Insurers are making more decisions now concerning IT spend, but those decisions reflect a note of frugality, according to a new report from Celent, a Boston-based research and consulting firm.
“Insurers are tightening their budgets,” Karen Monks, insurance analyst at Celent, told Insurance Networking News. What we found is that rather than taking a longer-term, strategic look at IT operations, insurers may be looking at expanding what they already have, such as continuing to retain software licenses and tweaking existing systems.”
Monks compares the trend to the housing market, where homeowners are maintaining and making repairs to their existing homes rather than opting to finance new homes.
The report, “Insurance Software Deal Trends 2010: Life/Health/Annuity and Property/Casualty Editions,” does show some increase in deal volume, but a lot of those transactions are related to existing assets, in essence expanding the relationships they have with existing vendors.
The reports break down deal activity by carrier size, type of deal, four broad metacategories (core processing, distribution, infrastructure and financial, and document/content management), and a number of subcategories. Data from previous deal trends reports are used to look at longer-term trends, and leading vendors for each metacategory are identified.
Celent collected data on 2,005 deals between insurers and software vendors that occurred in 2008 and 2009. Of this total, 62% of the deals involved property/casualty insurers, and 38% involved life/health/annuity insurers.
“The most telling aspect of the data results is that insurers are buying, but have delayed some of that buying until more recently,” notes Monks. According to the 2009 Deal Trends report, which tracked the 2007 and 2008 time periods, 45% of carriers making IT purchases were considered new clients to the vendors. This year’s report, which tracked 2008 and 2009, notes a drop to 32% that were considered new clients.
“Our deeper dive revealed people are buying, but they are delaying their buys,” said Monks, “because we see a gradual increase over time, making more decisions in Q4 of 2009.”
As with previous editions of Deal Trends, the most active category by volume was document/content management, with 37% of all deals recorded. This represents a slight decrease from the last reporting period, when this metacategory represented 42% of total deals.
A consistent theme is that deals were continuing to get done, but that decision timeframes were longer than in previous periods. The 2010 Deal Trends data support these comments. A like-on-like comparison of vendors and their submissions for Celent's 2009 Deal Trends report (2007/2008 deals) with those received for Celent's 2010 Deal Trends report (2008/2009 deals) showed an increase of 14% between these two time periods. A quarter-by-quarter analysis of 2008 and 2009 illustrates a slowdown in 2008 and a subsequent rise in deals beginning in Q2 2009.
“In essence, the data collected points to the continued frugality of insurers across all lines reporting,” says Monks. “As a reaction to the economy, this tendency toward risk-averse IT spend should provide the impetus to solution providers to work hard to keep the customers they have, and to use techniques such as cross-selling to drive new products through their doors.”
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