuarial, underwriting and reinsurance.”
Leaders need to be creative and not married to the old way of doing things, explains Otis. That means a focus on the entire operation, not just their functional area.
“When I get that out of the head of IT, more than any other function we get to better solutions because it puts them in a position of not only being knowledgeable about the business, but there is no other function that acts as the connective tissue between all of them,” says Otis. “If they can play that business strategist role at the table, no one else can go back to their functional role and be able to connect things and do things in a better way.”
Business leaders can think long term, but without technology it won't allow them to think completely. Otis admits every time he tries to think strategically without IT, he goes slower, doesn't pick the right path, and often ends up undoing what he started.
“The buckets I get from IT lead to an effective strategy,” he says. “It’s where I get the data and the insight. It's where the systems are built that give me the options for the execution. And it’s what I use to monitor the business to ensure continuity and quality.”
Otis admits he doesn’t know where technology will take the insurance industry, but he sees IT departments emerging from under all the legacy issues. He understands it has been difficult for CIOs to play a business role when so much of their day was spent trying to connect old legacy systems to new legacy systems.
“A lot of companies are getting out from under that, even mid-size companies like ours,” says Otis. “By the end of next year we'll have a modern policy administration system and won't be spending the majority of our time building new basic systems. The requirements are going to be if you have modern tools and the systems are running well and the bulk of the spend is not on replacement, it's going to have to be on the new strategies like how to use data differently. The shift from replacement of systems will make us less concerned about network problems because everything will be modern and humming along. I'm more concerned about the CIO sitting at the table to identify and drive business in a different way because they will no longer be under the thumb of legacy systems.”
Travers believes the relationship between the CEO and the CIO will continue to evolve in the last half of this decade. As information is being processed in mind-boggling amounts, the analytics systems and methods have transformed a lot of carriers from doing business the way they always had. Today’s insurers are much better at risk selection, fraud detection, and pricing and Travers feels that will evolve to where the CIO is even more involved in the information delivery, analysis, and edging away from the hard technologies
“Data translation and applied analytics are where the CIO’s value will continue to evolve,” he says.
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