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March 1, 2014

Insurance IT Spending Continues Upward Trend

Summary:

For 2014, an average increase of 3% over 2013 is anticipated, and insurers are planning to spend even more on IT during 2015-2017.

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In general, the investments in technology tend to follow the state of the economy and the state of the insurance industry. However, we have noticed an interesting trend over the past five years – insurers have become increasingly optimistic about the prospects for the industry and more bullish about the role of technology.

This is not to say that IT budgets are dramatically increasing – in most cases, they aren’t. But, through an era when many organizations were slashing IT budgets and laying off staff, insurers have by and large maintained their investments and have gradually increased spending. For 2014, an average increase of 3% over 2013 is anticipated, and insurers are planning to spend even more on IT during 2015-2017.

However, more important than the spending numbers is the way that those dollars are being deployed. An increasing number of insurers are thinking long term and engaging in transformational initiatives. I don’t mean to imply that insurers have never been strategic regarding their IT investments before, but there is a great deal of energy around high-impact projects with companywide implications.

In our first Insurance Ecosystem survey at the end of 2009, only 13% of insurers considered their companies to be in transforming mode. Now, our survey at the end of 2013 indicates that 32% of insurers are transforming. Big, cross-functional initiatives for improving the customer experience, creating a culture of innovation, and core replacement/modernization are becoming more common.

What’s especially interesting is the activity going on in the core systems space. The industry has been experiencing a wave of replacing or modernizing policy, billing and claim systems for the past five years – it’s now new. While many of those replacements have been driven by legacy systems that are limiting the organization’s adaptability, there are more insurers that are now viewing core replacement as an opportunity to position for the future – to build a foundation for a more agile company, one that can respond to market needs, capitalize on innovation and leverage technologies such as mobile, analytics and cloud computing.

Certainly, the priorities and investments are different by line of business and insurer size. And each company has its own unique set of circumstances and strategies. But the big themes are unmistakable – we are in the midst of an era of change in the insurance industry, and technology is a vital enabler of that change.     

For more information about insurers’ IT plans and priorities, read SMA’s new research report, 2014 Insurance Ecosystem: Insurer Technology Spending, Drivers, and Projects.