Insurers’ IT budgets are not as aggressive in 2017 compared to previous years, as carriers complete core systems projects and tech funding trickles towards other business units keen on insurtech investment.

That’s according to a new study from Strategy Meets Action, “2017 Insurance Technology Priorities and Spending,” which surveyed 87 executives from across the industry.

In its report, SMA labels 2017 a year of transition, with carriers solidifying previous improvements made in core, online portals, and underwriting. Mid-level insurers’ recent involvement in innovation adds to the transitional feel of the period, according to SMA partner Mark Breading. Though, many are still in the strategy phase.

“There is lots of strategic work going on due to executive insurtech initiatives,” says Breading, one of the study’s authors. “Insurers are optimizing prior gains and setting the stage for the next wave [of innovation].”

Insurance IT budgets are projected to increase by an average of 2.7% this year. That’s a drop from the 4.3% increase in 2016, according to SMA. A majority of P&C carriers plan on either replacing or enhancing predictive analytics and big data tools while L&A insurers prioritize modernizing web platforms above all else.

“If you look at tier-1 insurers, they have invested in innovation and have taken the lead the last few years,” he said. “Now what’s happening is mid-tier and smaller companies are moving in that direction as well.”

But not all of those smaller companies are created equal. There remains a financial gap between companies trying to transform and carriers that cannot that is defined by their sheer size more than anything, Breading says, calling it a recurring issue for the industry.

While the majority of insurance carriers (60%) will increase IT budgets this year, the overall 2.7% increase weighted industry average is heavily impacted by companies that won’t. And most of the 40% of insurers that will either decrease or keep budgets flat in 2017 are carriers with less than $250 million in premiums. The upshot is that these smaller firms cannot keep up with today’s current pace of innovation.

Tech’s changing face

Overall, Breading and SMA forecast that technology spending across the industry will increase at a healthy rate through 2020. But that may not be reflected in traditional IT budgets. Rather, spending on technology will be driven from the lines of business as much as from the technology department.

“Business strategies and tech strategy are becoming intertwined,” said Breading. “CIO’s are still going to have large budgets and manage infrastructure, but I expect there will be more and more tech projects that are directly driven by business units that coordinate with IT.”

Chief digital officers are now playing major roles in enterprise IT initiatives, Breading says. He also expects more top-tier and mid-level insurers to find ways to engage with the growing number of insurtech firms as the year progresses, though that isn’t limited to investments. With smaller insurers not likely to be in a position to invest in insurtech until 2018, partnerships and other such alliances are a likely path as the impetus to “go digital” gains steam.

Breading’s co-authors are fellow SMA partner, Karen Furtado; Karen Pauli, SMA principal, and Deb Smallwood, the consulting firm’s founder.

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