October 2020 – Insurers tend to cycle between centralized and federated IT operating models in hopes of improving efficiency and responsiveness respectively. This brief reviews the pros and cons of each model, and how to mitigate risks while optimizing alignment with business operations. Centralized IT operating models are better for controlling costs and maintaining enterprise standards, while risking alignment to business unit needs. Federated IT operating models have the opposite benefits and risks.

Neither approach is perfect, and many insurers cycle through both every few years, rather than aligning their IT operating model with their business operating model and taking a clear-eyed approach to manage their chosen model’s inherent shortcomings. This executive brief provides an overview of the strengths and weaknesses of both options and offers some guidance for diagnosing whether a change in operating model is warranted.