Information System Strategies in the U.K. Insurance Industry

Stuart Codington
School of Technology and Information Studies, Thames Valley University, St Mary's Road, Ealing, London, W5 5RF.

T.D.  Wilson
Department of Information Studies, University of Sheffield, Sheffield S10 2TN, U.K.

The insurance market is undergoing dynamic change requiring major decisions of insurance companies if they are to maintain their present positions. Information Technology (IT) and Information Systems have a central role in the insurance business. and insurance companies recognize that they need IT to keep the business running and are aiming to use IT to develop new markets and to maintain competitiveness.   This study assesses the present state of the development and implementation of IT strategies and their relation to business strategies.  The study concludes that IT strategies support the business reasonably well and that, in most companies, IT strategy is closely aligned with strategic aims even though it may not be a documented part of the business strategy.

INTRODUCTION

Insurance can cover the person (life, disablement through accident), property (marine, aviation, fire), liabilities (road users, accidents at work) and pecuniary loss (bad debts).  Many insurances have a combination of these elements and are sometimes divided into business and private insurances.  The companies offering these insurances are known as specialist or composite offices, i.e., handling a particular branch or all types of insurance.

Insurance is a major contributor to the U.K.'s economy.  The worldwide premium income figures in 1989 for total life and total general insurance (U.K. operators) were £29,864 million and £14,431 million respectively (ABI 1990).  Total life covers ordinary and industrial business, and total general covers motor, fire and accident, marine, aviation and transport business.  In terms of output and employment, insurance is second only to banking in the financial and business services sector (Rajan 1987). In 1989, with net earnings of £2,927 million, insurance was the largest contributor to the total overseas earnings of U.K. financial institutions, with insurance companies providing more than half with earnings of £1,677 million (ABI 1990).

Insurance Companies and IT

With the changing marketplace it is essential for the insurance companies to find a way of harnessing resources to  stay in business and to strengthen their position.  Rajan (1987) considers insurance services to be information-intensive, showing a high degree of automation, particularly in underwriting, claims and accounts processing.  In fact, the industry relies on IT  to handle the routine business of administering insurance policies and would not be able to conduct business without it. The strategic use of IT  has already helped to introduce direct marketing and direct writing - new channels of distribution which would not have been possible without IT, and today the question is not  whether IT  is used, but how well it is used.   A number of emerging themes of relevance to the use of  IT have been identified (Sturdy 1989)

• the increasing level of change and the ability to react to it and harness it;
• the need for flexibility in people, products and systems, and
• the increasing pressure for success exemplified by concern with innovation, excellence, competitive advantage and strategy formulation.

The selection and management of distribution channels is seen as a key factor in this dynamic environment.  Through IT, a market can be wherever an insurance company wants it to be and wherever it can serve it efficiently.   Shillito (1989) believes the successful strategy for insurers in the 1990s is to choose the most effective distribution channels to sell and market their products and optimise their use to improve client service and to provide good profits for the business.  Increasingly IT  is seen as key in the choice and the effective use of these channels.

Information Strategy and the Insurance Industry

Wilson (1989) suggests that information systems strategies should combine business aims, related information needs, and the computer systems through which information may be provided to satisfy those needs.   In his survey of the Times 500 group of  U.K. companies, he showed that the idea of information systems strategies is widely recognised, and that strategies were more common in the financial services sector than in other sectors.  The main feature of these strategies is evolutionary development of systems towards more effective management information systems within an architecture of common standards.   Ward (1987), in analysing the strategic role of IT within companies, cites the insurance sector where the development of Information Technology/ Information Systems is crucial to success.  Cronin, et al. (1988) give the example of the on-line policy illustrations systems operated by Commercial Union and Friends Provident as ways in which IT confers competitive advantage.   Andersen Consulting (1990) notes how the insurance sector has high expectations of IT to make improvements across the business spectrum:  it is focussing on the cost effective use of  IT  with improved IT  planning and the development of a systems architecture as key factors.

The purpose of this study was to assess whether these ideas are being realised in the present dynamic business environment of the insurance industry.

DATA COLLECTION

Senior IT and business management in eighty U.K. insurance companies were approached to obtain views on IT  strategy and business strategy;  twenty by personal interview and sixty by mail questionnaire.  The eighty companies were the major ones in terms of premium income, and represent a range of size and class of business.   The interviews were carried out first and the responses provided the categories for a semi-structured questionnaire to elicit answers to closed and open questions and, by using scales,  to provide indications of minor or major areas of interest and activity.

