It’s the Economy, Smarty: Why Industry IT Spending Remains Stable

Needless to say, 2009 is—and will continue to be—a rough-and-tumble year for many companies, and the insurance industry is taking its share of bruises. But it looks like IT spending within the industry will get through the current downturn relatively unscathed.

Industry veterans, of course, will recall the fallout from the era of the so-called “dot-com” bust of 2001-2003, when IT spending hit the skids and IT professionals experienced the most painful layoffs in memory.

However, things are different this time around. Evidence keeps rolling in that IT spending within the insurance and financial services industry will remain on an even keel.

Mike Gantt, a former industry executive and IT consultant, documented some of the signs at his blogsite, noting that some prominent financial services vendors, including SunGard, Fiserv, Fidelity National, Metavante and Jack Henry all reported good quarters. Gartner sees some leveling off in spending, but it will be far more robust in North America than across the rest of the world. Another factor that favors the insurance component of the financial services sector is that health care IT spending will grow by more than 2.2% in 2009.

Gantt observes that “while everyone speaks cautiously, they all report a continued interest IT investments for financial services including insurance. I’ve heard of no major shutdowns of IT spending. More thoughtful spending, yes; but no mindless moratoriums. Therefore, in spite of the doom and gloom pouring forth, there’s ample reason for cautious optimism. The insurance industry needs technology, perhaps even more than ever in difficult economic times.”

These views were echoed in a recent Celent forum, reported by Insurance Networking News. Overall, Celent’s most recent CIO survey, conducted last October and November—in the thick of the panic over the financial crisis—found all systems were go with IT spending plans for the coming year. The report found that 2009 IT budgets are increasing by an average of 3% to 3.5%.

“Despite the drama and uncertainty present when the surveys were completed, the overall results show a group of CIOs who are maintaining a steady and thoughtful course,” wrote Craig Weber, SVP of Celent’s Insurance Group and coauthor of the report.

We are not seeing a repeat of 2001-2003 IT spending downturn for a couple of reasons:

• The 2001-2003 IT recession was a result of the overhang of spending on Y2K-related projects leading up to the year 2000, and the simultaneous binge on e-commerce ventures. At that point, IT budgets and departments were tightened to operate mean and lean. That tight spending persists to this day, and thus, there is little than can be cut that won’t harm company operations.

• Many IT projects in the works are designed to either increase business opportunities, such as analytics, or better streamline operations and assets, such as service-oriented architecture and virtualization. This time around, IT is seen as the enabler that will help companies manage through, and grow out of, the downturn, versus being cost burdens.

As Andy Edwardson, VP of information technology for Farmers Alliance, said at the Celent meeting, “It’s during tough times that the business turns to IT for help with business objectives. It’s a time when IT can really shine.”

Whether the economy is cool, or in heated growth mode, companies now depend on IT to deliver greater agility, increased performance, and more intelligence. It’s looking likely the economy will turn around this year, and IT will be needed more than ever as it does.

Joe McKendrick is an author, consultant, blogger and frequent INN contributor specializing in information technology. He can be reached at joe@mckendrickresearch.com