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IT Spending Priorities Pile Up
January 2008Early indications are that overall IT spending for 2008 will increase—albeit, forecasters predict the increase to be relatively small. The insurance industry isn't an exception. “Based on benchmarking data, IT spending has been rising slightly in the past few years, and we expect that to continue,” says Jack Tyniec, senior manager, Insurance Benchmarking Center, of New York-based Deloitte Consulting LLP.
Craig Weber, managing director of the Insurance Group at Celent LLC, also sees the slow growth, even though the Boston-based research firm estimates total IT spend by North American insurers in 2008 will total $36 billion, which is up from its 2007 estimate of more than $33 billion. “In general, budgets are flat, to rising slowly—2% to 3%,” he says. “We have a few outliers that expect their budget to rocket up 10% to 15% in 2008, and a few outliers the other way, saying they’re expecting budget cuts.”
Can this anemic growth be attributed to the uncertain economy? The ability to fund increases in IT spending levels in 2008 will depend primarily on the overall health of the economy, according to Computer Economics Inc., an Irvine, Calif.-based adviser and research provider. In September and October 2007, the company surveyed 125 IT executive decision-makers in the United States and Canada who indicated that they had already scaled back their expectations for IT spending increases in 2008. If economic conditions worsen, median IT spending increases in 2008 will be flat compared to 2007.
What effect is the softening of the notoriously cyclical insurance market having on underwriting profit? Tracking the U.S. property/casualty market since 2001, the Dallas-based insurance exchange Market Scout uses data assimilated via its insurance exchange that is supported by in-person surveys of retail agents, company personnel, wholesale brokers and MGAs. At press time, P&C insurers were set to record historic underwriting profits for 2007. According to MarketScout, underwriting profit is driving the soft market, resulting in a composite property/casualty rate reduction in October 2007 of minus 15%. MarketScout data reveals commercial property and general liability lead rate reductions at minus 16% and minus 17%, respectively.
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“We expect a very competitive market for the balance of 2007 and well into 2008,” MarketScout’s CEO, Richard Kerr, forecasts. “There is simply too much capacity chasing premium and what is perceived as incredible opportunities for underwriting profits.”
Deloitte’s Tyniec agrees that the softening insurance market will likely have a modest impact on insurers’ 2008 IT spending. “Projects already underway will likely not be impacted, but projects in queue may be delayed or more stringent ROI hurdles may be used before they are approved,” he says.
ACROSS ALL LINES
Most of those projects have their roots in data, which some say is insurance, says Annemarie Earley, managing VP, Insurance Services at Stamford, Conn.-based Gartner Group. “Everyone is striving to tear down the siloed environment and make it more of an enterprise environment where data is shared and readily available without having to navigate between multiple systems.”
Tyniec believes software spending overall will be a little bit higher because insurers will be looking to acquire software with greater productivity capabilities. He says this is partially the result of the emphasis on e-service. “E-service has been increasing in terms of emphasis, because it’s a cost reduction opportunity by leveraging technology to provide service in place of call centers and related expenses.”
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