Wilson's (1989) questionnaire on Information System Strategies was used as a model for the questionnaire and the same form of questionnaire was sent to both the "business" and IT  respondents.  The questionnaire was designed to comply with the recommendations of Hoinville et al.(1978) to engage interest, encourage co-operation and elicit answers as close to the truth as possible through its flow, structure and length.   Following Robin's (1965) strategy, before mailing the questionnaires, preliminary letters were sent to the IT  director and business director of each company.  A pack of information went with the letter, to encourage response:  a list of interesting  points from the interviews, and a reprint of Wilson's 1989 study on Information System Strategies. Three days later the questionnaire, was mailed with a covering letter.  Follow-up letters were sent to non-respondents after two weeks.

Interview and Questionnaire Response

Of the 20 companies approached for interviews, 12 (60%) agreed to participate, resulting in 2l meetings with business and IT  people (52% of the potential 40 interviews - two in each company).    The 2l respondents included six General and Assistant General Managers, five IT Directors, three Business Directors, two Group Strategy Managers and five Senior Information Systems Managers.   Of the 60 companies sent questionnaires, 34 (57%) responded, giving 43 usable replies (from a possible 68); 21 from IT managers, 12 from business managers, and 10 joint responses.   The interviews were recorded and later transcribed for manual analysis. 

RESULTS

Overview of the Companies

The responding companies (whose composition is shown in Table 1) represent a range of IT  investment and IT usage.   Thirty six of the respondents report from £1 million to £34 million being spent annually on Information Technology and Information Systems, with a median of £5.6 million.  They report employing from 14 to 390 staff full-time on Information Technology/Information Systems, with a median of 100.  From 70 to 2500 networked Personal Computers (PCs) and terminals are used per company, with a median of 350, and the proportion of workstations to staff varied from 7% to 100% with a median of 75%.   Twenty of the companies which responded quoted the proportion of revenue expenditure spent on IT and telecommunications as being from 2% to 20% with a median of 13%.

The 12 companies in which interviews were conducted quoted from £5 million to £95 million spent on Information Technology and Information Systems annually with a median of £26 million and they employed between 110 and 1040 staff.

In dealing with their clients, insurance companies are concentrating on distribution channels, establishing long-term relationships, offering flexible, but probably complex, products and promoting customer service.  In support of the business, IT  and telecommunications expenditure ranges between 2% and 20% of revenue and between 2% and 90% of capital with medians of 13% and 20% respectively (Table 2).

Relationship of Information Techno1ogy (IT) to Information Systems (IS)

Information Technology is the acquisition, storage, and dissemination of information by a microelectronic-based combination of computing and telecommunications.'   (Kenneth Baker, Minister of Information Technology l982, quoted in Sturdy l989)

The definition of an IT  strategy used here, is modelled on that of Wilson (1989): an IT  strategy brings together the business aims of the company, the implementation of computer systems, and an understanding of the information needs of the organisation.  It is a plan for the development of systems towards some future vision of the role of information systems in the organisation.

Systems in Insurance

The insurance industry relies on IT  to carry out its main task of administering insurance policies.  Historically,  IT has been a means of reducing and containing costs and improving administrative efficiency, allowing an increase in business volume without a corresponding increase in staff (Sturdy 1989).    In insurance there is no tangible product and therefore the quality of the information provided and the ability of the staff to make good decisions based on that information are critical to the success of the business.  An insurance product can be described as a financial service for client, which involves, in addition, the reward for the sale channel and the surrounding administration and management processes.  Thus, information systems are an integral part of the insurance product sold to the outside client and represent part of the company's competitive advantage.

The net premium income from life and general insurance in 1989 was £44,295 million and insurance companies need to store and manipulate data for the policies reflected in this figure as well as for those from previous years.   Because customers' records may be valid for 25-40 years, the system architecture can become very complex.  In addition,  administrative processes have evolved which have required large numbers of clerical staff and the creation of hierarchical organisations.

