Technology talent in the United States is scarce, and yet 42 percent of heavy IT outsourcing users plan to reduce their spending in 2014 for application development and maintenance outsourcing, according to “Insurance IT Outsourcing Update,” a report from Novarica. According to the report, insurers are spending between 16 and 24 percent of their IT budgets on outsourcing and external staff accounts for between 20 and 40 percent of headcount, Novarica said.

“Over the past decade, there has been an important shift in the business drivers for outsourcing,” Novarica said. “There are few pure cost reduction initiatives undertaken today. More and more of the demand centers on enabling new capabilities rather than just reducing the costs of current capabilities.”

Of the 95 insurance company CIOs interviewed, 27 percent plan to increase spending on application development or maintenance, 34 percent on specialized skills and 36 percent on infrastructure.  Currently, 85 percent are outsourcing for application development and maintenance, 62 percent on specialized skills and 64 percent use IT outsourcing for infrastructure, Novarica said.

Light users are expanding usage, but heavy users are decreasing usage; 38 percent of light users are planning to outsource more and 42 percent of heavy users are planning to outsource less, Novarica said. Most all insurers, 85 percent, use outsourcing, but those that don’t are unlikely to change, Novarica said.

Satisfaction levels were acceptable for infrastructure and application development and maintenance for both offshore and onshore providers, Novarica said.  However, satisfaction with offshore providers lagged that of onshore providers. In the area of specialized skills, offshore services were below acceptable levels and also lagged onshore providers, Novarica said. None of those surveyed rated their satisfaction levels as ‘very good’ in any of the categories or for either sort of provider.

Of the heavy users of outsourcing, 29 percent said they would increase spending to outsource specialized skills, including mobile and analytics, 57 percent said no change and 14 percent said they would decrease spending there. Of moderate users, 43 percent said they would increases spending on specialized skills, 53 percent said no change and 4 percent said they would decrease spending there. Of the non users, 19 percent said they would increase spending for specialized skills, 82 said no change.

While data centers, servers, networks and other infrastructure technologies are critical, few insurers believe their ability to manage infrastructure internally creates competitive value, Novarica said. Almost two-thirds of insurers use some infrastructure outsourcing and of them, more than half said they would increase spending there. Of the one-third not outsourcing infrastructure, 74 percent said they would not increase spending to outsource infrastructure, Novarica said.

Related content: The Cost of Insurance Application Outsourcing - 9 Countries

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