Contrary to the current mantra of budget cuts and lowered spending, a new study shows that if the return on investment is there, P&C insurers will be, too.
Dont be too quick to assume that the economy has pulverized IT spending. It may be to blame for many of todays woes, but if an IT department can project a decent ROI, the implementation still might stand a good chance of getting the money. My overall take is its not as bad [for P&C insurers] as the rest of the financial services industry, says Jamie Bisker, director of research for insurance practices at TowerGroup and author of the research note, U.S. Property & Casualty Insurance IT Spending: 2002 and Beyond.
He adds that a significant portion of insurers are saying theyre spending just as they planned to do, unless they had significant losses to recover from after 9/11. The message is: They see the value of technology, they are concerned about the ROI, but I havent heard of any drastic pullbacks, like you hear from securities, for example.
Such areas as claims handling and underwriting are popular areas for new projects because of the positive return. The ability to save on the incremental costs of underwriting a risk or investigating a claim can contribute to positive ROI for a carrier, Bisker says.
IT spending for P&C insurers has grown from $9.4 billion in 1995 to an estimated $13.1 billion this year, according to Bisker. He expects spending levels to reach $16.6 billion by 2005 and considers the last few years as a period of taking stock after the higher spending levels of the late 1990s. He also believes carriers are cautious about large-scale projects that exceed 12 months, attributing this to a fear of negative outcomes rather than the costs usually associated with long-term projects. I think insurers are tired of spending millions of dollars and not seeing billions of dollars of return, Bisker says.
It is no surprise larger carriers spend more on IT than smaller carriers. Bisker also points out carriers with the largest non-claims expense (NCE) spend more on information technology than those with lower NCE. In terms of size, large personal lines carriers (those with at least $2 billion in net written premium) spend between 12 and 20 percent of NCE on IT, while smaller carriers average between 7 and 12 percent. For commercial lines, the percentages are 15 to 25 percent for large carriers and 8 to 20 percent for smaller carriers.
Outsourcing will be a major factor in spending over the next few years. Y2K gave them a taste of coding outsourcing. It worked for them. A number of carriers we talked to believe that is a significant direction for them, Bisker says.
Insurers are being like they always are, Bisker says, which is prudent and less susceptible to having their feathers ruffled by extraneous events, unless they are directly impacted. Robert Regis Hyle
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