With the increasing competition and changing market conditions the insurance industry is designing more complex products.  These are both computer and labour intensive in the sense that they generate more activities; more enquiries, more paper, and more updating.  Cost containment in relation to the staff needed and the time they spend in processing documents, therefore, is essential.   A business transaction is a combination of computer time and clerical time.  Although some improvement can still be made in the computer time, with the technological advances already made in computing, there is now less scope for improvement to this area and clerical time is the focus for action.

Existence of Business Strategy

A complete statement of strategy will define the product line, the markets and market segments for which products are to be designed, the channels through which the operation is to be financed, the profit objectives, the size of the organisation and the 'image' which it will project to employees, suppliers and customers.   In describing their company vision or mission statement most of the the insurance companies interviewed express such concepts as; profit, value for money, security, service and professionalism.   Those most frequently expressed by the companies surveyed by questionnaire were:

• Profitable growth;
• High level of service;
• Good quality insurance products;
• Best interests of policy-holders and employees.

The insurance companies appear to have a clear business direction although nine respondents made no official statement on the questionnaire and strategies have not necessarily been fully specified or published as a mission or vision statement.  There are also examples where business strategy is ill-defined or is still being formulated;

'The company's overall business strategy is loosely defined.  We do not have a formal strategy document, because as a consensus organisation, we have a fairly clear consensus about where the company is going.'

Distribution Channels

Insurance companies are setting up broad  distribution bases through which they can sell their products.  The principal channels are direct mail, direct sales, independent broker and tied agent  (that is, an organisation such as a bank or a building society which exclusively sells one insurer's products).  Branches in most companies are used mainly as administration and marketing centres to other outlets and, given their prominent location in cities around the country, many insurers could use them as sales outlets.  The relationship between these distribution channels and the use of IT, is shown in Figure l, below:

All the companies surveyed use different forms of these distribution channels but many feel that by 1995 the business deriving from these channels will be different, and that  having a varied range of channels will avoid over-dependence on any one.  Typically, a channel producing 70-90% of company business now is expected to produce 10-15% less in 1995, with a corresponding increase in other channels.  There was also an increasing interest in 'direct' contact with the client either by marketing, sales, or by the client placing business directly with the insurer.

Although there is an intention to sell through different channels this represents a period of uncertainty for some companies.  This uncertainty was well expressed by one of the business directors interviewed:

'...it would be be dangerous to conclude upon a distribution strategy that eliminated options and narrowed our flexibility...  There is an appearance of lack of firm judgement, lack of firm direction... we don't really know how we are going to be distributing our products in years to come because there are potentially significant changes or uncertainties  there that we have to be able to manage our way through'.

This uncertainty could be further affected by whatever channels an overseas partner may wish to impose and particularly if their interests should conflict with those of a tied agent; for example, an interest in selling mortgages in the U.K. at the expense of a tied building society.

Given the part that IT plays in an insurance product, changes in distribution, even when the direction is clear, will have an impact on the IT support required.  One IT  director expressed the issues pointedly

'...[we] will have to find a way of providing effective IT support in a marketplace we don't know, with products that we are not familiar with, on a scale that is much smaller than we are used to dealing with, and making it all economic'.

Company Critical Success Factors

Rockart (1979) defines Critical Success Factors as the limited number of areas in which satisfactory results  will ensure successful competitive performance for the organisation.  The ranked list of Critical Success Factors (CSF) in Table 3, in addition to those appropriate in any business, shows the importance attributed to sales and marketing related factors; quality customer care, distribution channels, long-term client business relationships and market direction.

The business and IT  managers interviewed expressed similar views, with particular emphasis on quality service, the selection and management of distribution channels, profitability and cost containment.  This reveals a degree of consensus about what the constituent parts of a business strategy should be until 1995 and their relative importance.

Greater importance is attached to Business Process Redesign, judging from the responses in the medium and high categories (Table 3), than is reflected in  the intended investment in it over the next 4 years (Table 5). Nevertheless its position in both tables shows that respondents recognize how IT can help to change business processes to ensure that business and IT are more closely aligned.  The Critical Success Factors of quality of staff, management training, and ownership of core skills (Table 3) appear not to be associated with using Computer Based Training as a means of keeping staff up-to-date and well trained to a consistent standard (Table 5).

How Insurance Companies Develop IT  Strategy

'You and I get paid a salary because we sold another policy today not because we wrote a superb bit of code.' 

This quotation from one of the IT  directors exemplifies the current attitude and realism of IT    This business attitude is reflected in the ratings in several of the tables.  Responsiveness to customer requirements and alignment to the business are seen as the top IT  factors over the next four years (Table 4).

