Insurance tech budgets after COVID-19: New priorities, flat dollars
Despite being battered by the COVID-19 pandemic's impact on the business environment, the insurance industry isn't planning to reduce technology and digital spending. Carriers are looking to continue developing and implementing digital solutions for the socially distant world, according to reports from Novarica and SMA released this week.
Novarica's Insurer IT Budgets and Projects 2021 study, based on a survey of more than 100 CIOs, finds the industry anticipating an average tech spending level of 3.7% of premium in 2021, a tenth of a point lower than this year but higher than every other year since 2015. Midsize insurers are more likely to increase budgets than bigger carriers. When it comes to transformation, defined by Novarica as "significant change, including legacy system modernization, implementation of new systems, or introducing totally new capabilities," midsize P&C insurers plan to spend 27% of their budgets there, compared to 18% of large companies. For life and annuity carriers, the range runs fron 15% for midsize insurers to 22% for large carriers.
"Despite the disruption and uncertainty of the present time, insurers’ key challenges and priorities remain essentially consistent with recent years," says Matt Josefowicz, Novarica president and CEO, who authored the report. "Insurers should consider the potential value they can create by using technology to sell more, manage risk better, and cost less to operate overall, rather than treat technology as an expense to be managed to historical norms."
Meanwhile, SMA's P&C Tech Plans for 4Q into 2020 Market Pulse report finds a diversion between commercial and personal lines. Following a similar survey in the second quarter where a quarter of them said they were pausing or retrenching tech spending, only 11% are still doing so. On the personal lines side. While this only manifests in around 5% slowing down tech spending, reshaping and reprioritizing is up to 47% from 28%.
"Personal lines have tempered their approaches, and commercial lines companies are becoming more aggressive," write report authors Deb Smallwood and Mark Breading. "Digital transformation is still a big driver of activity for personal lines and a quarter of companies continue to accelerate plans. However, there is a decline in companies that are accelerating overall tech spending. More companies are reprioritizing plans and shifting spending from other projects into those that directly address the digital gaps exposed by the pandemic."