Priorities will center around digital channels and legacy modernization, the report indicates. IT spending in North America and Europe is expected to remain at least twice the size of spending in the faster-growing Asia-Pacific region through 2017, says Ovum, but spending priorities, or at least the order of importance of these priorities, vary somewhat depending on the region.

Deploying core administration systems and IT infrastructure will be the key priority in Asia-Pacific as P&C insurers look to keep pace with market growth and gain market share, notes the report. Insurers in this region will also work on implementing digital channels, particularly mobile and social-media channels, to support direct policyholder interaction.

For North American P&C insurers, digital-channel investment is top-of-mind, as it helps achieve the primary business objective of revenue growth. While the report notes that North American carriers are already “well advanced in terms of online-channel deployment and functionality,” IT budgets are expected to expand at 9 percent CAGR, reaching an annual spend of $2.3 billion by 2017, to further support these projects.

Ovum notes that digital-channel emphasis for North American insurers is shifting toward mobile and social-media projects. Juniper says key areas for mobility include functions such as filing claims via smartphone—“i.e. using time and location data, on-board cameras, etc. to submit an accident report”—and using smartphones as a vehicle to offer usage-based insurance (UBI).

North American insurers will also focus on core administration and claims-processing systems to improve operational efficiency, Ovum says.

Juniper says, “The complexity, cost and risks of managing multiple systems that have grown up over time to overcome the shortcomings of legacy systems have reached unsustainable levels.” But he acknowledges that pressures to address this reality are weighed against limited investment budgets. “As a result,” he says, “most transformation projects will be incremental, such as consolidating the number of core legacy systems down to one (or at least a small number), followed by a migration to a modern platform, probably one functional module at a time (e.g. replace the underwriting engine first, then maybe the claims module etc.). Most transformation project for large insurers will have at least a three-year and more typically a five-year timeframe.

In Europe, Ovum says the “relatively muted state of the…non-life insurance market as economies in the region remain fragile means there is greater focus on cutting operational cost compared to other geographic markets.” As such, Ovum says IT projects will be focused primarily on improving operational efficiency and customer service through digital channels, and improving claims expenses through fraud detection.

Ovum notes that European insurers are, in general, less advanced in the area of digital channels than North American carriers, but the gap is expected to “rapidly diminish as deployment of online portals and mobile channels emerges as a key priority from 2013 onwards.”

For IT vendors, Ovum recommends focusing on insurance chief information officers' current priorities: digital channels, legacy modernization and regulatory compliance. “While IT budgets are expanding and there is a growing demand for vendors that are able to support complex transformational projects, insurance CIOs remain cautious,” says the report. Vendors therefore need to engage clients around the “key insurance priorities,” and even then, vendors should expect the sales cycle and decision-making process to remain protracted.