New York - U.S. insurers will turn more and more to professional services providers and consultants in developing, implementing and managing complex technology projects. That's according to a report by U.K.-based independent market analyst Datamonitor.According to the report, titled "U.S. Insurance Technology Strategies," for the first time (year end 2005), spending on external solutions will outpace that of internal IT spending.

Through 2009, Datamonitor predicts investment in external solutions will grow by 6.5% in U.S. life insurance, compared with 1.4% for internal IT. Non-life external spending is expected to grow at an even faster clip--7.2% compared with only 2% on internal spending.

The ongoing need to re-engineer core systems, the number one area of investment for 2005, coupled with the implementation of regulatory controls is driving spending in insurance, according to the report. The need for specialized skills, particularly in the areas of Sarbanes Oxley compliance and in migration of legacy systems to new platforms, will provide a market opportunity for vendors.

Datamonitor expects spending on professional services to grow by 5.5% between 2005 abd 2009, driven largely by ongoing reengineering projects, which increasingly require sophisticated mapping and definition capabilities. 

Systems integration spending will grow even more quickly, at 7.2%, as data integration, compliance and enterprise architecture projects dovetail in the form of overlapping solutions in the next several years.

"The ability of vendors and consultants to address complex implementation scenarios and provide best practices is more important than at any time in the past," says Ed Blomquist, financial services technology analyst at Datamonitor and author of the report.

According to Datamonitor outsourcing will enjoy another wave of interest driven by the success of infrastructure outsourcing agreements and more business process outsourcing (BPO) options. 

Datamonitor expects outsourcing to grow 9.9% over the period, with slightly more robust growth coming in the life space.

"Outsourcing, a component of services spending, will regain interest from insurers, due to the proven cost savings, more flexible arrangements and increasing outsourcing service provider credibility," says Blomquist. "While the majority of deals over the coming years will continue to be in the area of IT infrastructure including labor-intensive areas like call centers, BPO in insurance will also see a significant increase."

Source: Datamonitor

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