 Against this backcloth, IT  investment is focussed on Business Process Redesign (Table 5)

Responsiveness to customer requirements and alignment to the business (Table 4) seem consistent with the intended investment on Business Process Redesign (Table 5).  Initially, the relatively low planned investment in expert systems and image processing seem inconsistent with these two key IT factors.  Both expert systems and image technology, however, should be seen more as enabling technologies, requiring integration with other operations to make them fully effective.  As such, they are closely related to Business Process Redesign and should logically follow from whatever changes take place in processes. The relatively low ranking of facilities management suggests that this is not perceived as a suitable strategy for cost containment (which is ranked fifth in the list of Critical Success Factors (Table 3). The provision of superior information for management (Table 4) is partially supported by the intended investment in Executive Information Systems (Table 5) as well as the intended increase in spend from 5% to l0% on this type of system over the next four years.

Among the important future areas (Table 6)  quality customer service and the use of IT  in more effective marketing are ranked first:

The reporting structure within the companies helps substantiate these views.  Within the insurance industry a number of companies have non-executive boards, so the powers of a normal 'commercial board' devolve to a general management board or committee.  In 6 of the l2 companies interviewed, the head of IT  was either a board member or a member of the general management board or committee.  The remaining 6 heads of IT  report either to a board member or a member of such a committee.   Of the companies surveyed by the questionnaire, in over a quarter (28%), the head of IT  is a board member.  Of the remainder, 8l% report to a board member, and two thirds of the heads of IT  are represented on the general management committee. 

A person may both report to a board member and sit on a management board.  Therefore, in three quarters of the companies IT is represented at board or quasi-board level. Over three quarters of the companies interviewed feel there is board direction and involvement.  This compares with a figure of just under two thirds of all the companies surveyed by questionnaire.

The Current Status of the Alignment of Business and IT  Strategies

A higher profile for IT within the business and senior level representation suggests an alignment of business and IT strategy for business reasons rather than merely to make IT more accountable.   Most of the companies surveyed believed that the IT strategy was related to the company's overall strategic aims: 46% said that it was a formal, documented part of the business strategy, and a further 35% claimed that it was related to strategic business aims, although not documented.   However, 9% claimed that the IT strategy was a departmental matter, which is inconsistent with a link to business strategy, and a further 9% said that there was no strategy at present.  Often, it was said that a strategy review was being undertaken. Over half (58%) of those with an IT strategy used their own 'method' while a further 37% developed their strategy with the help of an outside consultancy.

Most respondents indicated that a link between corporate planning and IT  planning existed.   The most common ways of expressing this link were:

• integrally linked:  corporate and IT  planning come together to evolve the business plan;
• overall and IT  planning broadly linked;
• strategic aims fed into IT  planning process;

while a small proportion said that corporate planning was done in isolation from IT  planning.

One of the business directors interviewed outlined the developing working partnership;

'...we are still working hard on finding ways in which we can shift more of the IT  effort towards directly supporting that [the company vision].  That's still an ongoing process, it hasn't yet sufficiently happened.  But in so far as we on the business side are giving IT  guidance as to what we need... I think we have come a long way in the last few years in integrating business thinking between the trading side and the IT  side and not having barriers.' 

The fact that  half of the heads of IT who are not board members report no board involvement and direction, suggests that, in some companies, there is little relationship between the business and IT, that the business, indeed, lacks a strategy towards IT.  To remedy this kind of situation and determine the role IT should play in the direction of the business, strategies are being formulated by the IT division  and 'sold' to the business.  This approach was expressed by one of the IT  directors interviewed; 

'... it has been recognised that corporate objectives need to be addressed directly and that our systems were poorly aligned with the needs of the business today and projected into the future, so about a year ago we sold the company on the idea that we should run an information strategy but all that time we didn't have a set of corporate strategies.  They were still emerging, drawn up by a quite separate process'.

