IT operations, talent availability, and budgeting are insurance CIO’s largest forecasted problems in 2016. Luckily, the solution may lie in outsourcing, according to a new study published by tech strategy-research firm Novarica.
The report, “IT Outsourcing Update: 2016 Plans”, details carrier’s deployment strategies in infrastructure, application development and maintenance (ADM) and blended staffing for the upcoming year. Survey responses from 104 CIOs revealed smaller P&C and life insurance companies are expected to adopt a greater number of outsourcing services in 2016 than their larger competitors.
But these companies are a bit late to the party. As it stands, spending on external services already consumes an average 20% of IT budgets, according to Novarica. Outsourced staff also accounts for upwards of 40% of IT personnel. In fact, half of the large insurers surveyed said third-party hires make up the majority of their IT department, compared to only 10% and 30% of smaller P&C and life/annuity companies.
“The perception that outsourcing creates security risks has caused mid-sized insurers to lag behind. But providers have gone to great lengths to ensure data safety through new tech that some mid-size carriers don’t even have in place,” said Chuck Ruzicka, VP of research and consulting at Novarica.
Large insurers have proven outsourcing effectively cuts costs while successfully implementing modern technology to handle big data, he said. But arguably the biggest reason for the acceptance in outsourcing among smaller carriers is the frequency which companies are upgrading their core systems. Most mid-size insurers find they lack the skills, manpower and resources necessary to manage new complex software. An aging workforce is a big reason for that.
Roughly 20% of mid-size companies said they plan to outsource ADM operations in some way in 2016. The percentage nearly doubles with infrastructure.
But not all risk is erased by outsourcing, Ruzicka notes. Companies still need to effectively manage their service agreement, if they make one. A multitude of competitors for vendor services has made it more difficult.
“Diversity in technology has really taxed mid-sized insurers. In general we are seeing those that have outsourced increase their usage,” said Ruzicka. “You can commit to a culture change and teach current employees modern technology, but that will take years. Companies that provide these services for a living will make the tech available to you day one, on the first project.”
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