Blog: Save to spend on IT

Insurers therefore now have the dual challenge of managing their cost of operation, while at the same time adjusting their business model to respond to customer demand. If unsuccessful, they risk competitors and new entrants eroding their market.

With many firms still grappling with the constraints of compliance and legacy IT infrastructure, there is often little wriggle room left for service innovation.

Indeed, a recent CSC and Post magazine survey revealed that the majority of IT budgets are still being spent on maintenance and compliance, with two-fifths of respondents spending over 70% of their IT budget just on running their organisation. The good news, however, is that efficiencies could be made.

The existing IT complexity that comes from legacy systems that insurers are currently untangling is the result of decisions made 20 to 30 years ago. The challenge for insurers is to reduce the time, effort and money spent on maintaining legacy.

Simplifying the complex application landscapes that were created all those years ago has meant that the biggest current-day enterprise projects evolve around platform simplification and consolidation, with core systems modification and upgrade projects also high on the list.

The net result is that, not only does this draw resources away from innovation and operational efficiency, but it also makes successful execution even more difficult. Additionally, drawing valuable data out of the complex maze of platforms and applications to improve every part of the customer value chain is proving cumbersome. This affects insurers' ability to effectively engage with their customers.

Insurers now have a great opportunity to create a clear strategy and vision of how their organisation should look in the future. They can review their existing capabilities and take advantage of the commoditisation of core technology to create an underlying IT-as-a-service model, for both infrastructure and applications. By doing this, insurers can reduce the amount they are spending on their RUN technology and reapportion funds to CHANGE initiatives.

Finally, working collaboratively with trusted partners, adopting flexible outsourcing arrangements, as well as establishing internal service utilities, whereby different parts of an organisation can share common commodity IT components, can also help to reduce costs and increase efficiencies.

By Patrick Molineux, insurance industry general manager, CSC
Read CSC's report, Save a pound to spend a pound: Redressing the balance of insurers' technology budgets