The North American insurance industry is plowing forward in an economy that fell completely off the rails during the third quarter of 2008. This year, insurers are challenged by:
• Hefty declines in rates and written premiums. The global recession has taken a big chunk out of the insurance industry’s hide with consumers “right-sizing” their insurance coverage, and even business policyholders opting to “go naked” or the self-insured route. The economic drag on rates is further amplified by the fact that the insurance industry is now more than five years into a soft market.
• Perennial regulatory changes loom even larger. Regulatory compliance is one of those evergreen issues, but in the wake of last fall’s banking and credit collapse, a new administration in Washington, and the political pound of flesh that will be extracted from the broad financial services industry, insurance IT organizations are ramping up with better ways to manage risk and report on new compliance initiatives.
• The biggest investment losses in the industry’s history. With a big investment portfolio—$1.2 trillion or so—insurers are a top institutional investor and counts on its investment earnings to help offset hits to premium revenues and underwriting losses. But with interest rates near zero, and not much in the way of capital gains on stock sales in a bear market, the hard-times buffer has evaporated.
During the second quarter, Forrester surveyed 67 North American insurance IT decision-makers about their technology investment budget and spending plans. Not surprisingly, insurers’ challenges, along with those of others, have mounted, resulting in a pretty dismal view of the insurance industry’s prospects through Q2 2010 (see Figure 1).
But despite the dire outlook, nearly 60% of North American insurers plan on maintaining a budget at least consistent with 2008 spending, and 15 % expected to increase their budgets compared to 2008 IT spend (see Figure 2).
Why? Because many insurers have been in the throes of big projects for several years now to make the business more efficient and resources more productive (read: make or save money), by investing in technology, such as core application modernization, Internet and ecommerce, document and content management, and agent management and collaboration projects.
Ellen Carney is a senior analyst with Forrester Research. She focuses on how the financial services industry researches, procures and deploys business technology, and is responsible for developing the global forecasts for IT budget and spending forecasts for insurance and banking. She can be reached at firstname.lastname@example.org.
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