When times are tough, common sense tells us it's prudent to cut our spending back. Cost-cutting initiatives gutted many corporate budgets in 2001, specifically for "discretionary" items such as business travel and conferences. Although most analysts would exclude technology from the list of discretionary purchases, many U.S. businesses scaled back their ambitious tech-spending plans last.Surprisingly, the insurance industry wasn't among businesses that actually spent less on IT in 2001 than they did a year earlier. Given carriers' track record for being laggards in implementing new systems, it's encouraging that insurance executives didn't slash their technology budgets as the economy was lurching toward recession. In fact, this month's cover story reveals that carriers' IT budgets grew modestly last year, while IT spending by two of its primary competitors, banks and securities firms, contracted in 2001.

Insurers are expected to spend $41 billion on technology this year, a modest 6% increase over spending in 2001, according Gartner Dataquest estimates. In 2005, carriers will spend $54.7 billion, a healthy 13% annual growth rate, according to Susan Cournoyer, a senior analyst with Gartner Dataquest, a Lowell, Mass.-based research firm. Carriers are expected to increase their spending on replacing core systems for policy administration and claims processing.

The hardening economy apparently hasn't diminished insurance executives' desire to implement new technologies as a means of improving productivity, customer service and the flow of information. However, I've noticed that insurance executives are becoming more educated purchasers of technology. They're demanding more proof from vendors that the systems will indeed meet or exceed their expectations on improved efficiencies, productivity and return on investment. Carriers are not rushing to buy new systems to "keep up with the Joneses." They're looking under the hood, kicking the tires and taking the systems out for a test drive before signing on the dotted line.

That's a smart, prudent and effective strategy for implementing new technology, and it demonstrates that carries, considered by many industry observers as IT laggards, are becoming more sophisticated shoppers.

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