Global insurance IT budgets are projected to increase at a 6.5 percent compound annual-growth rate, reaching $109 billion by 2017, according to “Insurance Sector IT Priorities and Spending Forecast to 2017,” a report from Ovum. This follows five years of IT budget cuts prompted by the global economic slowdown, Ovum said.
"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, Ovum’s senior insurance analyst, financial services technology. "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."
Insurers are investing in strategic IT projects to increase operational efficiency and new revenue growth after having been in cost-cutting mode, Ovum said, and prioritizing projects intended to drive customer acquisition and retention, and improve operational effectiveness.
North American insurers are implementing digital channels, including mobile and social media in response to emerging regulatory requirements, Ovum said.
"As insurers emerge from short-term cost-cutting, they should all, at the very least, be re-assessing 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," Juniper said.
The most rapid growth is expected in the life-insurance sector in Asia-Pacific, which is projected to expand at 11.6 percent CAGR to 2017 and surpass Europe as the second-largest regional market. For insurers in the emerging Asia-Pacific countries, the priorities will be core processing implementations and digital channels to capture market growth.
In Europe, the priority for life insurers continues to be cost reduction, spurring IT investment in legacy system modernization, online channels and fraud detection.
Ovum said it expects to see IT budgets expand to support of core system consolidation, transformation and replacement projects, and an annual spend of $5 billion by 2017.
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