IT Spending in Insurance: Good News and Bad News
Insurance Experts' Forum, June 28, 2011
Much as I enjoy the insurance industry, it is always an eye-opener to me when I find us at the forefront of anything that has to do with technology. Thus, I was pleasantly surprised when Irvine, CA-based Computer Economics reported that, “The insurance sector is at the leading edge of an otherwise tentative recovery in IT operational spending this year.”
The news came as part of CE’s newly released IT Spending and Staffing Benchmarks 2011/2012. The study finds that median spending on IT operations is rising 5% in the insurance sector, a substantial year-over-year improvement and also well above the median 2% growth for organizations across all sectors in the U.S. and Canada.
“We are seeing a recovery in both IT operational and capital spending after two years of zero growth, but the recovery is still weak and remains uneven from sector to sector," said Frank Scavo, president of Computer Economics. “The good news is that we are finally seeing new systems, upgrades, and infrastructure improvements back at the top of IT spending priorities.”
The first question I had was why the insurance industry is spending more on IT, while many are spending less. The answer was contained in CE’s report on the study, which noted that, “The long-term trend is indicative of improving IT operational efficiency but is being pushed further by the cost-cutting of the past three years.” One thing we can say for certain about IT in insurance over the past several years is that cost cutting has been a major initiative. Given that, it is no surprise that we now have some room to spend in this slowly recovering economy.
Then there is the bad news. According to CE, the sector dragging the averages down is government. “Median IT operational spending by governments is falling 3%, the second year in a row that IT organizations in the government sector have reduced spending. The retail and banking and finance sectors also continue to show below-average growth in median IT spending, at 1% and 1.1% respectively.”
Let’s remember that government, at least on the federal level, has said it will take major steps to secure the Internet, but it’s hard to see how reducing spending will help achieve that elusive objective. While it’s true that federal technology efforts have been largely ineffective, it is not a good sign that spending will decline.
The CE report also notes that even in areas where spending is increasing, there are no widespread plans to use the extra funds to rehire personnel who were unceremoniously dumped in 2008-2009. Only 34% of organizations are increasing IT headcount, while 27% are reducing staff levels.
Add to that the fact that the banking and finance sectors, both lagging in IT spending, are close cousins of insurance, and the seemingly sunny IT spending outlook is now in the shadow of some serious dark thunderclouds. The best we can do is hope for the best—and prepare for the worst.
Ara C. Trembly (www.aratremblytechnology.com) is the founder of Ara Trembly, The Tech Consultant, and a longtime observer of technology in insurance and financial services.
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