The majority of insurers report increasing or flat IT spending ratios, according to a benchmarking report from Novarica. Of the 80 percent of respondents that measure IT spending as a percentage of gross written premium, the average IT spending, as a percentage of gross written premium, is 2 percent for large (more than $1 billion in premium) and 5.8 percent for midsize (less than $1 billion in premium) life/annuity/health insurers, as well as 2.8 percent for large property/casualty insurers and 3.6 percent for midsize property/casualty insurers.
The report, “Quick IT Benchmarks for Insurers 2014,” presents an analysis of responses to the Novarica Insurance Technology Research Council’s Quick Benchmarking Poll, which takes a “supply and demand” approach to IT.
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While peer benchmarking data provides IT leaders and their business sponsors with an important tool in evaluating an IT group’s effectiveness and strategic priorities, Novarica warns: “No insurance company ever became more successful than its peers by spending less than them on information technology. The path to competitive advantage lies in spending appropriately to create and support necessary business capabilities, not focusing on maintaining a low IT Expense Ratio.”
The average operating expense/capital expense split in the sample group was approximately 75/25 for large insurers and 70/30 for midsize insurers. Insurers spend an average of 20 percent or more of their budgets on maintenance fees for hardware or software they already own, and significantly less than that on new systems.
Other highlights from the report:
- The average number of breakfixes — tasks that take less than one man-day; programming requests are those that take more than one man-day — is at 4.2, the highest coming from the midsize life/annuity/health sector with 5.8. Novarica says a high breakfix number could indicate either unstable systems or systems that are routinely being asked to support tasks they weren’t designed to do. It could also indicate that enhancement work is routinely being submitted and handled as breakfixes.
- On average, between 15-25 percent of insurers’ IT staffs are made up of external full-time equivalent staff (FTEs).
- Average total numbers of applications ranged from nearly 400 for large life/annuity insurers to just fewer than 50 for midsize P&C insurers. Both large and midsize life/annuity insurers averaged around three IT FTEs per application, while P&C insurers ranged from six to eight.
