According to recent research by Ovum, overall global insurance IT budgets will grow at a 6.5 per cent compound annual growth rate (“CAGR”), with total IT spend reaching $109 billion by 2017. Insurers are prioritizing investment that will drive customer acquisition and retention and improve operational effectiveness, says the global industry analyst. This is a stark change from the five years of substantial IT budget cuts, which were necessitated by the global economic slowdown.
The life-insurance sector in Asia-Pacific will see the most rapid growth – expanding at 11.6 per cent CAGR to 2017, overtaking Europe as the second-largest regional market, Ovum found. The key business priority for European life insurers centers on reducing operating costs. This is driving IT investment in legacy system modernization, online channels, and fraud detection systems. Legacy systems are not a new concern, but market conditions are now forcing insurers to address the problem. Ovum said that it expects to see continued expansion of IT budgets in support of consolidation/transformation and core system replacement projects, with an annual spend of nearly $5 billion by 2017.
“The sharp decline in new business growth across all life insurance markets following the global slowdown led most insurers to rapidly and significantly cut their IT budgets,” says Charles Juniper, senior insurance analyst, financial services technology at Ovum. “However, accelerating year-on-year growth in 2013 following some cautious expansion from 2011 confirms that life insurers are now moving from a cost-cutting mindset toward reinvestment in strategic IT projects.”
The key IT priorities for insurers in the emerging Asia-Pacific countries will be implementing core processing platforms and developing digital channels to capture the rapid market growth.
In response to emerging regulatory requirements, North American insurers are implementing digital channels, particularly mobile and social media.
Mr. Juniper concluded, “As insurers emerge from short-term cost-cutting, they should all, at the very least, be reassessing their current IT approach to ensure sufficient focus is given to revenue-growth initiatives and to prevent becoming stuck in a 'maintenance only' IT strategy.”
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].