Given the central role IT is expected to play, planned IT implementation and development is essential.  If a company lacks a strategy towards IT, or indeed a coherent business strategy, then IT  may be forced into short-term thinking.  To engage in long-term planning requires IT to have access to, and be part of, business strategies.  Strategies that set the overall direction of the business, and that deal with resource allocation and training in relation to what will be needed and when, rather than in purely technical matters, must be put in place.  These areas cannot be addressed accurately and confidently  without a business focus.  The respondents' ability to answer the interview questions and the questionnaire in terms of investment and key factors up to l995 suggests that longer term planning is already taking place.  In contrast, in trying to assess how long the present systems will last and still support the service, an IT director uses this graphic train imagery;

'...we're going at 90 mph, we used to go at 30 mph, in a train, and we don't know where the buffers are; 2 inches away, 20 miles away or 200 miles away!'

Competitive Advantage and IT

Sturdy (1989) suggests that the closer integration of IT and business strategy derives from IT being viewed as a means of obtaining competitive advantage.  The idea of IT providing this advantage in terms of improving service, developing new products, exploiting opportunities or reducing costs is generally accepted by those interviewed and supported by the ratings in Table 7.   However, it is challenged by some interviewees, who regarded it as an over-used term.  Without technology a company could not compete at all and, therefore, could be at a competitive disadvantage.  It was recognized, however, that most gains are transitory, since insurance products cannot be patented and are easily copied.  Thus, competitive advantage is not seen as sustainable in the long term.

If companies are formulating IT strategy to incorporate competitive advantage in line with executive expectations, then it should be directed at the fundamental aspects of the business rather than in expectation that the company's operation can be somehow miraculously transformed.  Competitive advantage can be derived from the mundane, 'business as usual' areas.  For example:

• through the ability of core systems to continue supporting the products despite major changes over time; 
• by providing systems that give companies the opportunity to respond quickly to marketplace demands; 
• by reducing errors, and hence reducing costs, while improving service; and
• by better service to clients, involving more complex, IT-based  products.

Only three respondents surveyed by questionnaire did not see competitive advantage as part of their IT  strategy.  The remainder see the use of IT  to improve product or service performance beyond that of competitors as the most important feature of competitive advantage in their strategy (Table 7).

Is IT  Supporting Business Strategy?

IT is necessary for the insurance business because of its support of policy administration, and systems are seen as an integral part of an insurance product.  The real question is how well IT  supports the business.  The quality of support can be assessed by taking different viewpoints within the companies.  For example, how well IT satisfies users' information needs and the needs of the business; what role the IT division sees for itself within the company; how well the use of IT is rated against competitors, and how well it supports the company business strategy.

In three quarters of the companies in which interviews were conducted, the satisfaction by IT of  users' information needs is rated at poor or mixed.  Satisfaction varies within a company and may depend upon different perceptions at different levels; the more senior generally being more satisfied.  These views are frequently subjective, "measured in terms of decibels", as one interviewee put it, and the main measurement is delivery of a working system on time and within budget.  In this, "expectation management" plays a role.  If expectations of the system are not managed properly the ultimate users may be disappointed, even though the system itself meets the agreed specifications.  The technical abilities of IT staff are rarely in doubt; their major problem is lack of business understanding.  Typical responses were; '... some very good people but not in tune with the business' and '...very good professional IT  people but not enough understanding of requirements'.  In its defence, the IT division may maintain that its brief is often changed within a project and that the projects are not specified well enough before IT  is asked to start.

Three quarters of the companies interviewed assess IT as not responding quickly enough to the needs of the business or state that it could not be expected to respond more quickly.  This may depend on which business area is involved; underwriting and claims tend to have a longer-term view and may see benefit in building something with strong foundations, whereas the sales and marketing division is likely to have shorter planning cycles.  Lack of IT knowledge by business management and the rapidly changing industry were cited in interviews as problems in implementing an IT strategy. Availability of resources, application backlogs and system development time in the same table can also make it seem that IT is a barrier to the business achieving what it wants to do.  It is perhaps fair to say that IT probably will never respond quickly enough because of the pace of change in the industry; '... it's like asking, does a centre forward score enough goals' as one business director remarked.

The primary role the IT manager sees for his department is that it should respond to issues set out by the business, involving consultation through committees and setting service level agreements (Table 8).  Directing projects and marketing its services have a lower rating.  Marketing IT products and services is perhaps indicative of a technological perspective rather than a business frame of mind, and its low ranking may reflect this fact.

The questionnaire results revealed that most companies believe they are using IT as well as their competitors: this is consistent with the views expressed by two thirds of those interviewed.  There is a recognition however, in both groups, that this usage may not be very effective.

