Alistair Bennett is business advisory and accountancy firm Mazars' senior IT consultant. As FSA regulation looms closer Alistair looks at how regulation affects technology spending. The article prompts questions about whether regulation will help companies that are forced to stretch budgets to meet tough new rules.

A survey carried out by Mazars said regulatory pressures have had a damaging effect on how much money was spent on technology inside the industry in 2004.

Mazars' Insurance Broker Industry Survey said accounting requirements, regulatory changes and technology improvements dented budgets spending in the technological arena.

In response to the survey Mazars carried out a review of certain brokerages to investigate how far FSA regulatory systems and general IT governance controls affected spending in the workplace.

The review produced a number of significant findings across three key areas: systems fragmentation, new systems implementation control and IT governance and security.

·There are few industry standards and cost-efficient ways to implement and manage insurance related transactions using off the shelf technology as a platform.
·Many organisations have chosen to build either their own systems or choose off the shelf applications that are then significantly tailored to fit the business. This strategy is high risk and creates a prohibitive environment for smaller brokers and underwriters who are looking to expand and/or gain access to the market
·Brokers and insurers looking to make acquisitions could face several financial issues: the cost of integrating and standardising new IT systems; some systems may need immediate replacement to comply with FSA standards
·37% of organisations reviewed were in the course of implementing a significant upgrade.

With changes in systems, particularly if customised, increased control is required.
This should be on several levels:
-financial control with effective cost-benefit analysis and efficient management of the budget
-operational control in sourcing the right skills and experience to specify requirements
-management control by ensuring that the business in question has final acceptance

Structuring and monitoring a practical approach for measuring the risk of IT is becoming increasingly important.

What is interesting is that as many as one quarter of smaller companies do not have a formal contract of service with their main technology suppliers.

The analysis also shows that many larger intermediaries are employing good management practice when monitoring on-going systems performance (80%).

However, less than half are obtaining service level agreements with key technology providers / outsourcers (40%) and a significant number are neither implementing formal budgetary control (33%) nor have board-level IT
representation (27%) - two important controls which, if ignored, increase business risk.

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