Overland Park, Kansas  — As insurers dive deeper into an economic downturn—replete with the credit crisis and skittish stock markets—investment returns, written premium and operating income all are down record amounts. This is the message from Overland Park, Kan.-based Smallwood Maike & Associates’ recently released “2009 North American Insurer IT Spend” report, which notes that further compounding this calamity are factors, such as the increasingly aggressive competitive landscape, shifting market share and continuing demands of customers (both agents/brokers and policyholders). The research indicates that these issues are forcing executives to tighten the alignment of strategies to business and IT initiatives.

Insurers, as a result, must be diligent with all expenditures, especially IT, the report asserts. Strategic business-driven projects that have direct alignment to profitable growth, ease of doing business and customer servicing should continue be the priority, and remain on the docket for 2009.

“As P&C and L&A carriers look at their strategic plans for 2009, given the downturn in the economy, investments and the soft market, decreasing expenses—both underwriting and loss expense ratios—are essential,” Deb Smallwood, co-founder of Smallwood Maike & Associates, tells INN. “Streamlining business operations and looking at ways to optimize business processes for underwriting, claims and backroom operations are hot projects, and leveraging technology for full- or semi-automation will be key.”
The report also states that these projects will have a direct impact on decreasing underwriting expenses and/or loss expenses—in other words, they should significantly affect the bottom line.

Smallwood Maike goes on to say IT spend will be relatively flat compared to 2008. The firm prognosticates a slight increase in the life and health arenas in 2009, with overall percentage to revenues remaining the same while the revenue base (written premium) should be relatively flat.

“Life and health isn’t hit as hard by the soft market as P&C, and the projections for spend are based on net written premium, hence the slight increase,”  Smallwood says. “Also, there is a steeper rise in the maintenance costs of life legacy systems. The number of legacy systems continues to escalate, as it’s harder to retire these systems given the nature of the insurers’ products.”

While it may appear to be “same old, same old,” the report finds there is an undercurrent of change, as IT spend dollars will continue to shift internally within the budgets of strategic projects, technology projects and baseline spend.

The research also shows that there should be few new dollars poured into IT, but business should be demanding and expecting the same, if not more, with the same dollars.
As strategic projects hold firm, technology projects should need to show linkage to business value and strategic initiatives, whereas baseline spend should grow slightly given that the baseline continues to grow due to the persistence of legacy systems. In addition, the research points to small tactical projects getting lost in the shuffle in the coming year.

Given this lack of spending, Smallwood Maike feels the governance process of decision-making, due diligence and negotiating should be detailed and deliberate for insurers. Executive business sponsorship should be closely monitored, and tracked for full accountability in regard to the scope, budget, timeline and cost benefits promised. IT will not only have to “plan on being agile and adaptable,” but also demonstrate the promise of agility, flexibility and “doing more with less.”  

Source: Smallwood Maike & Associates Inc.

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