Only a quarter of those interviewed feel that IT supports the company mission well.  The remainder feel that IT supports it badly, changes are needed, or it is too early to gauge the impact of a new IT strategy.  By contrast, of those surveyed by questionnaire, half the respondents believe IT supports the company mission reasonably well, and just under 40%, very well.

The European 0pen Market

In the questionnaire study, respondents were asked to give their views on the potential impact of the European Open Market on the business and on the IT strategy.  The responses are summarized in Table 9 below, and show the largely uncertain attitude to Europe, although some recognized market opportunities and the possibility of additional competition.  One of the interviewed companies and ten responding to the questionnaire were already being part of an overseas insurance group, and the level of interest in the Open Market was influenced by this fact.  Four of the mutual companies interviewed and six of those surveyed by questionnaire, feel less affected since, without shareholders, their acquisition would be more difficult. 

The last Critical Success Factor in Table 3 above, shows that less than half of the respondending companies are actively trying to reduce the opportunity for an unwelcome takeover.  Whether this means that the other half are open to approaches or are  involved in current negotiations is impossible to gauge, but no steps are reported to prevent this.  Some of the larger insurers interviewed believe that their size will make them more secure.

Europe is seen as a business issue, and IT is not yet expected to support European business initiatives.  Many of the companies are unsure as to how they will operate in Europe and what impact the European market will have.  There is a general feeling that insurance will be transacted within national borders.  A comments from the interviews illustrates this point: 

'...If you want to insure your car or house it's unlikely that you will tour round half of Europe.  You'll do that in your local town... on a country by country basis as presently'. 

Insurance policies require changes to reflect local conditions.  Ultimately the effect on systems will be to lead to greater complexity involving multi-currency operation, policies in different languages and technical differences to reflect the local conditions. 

'...Europe at the present time is a cost centre, it's a question of when, not if, but when, it turns into a profit centre.'

CONCLUSIONS

Applying logic to Work

Recent market, legislative and technological changes have forced insurance companies to take a more market-centred and quality-based, proactive and coordinated approach (Sturdy l989).   With the emphasis on customer orientation, service and long-term relationships, it is likely that there will be more market segmentation in terms of products, more differentiation in how various groups are targeted.  Key factors for IT  are to supply systems to support this differentiation, to respond quickly to competitive business demands and provide management information, while containing costs.

Financial services companies need to understand that new ways of doing business with IT require rethinking of how business should be done; not applying tools to materials, but applying logic to work (Shillito 1990).  This realisation  was expressed by one of the business general managers interviewed;

'...it is essential that we [the business] are not allowed to simply specify "the same as we've got but only computerised, please!"'. 

Part of this new way of doing business is to build internal working relationships.  The relationship should start at the top with the Chief Executive.  Those companies interviewed who could point to control and interest from Chief Executive level or where the head of IT  was in an executive and influential position feel a greater sense of direction and part of the overall process. These comments from the interviews are typical;

'...[the Chief Executive] believes strongly in the long-term benefits of IT.';

'...we've got our senior man actually on the board of directors, which is a great help to us.';

 '...[the Head of IT ] has driven us to become a fairly leading edge insurance company from the point of view of IT .' 

In the past, business and IT people have specialised in their own areas and, frequently, have had little knowledge, and perhaps some suspicion, of the other's role.  For an IT and business relationship to work, such divisions need to be broken down; to change IT  people from 'reactive technicians' into giving them an understanding of, and making them a part of, the business.  Similarly, business management needs to understand more of what IT can do, the processes it must go through if quality products are to be built and to realise that IT need not be seen as a constraint on the business.  A partnership of the two should be reached;

'...we don't want the pendulum to shift so far that the business are unwisely perhaps dictating things they don't understand.  IT  can advise us on how to do things in a rather better, more cost effective and indeed even more market oriented manner; therefore I am anxious that it should not shift beyond being a partnership and that it stops at that point'.

Software development, either to address the application backlog or to build new business products, is seen as a barrier to business aspirations.  In terms of supporting the business better, IT could prototype applications, using Fourth Generation languages to build systems with the users' involvement to ensure that the requirements are understood and being met, and are in line with their expectations.  The need to develop systems in a different way was advanced by one IT  director;

 '... it's that things are handled in big projects rather than in multiple small projects, the whole style of the thing; in the insurance industry people tend to talk about huge things without breaking them down.  I find it difficult to conceive of a situation where you are talking about a development that is going to last two to three years.  It may be that you have a strategy for a whole service which will deliver that but you ought to be talking about six to nine months deliverables; incremental delivery has not been achieved...'

