Largest insurers plan biggest IT budget increases: Celent
Most insurers plan to increase IT budgets this year, and few plan to keep them flat or reduce them. But the biggest insurers are making the biggest increases, according to a recent report from insurance tech analyst firm Celent.
The company surveyed 33 insurers on their IT plans for the P&C Insurer CIO Pressures and Priorities 2018 report, written by Donald Light, director of the North American P&C practice for Celent. Thirty-six percent of those reported premium over $1 billion per year; those companies also said they planned to increase IT budgets by about 11% on average. Carriers between $500 million and $1 billion in premium plan an average increase of 5%.
The smallest insurers reported a 7% average increase, but reported a lot of variation within that, with some planning to stay flat and some planning to increase as much as 11%. Big insurers stayed in a narrow band between 9% and 15%.
Light writes that the numbers for large insurers indicate a “distinct upward departure” from recent years. In a related note, “growth and retention” was identified as a “significant” business driver of IT investment by nearly 80% of those companies.
“This may be the beginning of a large insurer IT arms race — which in any event bears watching over the next few years,” the report says. “Large insurers are investing more in technology to meet real or perceived challenges from insurtech firms — as well as incurring substantial costs in retooling their data aggregation and analytic capabilities, and continuing core system upgrades.”
Celent says that digital priorities – that is, where the budget dollars will be going – aren’t changed much this year from previous years. Across all sizes of P&C insurers, CIOs emphasize three major areas:
Digitizing information flows from agents and prospects (the top priority for all three size segments)
Incorporating digital in the underwriting process
Leveraging analytics-driven rules-based automation across the value chain
As insurers travel along this road, they are increasingly likely to leverage cloud-based services, especially software-as-a-service (SaaS). Two-thirds of large insurance CIOs indicated they will expand their use of SaaS, with a corresponding 68% and 38% in the other insurer segments. Platform-as-a-service and infrastructure-as-a-service also posted interest gains.
“All three forms of cloud-based services have a significant and growing presence among all three groups of insurer CIOs,” Light writes. “If and as small and midsize insurers continue expanding their use of the cloud, their ratio of internal to external expenses may start looking more like the large insurers’ ratio.”
Celent asked insurers about their plans to facilitate innovation in the enterprise. Large insurers are particularly active in this arena, Light says.
“Large insurers are pursuing more ways, more aggressively than either midsize or small insurers,” he writes. The most common tactic for all segments is assigning innovation to a C-level executive, but large insurers also post usage of “innovation accelerators, making investments, and [an] innovation center of excellence,” he continues.
When it comes to insurtech, large insurers also took a lead in leveraging these emerging companies. Whereas last year, 72% reported that they were monitoring insurtechs, and none had deployed the companies’ products, this year 9% of the largest insurers had deployed something from an insurtech, and 30% were in the piloting phase – more than double last year.
“On the other hand, midsize and small insurer CIOs’ responses showed relatively little change from a year earlier — emphasizing monitoring and some piloting,” Light writes.