The function with the largest number of budget increases is application architecture and design. In fact, 52 percent of companies expect an increase, compared to no companies expecting a decrease in expenses. Insurance companies are investing more on external spend (i.e. consulting) rather than increasing staff. New system projects and visioning of the future system architecture also impact budget increases. The rationale for the new spend is often built on the potential to simplify the technology stack and drive out long term IT costs.

Approximately one-third of companies are increasing investment in data warehouse activities with the goal to leverage their information into actionable data. This function continues to be interesting to analyze. Companies are in all stages of development, but almost no company is ignoring the need for better business intelligence.

The information security and disaster recovery functions also had a significant number of companies expecting increasing expenses, 40 percent and 44 percent respectively. Most of the expense increase is expected to be external rather than increases to staffing. On the disaster recovery side, Ward Group has seen a trend of companies recovering their distributed environment internally rather than using a third party provider. This is more costly in the short term, but will provide additional reliability and flexibility.

Mixed Results
Companies are in various stages of their server virtualization initiatives, causing increases or decreases to expenses depending on where they are in the process. Ward Group typically sees a spike in expenses when a company begins a server virtualization initiative for software acquisition and related consulting. Once the project is in maintenance and the company has reached their virtualization goals, the costs decrease and efficiencies can be obtained. On average, insurance companies have 40 percent of servers virtualized.

In the Application Development and Maintenance functions, companies also reported mixed results. These functions are often project driven and reflect the company's position in the cycle of development. One of the current challenges presented to IT organizations is to reduce the amount spent on non-discretionary work or maintenance activities. This challenge is occurring at a time when many companies are adding new systems without the simultaneous elimination of the legacy system(s). As a result, the maintenance burden for the company increases to maintain more systems with fewer resources. This practice is another justification for the necessity of legacy system retirement.

IT Functions with Expense Reduction
One out of five companies are expecting reductions in budgets on desktop support for 2010. Some of the contributing business practice factors for the decrease are the decreasing cost of PC equipment, longer refresh periods, and more evaluation of the use of virtual desktops or thin client devices (lower unit cost and longer refresh period).

Another function experiencing decreases is Mainframe Support. About one fourth of companies expected decreases in the Mainframe Support function. One driver is that companies that are eliminating the mainframe and moving systems to the distributed environment. These are lengthy projects averaging 5 years to complete. Of the companies that are committed to the mainframe platform long term, they are achieving cost reductions through renegotiating hardware and software contracts.

Conclusion
Despite aggressive expense reduction initiatives, insurance companies continue to invest in information technology where business value is provided. Companies are challenged to target the areas of the IT operation that best align with corporate strategy and maximize their IT investment.

Ward Group recently conducted a study of property-casualty insurers relating to 2010 Information Technology (IT) investments and system replacement activities. The purpose of this survey was to provide guidance on the status of IT spending trends for 2010 and the degree of new system implementation at property-casualty insurance companies. In addition, Ward Group identified key spending trends for major IT functions and specific initiatives that are being funded in 2010. Contact Leah Hollstegge at [email protected] for more information about the 2010 Information Technology Investment and Systems Replacement Study or purchase the complete study on-line at www.wardinc.com.