New York — Facing the worst investment market crisis in generations, and a paralyzing credit crunch, insurers are not turning away from needed IT investments. Such are the findings from a survey taken in October by New York-based Novarica of 40 U.S. property/casualty and life/annuity insurers, across all sizes of companies and most lines of business.
In its latest report, Novarica paints a probable picture of the 2009 insurer IT landscape. “While many insurers are delaying or postponing IT initiatives, most of these are related to infrastructure or back-office functions,” notes Matthew Josefowicz, director of insurance at Novarica and author of the study. “Customer-facing systems and core capabilities that directly affect competitiveness are mostly going ahead.”
Josefowicz points out that the expectation of tougher times is affecting life/annuity insurers’ IT planning more than property/casualty insurers’
“It’s likely the combination of poor investment performance, decreased demand due to market declines and shrinking consumer assets, and the brand hit that this “steady as a rock” industry has taken due to the widely publicized troubles at AIG, are adding to increased pressure on life/annuity insurers,” he said.
While property/casualty insurers also may be affected by poor investment returns and may see a decrease in sales due to a general economic slowdown, on average, their products are less discretionary than life/annuity insurers’, and more property/casualty insurers (both large and midsize) are continuing to invest in technology to support operational effectiveness and growth instead of slowing their efforts.
Insurance IT budgets have steadily averaged close to 3% of premium for the last several years. Among the participant sample, budget outlook was split, with 50% of property/casualty respondents seeing increasing budgets on the horizon, while 50% of life/annuity respondents foresaw budget decreases coming for 2009.
Interestingly, both of the property/casualty respondents that foresaw “much higher” percentages of premium going toward IT in 2009 were large multi-line companies with strength in specialty lines. Both of those that projected “much lower” spending were midsize regional insurers, one of which operates in a single-state market.
Other issues affecting insurers’ IT strategies include the high volume of M&A in the vendor space and its associated uncertainty, the potential break-up of AIG, recent turbulence in the investment market, projected economic downturn, competitive parity issues, organization-wide expense reduction issues, growth strategies and operational effectiveness issues.
The survey results also state that interest by insurers in outsourcing, while not surging, seems to be growing slightly.
Business intelligence, policy administration and agent portals were among the most frequently cited top three projects. There were no notable differences in priorities between large and midsize, or conservative and aggressive spenders in terms of priorities. The biggest differences were among sectors, with more property/casualty respondents focused on integrated policy administration suites.
Despite the economic crisis, slightly more than half of the members in the survey group reported that they had not postponed any IT initiatives. Among the remainder, the most commonly postponed projects were those that were not customer- or agent-facing, such as general ledger/ERP and technology infrastructure investments.
“While the next period will be stormy and rough, this time IT is standing on the bridge with the captain, not getting jettisoned with the excess cargo,” concluded Josefowicz.
For more information about the report, visit www.novarica.com.
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