Insurance tech spending to rise 10% next year: Forrester

Among U.S. industries, chemicals and insurance will increase their IT spending the most in 2018.

Moreover, these increases will be substantial, according to Andrew Bartels and Matthew Guarini, two analysts with Forrester Research. IT budgets are set to rise 11 percent year-over-year for the chemical industry and 10 percent for insurers.

For the chemical sector, a combination of strong demand and the low cost of petroleum-based raw materials sets the stage for increased investment, per the two analysts. An additional factor is the need to replace the industry’s Houston-area systems that were damaged by hurricane Harvey.

Insurance carriers, meanwhile, will grow their tech budgets to adapt to changing business conditions. Health insurers most cope with the uncertain future of Obamacare, Bartels and Guarini note, while property and casualty insurers are pressed to meet new customer expectations by expanding their online sales, customer service and mobile applications.

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For U.S. industries across the board, 2018 IT budget projections vary widely. Forrester predicts that roughly half will increase their technology investments by a percentage point or more above an anticipated 5.8 percent average growth rate for all U.S. companies, while sectors like government, media and entertainment will only raise their technology spend by around 2 percent:

  • Industries clustered around industrial products, healthcare, education and the energy sector will all grow their tech budgets 8 percent or more, the analysts project. Among makers of transportation and electrical equipment, growing demand for products that contain more embedded software and internet-of-things (IoT) technology will drive more tech spending. IT budgets for healthcare and education concerns will also rise due to the increased technology content of the services they provide, while the oil and gas industry, following several years of cost cutting in response to falling oil prices, is poised to make up for lost ground now that oil prices have stabilized at over $50 per barrel.
  • High-tech, transportation, construction, and financial services companies will also increase their IT spend by around 8 percent. High-tech vendors are eating their own dog food and upping their technology investment, especially with regard to cloud-based solutions. Transportation and construction companies plan to invest more in IoT, with transformation firms focused on traffic and load optimization and construction firms on digital design. Like the insurance sector, additional technology spending by other financial services firms will be driven by customer demand for online service and mobile apps, as well as the industry’s need for improved data security and better risk management capabilities.
  • The wholesale, utility and professional services sectors will also accelerate their technology outlays, but at a rate closer to the 6 percent average for all industries. Both wholesalers and utilities are contending with significant disruptions—online commerce for wholesalers and the rise of solar and wind power for the utilities—that will squeeze their margins and restrain their IT budgets. Professional services firms, meanwhile, will invest additional tech dollars to improve their internal collaboration and client services.
  • Competitive pressures, the Forrester analysts note, will force the consumer products, pharma and retail industries to grow their IT budgets more slowly than the overall industry average. A shrinking stable of blockbuster drugs and heightened competition from generics is putting pressure on pharma CIOs to keep technology spending to a minimum. Among retailers, those that have successfully made the leap to online shopping already have much of their eCommerce infrastructure in place, while those still tied to brick-and-mortar business models are either filing for bankruptcy or scaling back their operations.
  • Lagging other industries with year-to-year IT budget increases of only two percent, are a group of sectors faced with declining revenues. As opposed to new wave companies like Facebook, Netflix and Uber, traditional media, entertainment and travel-related firms are struggling and in cost-cutting mode. Faced with falling tax revenues, government organizations at the federal, state and local level have also been forced to reign in their tech spending.
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