NU Online News Service, Feb. 4, 2:35 p.m. EST
North American insurers are beginning to feel a sense of urgency to leverage technology as “brutal competition” persists in the industry and IT strategies are being re-adjusted to reflect the new “sober realities” of the marketplace, according to a recent Celent report.
For North American insurers, IT spending in 2011 is expected to total $35.7 billion, up from $34.1 billion in 2010 and $33 billion in 2009. Of that total, 47 percent of the spending is expected to be on “new investments,” while 53 percent will be spent on “maintenance.” The percentage spent on new investments is expected to be higher than in 2010 (43.5 percent).
The Celent report, “IT Spending in Financial Services: A Global Perspective,” noted that a top trend for North American insurers is the creation of IT strategy plans reflecting the “new normal” in the marketplace. Celent said, “Insurers are starting to come to grips with the fact that the insurance market has been ‘reset’ at levels that are significantly lower than they were before the global market crisis.”
As such, Celent said, the pace or scope of IT plans has been adjusted to align with strategic plans predicated on more robust sales volumes. “Companies that do not improve their products and services in significant ways stand to lose market share to competitors,” Celent said.
The report explained that the financial crisis had led to uncertainty in the industry, which caused a “wait-and-see approach” to IT spending in 2008 and 2009. In 2010, there were “cautious steps forward in terms of IT and business strategies,” Celent said. Now, in 2011, Celent said it expects a “new feeling of urgency, where insurers realize that the brutal competition they have been in for years is only going to get worse.
Celent projected a greater share of spending toward new investments and a corresponding smaller share toward maintenance going forward to 2013.
Projects expected to get attention, other than plans reflecting the “new normal,” include:
- Exploration of business process outsourcing (BPO) and software as a service (SaaS) strategies. “Improving technology, rising comfort levels with distributed computing, and a continued push to variabilize costs all point toward new sourcing strategies,” Celent said.
- A re-examination of distribution channels in an effort to “optimize the channels or even producers that are most efficient.”
- Creation of mobile applications, driven by agent and consumer interest.
- Increased awareness of social networks. Celent said the value of social networks “remains something of a question mark,” but added there is clearly marketing power and opportunities to build stronger relationships with agents and consumers.
Broken down by industry, Celent said it expected property and casualty insurers to spend $16.8 billion on IT projects in 2011, up from $16.4 billion in 2010. Life and health insurers are projected to spend $18.8 billion, up from $17.7 billion.
Globally, Celent said 2011 IT spending is expected to increase by 1.3 percent over 2010 to $98 billion.
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