If companies are looking for new ways to doing business and making them successful, then management information becomes even more essential.  Although  recognised as a key IT factor, the investment in such systems and the timescale for their installation might be given a higher priority.

The Impact of IT on Structural Change

Over the years many insurance companies have developed hierarchical structures.  With the introduction of networks and office support systems and with a 75% workstations to staff relationship, a start has been made to use IT  to cut across many of these structures.  Information can now be delivered direct to the desk of a person anywhere across an organisation;

'...it's not like it was where you had to use the formal cascade to push down a lot of information, and I think communications is a big issue for the organisational structure'.

Rather than use IT purely in a reactive manner to computerise existing operations there is an opportunity to use IT more fully to rethink and streamline business processes that have evolved over a period of time.

'I think we are looking for staff savings in different ways now, again using IT , you've got rid of clerks using quill pens, on the other hand you've got a lot of clerks using terminals'. 

SUMMARY

Insurance companies will need an increasingly focused business strategy if they are to succeed in the l990s (Watkins 1990).  Most of the companies surveyed and interviewed seem to have a clear business direction, in which the major areas of emphasis and concern are the insurance products, the distribution channels and the 'image' to customers or the concept of quality customer care.

IT is central to all of these.  IT  is seen as a service, as a follower and as part of a partnership. Its role in relation to the business can be independent, supportive in the sense of reactive, or participative.    The state of IT  strategy in the companies surveyed is at different phases in the same evolutionary cycle; some developed, some under review, and some planned but yet to start. 

In most companies IT strategy is closely aligned to strategic aims and the head of IT is in an influential position.  Despite this closer working relationship, less than half of the companies have an IT strategy which is a formally documented part of the business strategy.  The effectiveness of the  IT strategy is monitored, however, through planned periodic reviews of performance against objectives in the case of half of those interviewed and three quarters of those surveyed.  Part of this closer alignment is resulting in longer-term IT planning based on shared goals.  Currently IT strategies support the business with varying degrees of success, and the general perception is that they do this reasonably well.

The real benefits from IT will come through changing the business processes and mapping new technologies against those processes.    The recognition of Business Process Redesign in many companies' Critical Success Factors and investment plans is further evidence of a joint business/IT approach to the problems.  Current  examples of how Business Process Redesign is being implemented include reorganising into business units, setting up a central premium collection service, handling related activities in the one section; from 'the cradle to the grave', and programming across functions to enable applications to encompass more than one business area.

The creation of strategies is very important for the successful running of a company as well as trying to bring control to a dynamic environment.  For many of the companies, IT strategy planning is a relatively new experience.  About half of the companies interviewed feel that the strategies of three years ago have been implemented successfully; however, that it is a subjective assessment since few had strategies then and there is little to measure against.  The remainder have undertaken some form of reorganisation to ensure that IT works successfully.

The size of the task facing many companies in carrying through their plans should not be underestimated.  The business does not stand still while strategy is put in place.  It should also be appreciated that many strategies are merely plans which have not as yet delivered, or had time to deliver, any business benefit, so to some extent they are unproven in the eyes of the business community, who may see them as an unnecessary diversion from the tactics of  running the business.  This perception should change once some success is achieved.

Acknowledgements

We would like to express our thanks to The Andersen Foundation for its grant to the Department of Information Studies, University of Sheffield, which enabled this work to be undertaken.   We should also like to acknowledge the help received from Mr Willie Jamieson of Andersen Consulting, Mr Douglas Shillito of Shillito Market Intelligence limited, , Mr Jeff Watkins of the  University of Bristol, Dr Andrew Sturdy of  the Bristol Business School and Mr Robert Cunnew  and his staff of the Chartered Insurance Institute library.

BIBLIOGRAPHY

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This is the pre-publication version of the paper published in the International Journal of Information Management, 14(3), 188-203

How to cite this paper

Codington, S. & Wilson, T.D. (1994). Information System Strategies in the U.K. Insurance Industry International Journal of Information Management, 14(3), 188-203 [Available at http://informationr.net/tdw/publ/papers/1994Insurance.html]

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