Prudential adapted to the Internet faster than many other insurers because its veteran IT chief never regarded fiduciary values and technical innovations as mutually exclusive.
By Jeffrey Kutler
June 2002
Institutional Investor Magazine
Unlike many areas of finance, the insurance industry didn’t take too quickly or enthusiastically to the Internet and e-commerce. A notable exception was Prudential Financial under the guidance of William Friel, chief information officer since 1995 and head of many of its technology functions for several years before that. And with most major insurance companies having only recently begun to accelerate their Internet initiatives, Prudential can justifiably claim some first-mover advantages.
“Prudential was a leader in bringing its agents online via extranets and in policyholder self-service,” notes Matthew Josefowicz, an insurance analyst with Boston-based research company Celent Communications. Those accomplishments won Friel the 2001 IT Executive of the Year Award from the Lattanze Center for technology studies at Loyola College in Baltimore. Friel was the first with an insurance background to win an honor that had previously gone to chief technology officers from companies like DuPont and Charles Schwab Corp.
Celent’s Josefowicz concluded in a report last August that the U.S. insurance industry as a whole was two to five years behind banking and securities brokerage in its use of the Internet. The reason? “Insurance isn’t as time- and transaction-sensitive,” the analyst explains. “And five years ago insurance companies didn’t fear being ‘E*Traded’ or ‘NetBanked’ the way brokerages and banks did.”
Friel, 63, had no greater understanding of New Economy threats than did his peers. He did have the benefit of a long career dating back to 1960 with J.C. Penney Co., Automatic Data Processing and, starting in 1988, with what was then Prudential Insurance Co. and its Prudential Services subsidiary. Having seen plenty of technologies come and go, Friel developed a level-headed receptivity to change that served Prudential well when Internet hysteria reigned.
“The primary goal is always to align technology with business strategy. If an emerging technology is essential to providing a business solution, we won’t shy away from it,” says Friel, adding that the December 1994 arrival of former Chase Manhattan Corp. president Arthur Ryan as Prudential’s CEO brought a timely and necessary cultural shift. “He had a clear focus on the customer and on how technology could be a differentiator in the marketplace,” states Friel.
Ryan’s tenure is likely to be remembered mainly for Prudential’s demutualization and $3 billion initial public offering in December, but Ryan and Friel will also leave a high-tech legacy. For example, the company created a customer information warehouse , the kind of analytical database covering all account relationships that many financial institutions are now struggling to perfect , in 1998. And Prudential had systems in place two years ago to deliver information and transaction services to retirement-account holders via wireless devices.
In a recent interview with Institutional Investor Assistant Managing Editor Jeffrey Kutler, Friel discussed how he applies his four decades of experience to the constantly evolving world of technology.
Institutional Investor: How does someone who grew up with mainframe computers adjust to the changes that began in the 1990s?
Friel: Dramatic change is the norm in this business, and it wasn’t limited to the Internet. What,s different is the acceleration in the rate of change.
Has that pace slowed in the two years since the technology-market crash?
Not at all. New technology is still becoming available; the demands of the business are still there; the capabilities of the technology to do new and innovative things are still there. So we are constantly hustling to keep up.
Are today’s management challenges therefore very different?
The new interactive technologies brought whole new sets of issues. The Internet opened up the possibility of self-service, for example, but self-service couldn’t easily be added to the applications we had in place, which were built for internal use. So we had to rethink all of the interfaces to make them easy for customers to use. It’s a whole different set of design and architectural criteria.
How is Prudential organized for technology?
Technology is embedded within the six major business units and is governed according to centrally developed policies, principles, standards and guidelines. Each of the business units has a chief information officer who reports to the head of that business as well as to me. I provide direction, strategy and vision for the overall technology function.
What made Prudential an early technology adopter?
From a strategic perspective, we employ technology either to make money or to save money. That is, as an enabler to support products or services or distribution channels, or to reduce costs and improve our ability to deliver quality products at the right price to our customers. That mind-set was really contributed by Art Ryan. Before that, Prudential utilized technology in the straightforward ways that you would expect of a large mutual insurance company. Six or seven years ago, we began moving technology more to the forefront of our effort to improve service to customers as well as the bottom line.
How do you measure the bottom-line impact?
Every year we do a benchmarking study with [Stamford, Connecticut,based consulting firm] Gartner. According to the last study, as of October 2001 Prudential was spending 53 cents for every dollar that the competition was spending to run data centers. That’s a very good result. But we can’t rest on that. We can,t stop trying to get better, faster and cheaper.
Have you had to make cutbacks in the technology area?
Yes, but nothing draconian. We reduced this year’s technology operating budgets at less than a double-digit rate. That included lowering expenditures on various commodities that we buy, or renegotiating certain contracts, and employee attrition.
Is the pressure greater since the IPO?
The dramatic change came four years ago when we started to get ready for the IPO. Of course, once you become public there is unrelenting pressure to meet the goals you say you are going to meet. We have been constantly looking for ways to use technology to decrease costs. That effort includes trying to take costs out of technology as well, and we do that every year.
Yet you keep justifying investments in new technologies?
Every year we prepare a three-year business systems plan. It identifies the technology spend and how it aligns with the businesses; ensures that all projects and programs adhere to designated architectures and standards; and includes a financial component measuring costs and benefits, returns on investments, etcetera. With those inputs, the business units determine which projects will proceed.
What is new and exciting?
We’ve been interested in wireless for some time. We have implemented one voice recognition application , replacing those irritating interactive voice response systems , internally and expect to make a couple of others available to customers later this year. We are extensively adopting XML [extensible markup language] standards, which are very powerful tools for data formatting and sharing. And we are starting to look at Linux and open-source operating systems, which are probably here to stay and could lower our costs in some areas.
Are you thinking about slowing down personally?
The industry we are working in is changing constantly, with exciting challenges. That keeps you young.
