Outsourcing typically consumes 20 percent of insurers' IT budgets and represents between 20 and 40 percent of their IT headcount. It's an important part of insurer CIOs' toolkits, and usage is widespread. But a recent Novarica study showed that while many of those who currently outsource at a moderate level are planning to expand, some heavy users are planning to cut back. Insurers need to find their own optimal level, balancing costs and capacity benefits against service levels, quality, and their own abilities to manage external providers.

Application development and maintenance (ADM) outsourcing is the most common type of insurance IT outsourcing and accounts for the majority of outsourcing activity at insurers. This category includes ongoing staff augmentation, also called blended sourcing, as well as project-based external services usage.

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