Chicago–A new survey demonstrates that increased IT spending results in lower claims processing costs for P&C insurers.

The second annual joint information technology spending survey by Gartner Inc. and the Property Casualty Insurers Association of America (PCI) shows that IT investments, such as the replacement of legacy systems, will better position insurers in the marketplace. The 35 companies that participated in the study were culled from Des Plaines, Ill.-based PCI’s membership and average $371 million in revenue and 434 employees.

The study looked at the relationship between IT spending on management of claims and the overall expense of processing a claim. The average total cost to process a claim was $584 for the participants. Of this total, 12% was attributed to IT costs such as hardware, software and applications development, while the rest was dedicated to non-IT functions such as salaries for claims management personnel. The study found that an average 1% increase in the portion of claims processing dedicated to IT correlated with a decrease of $180 in total cost per claim.

“The next generation claims management systems will reduce the total cost of processing claims, reduce the cycle time of end-to-end claims processing and provide greater customer retention,” says Stephen Forte, a principal research analyst with Stamford, Conn.-based Gartner’s insurance industry advisory service.

The survey also found that revenues for the companies surveyed increased by an average of 5.1% from 2005 to 2006. In planning for 2007, these companies increased their IT spending plans by 11% from 2006.

“Companies often neglect to measure the impact of IT investment on business processes such as claims management,” says Eric Stegman, a research director at Gartner who focuses on IT metrics and measurement. “Activities such as this make justifying IT investments easier and help improve the stature of the people who conduct them.”

Sources: Gartner Inc., PCI

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