As conference season winds down and the summer begins, most insurers are beginning the process of formulating their 2013 IT budgets. While most plans won't be finalized until September or October, insurers are already discussing priorities and starting to determine their technology-enabled business capabilities for 2013 and beyond.
Novarica's 2013 budget research will be published in Q4 once most budgets are in place, but based on some of the activity we've observed this year, I can offer the following predictions:
1. Budgets grow modestly or at worst hold steady. Overall, I anticipate modestly increasing budgets for most midsize insurers and flat or modestly growing budgets for most large insurers. With the growing demands for IT-enabled capabilities at most insurers, I do not anticipate significant cuts.
2. More core systems projects. The level of core systems activity has held steady for the past two or three years, and we do not expect it to decrease in 2013. Despite the ability to improve capabilities by wrapping legacy systems with modern configuration, workflow or communications platforms, core systems remain, well, "core" to most insurers' ability to bring product to market rapidly and serve distributors and customers effectively.
3. More business intelligence and analytics projects. While our recent research shows that 15-to-20 percent of insurers are planning to invest in the technology infrastructure necessary to support big data, a much greater proportion of insurers are planning to improve their capabilities in little data, including enterprise data, reporting and analytics.
4. More agent/customer experience projects. The bar for agent and customer experience has been raised exponentially by other sectors in the economy, and insurance is no longer immune. With the direct personal lines writers, the banks and other business-services suppliers investing in user experience across the economy, insurers cannot afford to delay these investments any longer.
5. Limited investment for social and mobile, but more low-cost pilot projects. With so many pressing needs, most insurers are unlikely to spend heavily on social media or mobile projects, but we do anticipate that more insurers will launch low-cost pilot projects to start to explore these areas. I'm also seeing a greater willingness to offer Bring Your Own Device (BYOD) options to insurer staff.
As insurers start the budgeting process, they should consider the following guidance:
1. Prioritize projects with "pull" from the business. There is a huge pent-up demand for technology-enabled business capabilities at most insurers. Insurers should make sure that their 2013 IT budgets focus on meeting this demand. Prioritizing investments in areas that business leadership is uninterested in, or grudgingly support, is inadvisable. If business leadership isn't motivated to address a specific need in 2013, it may be best to consider lower-cost mitigation strategies.
2. Watch long-term costs. The demand for technology-enabled business capabilities is only going to continue to grow for the rest of the decade. Insurers should make sure that their 2013 budgets and plans aren't unnecessarily deferring costs to the out-years or taking on recurring costs that will decimate future budgets. According to Novarica's recent IT Metrics study, insurers spend an average of 22 percent of IT budget on hardware and software maintenance fees.
3. Plan for process improvement. Most insurer processes are constrained by technology-either directly by the technology they use today or indirectly by the technology that was in use when the process was designed. Improving technology without improving the underlying processes is a wasted investment. Insurers should look at their processes as part of their IT planning exercises and identify processes that can be simplified or eliminated.
4. Consider SaaS/cloud for development and testing. While most insurers are not ready to move core production applications into SaaS/cloud environments for cultural reasons, insurers should consider the cost advantages of leveraging remote variable systems for development and testing environments.
5. Plan ahead for staffing challenges. The market for technical staff is starting to heat up, and rates and salaries may soon rise for many skill sets, especially those related to mobile and data analytics. At the same time, most insurers face the imminent retirement of some of their most knowledgeable staff. Insurers should make sure they're budgeting sufficiently for these pending changes and examining all options to retain and attract needed technology skills through retention, recruiting and sourcing.
Overall, 2013 budgets are likely to look much like 2012 budgets. But insurers that plan effectively can maximize the value of their investments. Insurers that are able to create and support the technology-enabled business capabilities in analytics, communication and data management will be better able to compete in a hyper-competitive marketplace.
Matthew Josefowicz is a partner and Managing Director at Novarica, a research and advisory firm focused on business and technology strategy for insurers. He can be reached directly at email@example.com.
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