Industry Tightens Belt Against Economic Ills
Insurance Networking News, August 1, 2009
In spite of recession-related constraints on financial resources allocated to technology, there is still a proven demand for insurance IT. This puts the onus on CIOs, who for years saw annual increases, not decreases, in their IT budgets. Now forced to be creative in their efforts to economize, successful CIOs are rethinking their IT spend plans for the remainder of 2009 and into 2010, and approaching this difficult task by responding - not reacting - with a steady, thoughtful course of action. Somewhat surprisingly, their actions are also based on a measure of cautious optimism. That optimism is derived from taking a pragmatic approach to new and existing projects, setting realistic delivery lead times, and being able to communicate IT's inherent value as a business enabler. For some examples, read on.
It's not surprising that insurance IT departments are sick of hearing about recession-driven cost constraints. Having wrung just about every penny out of each and every corner of their operations, many are now being asked to re-evaluate yet again how and where the bulk of their IT dollars will be spent during the remainder of 2009.
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The fact that they are re-evaluating doesn't necessarily mean that they are facing cuts, however. In fact, insurance research analysts and consultants continue to predict that across most lines of business IT spending will remain flat. The exception is in health care, which Gartner, a Stamford, Conn., research firm, predicts will actually grow 2.6%, largely due to anticipation of federal financial incentives for electronic health records.
In most other sectors, including property/casualty, life/health and commercial lines, however, insurance IT spend will remain on an even keel throughout 2009.
Mike Gantt, a former industry executive and IT consultant, noted on his blog site some positive signs on insurance IT spending, noting that prominent financial services solution providers, including SunGard, Fiserv, Fidelity National, Metavante and Jack Henry, recently reported good quarters.
Gantt observes that "while everyone speaks cautiously, they all report a continued interest in IT investments for financial services, including insurance. I've heard of no major shutdowns of IT spending. More thoughtful spending, yes; but no mindless moratoriums. Therefore, in spite of the doom and gloom pouring forth, there's ample reason for cautious optimism. The insurance industry needs technology, perhaps even more than ever in difficult economic times."
STEADY, THOUGHTFUL COURSE
Results of a CIO survey, conducted by Boston-based research firm Celent last October and November during the unfolding financial crisis, appears to validate this opinion. Insurers in the survey reported that large existing projects were being maintained with no changes to IT spending plans for the coming year.
"Despite the drama and uncertainty present when the surveys were completed, the overall results show a group of CIOs who are maintaining a steady and thoughtful course," writes Craig Weber, SVP of Celent's Insurance Group and coauthor of the report.
Tom Pettibone, founder and managing partner at Transition Partners, a Reston, Va., IT management consulting company, confirms this. "We are still seeing a certain amount of demand for IT, but people are being cautious about starting new projects or initiatives." Pettibone, who served as SVP and CIO at New York Life from 1984 to 1990, offers regulatory compliance as the exception, where insurers continue to invest in discovery, auditing and security software and services.
ISACA, a Rolling Meadows, Ill., nonprofit association serving 86,000 IT governance professionals across a broad landscape of vertical markets, recently surveyed more than 500 IT professionals in the United States. The survey found that 25% of companies queried planned to actually increase IT investments, while only 16% of companies are making across-the-board cuts in IT spending and 14% are freezing at current levels.
IT SPEND Vs. BUDGET
How an insurance company spends its IT dollars may be largely about delivering and communicating resultant value, but it also is affected by how and where the spend is allocated.
"IT spend is talked about often in our industry," says Deb Smallwood, founder of Boston-based consulting firm SMA. "But sometimes we use the terms budget and spend interchangeably and they are not."
Smallwood explains that this continues to cause confusion and, ultimately, communications gaffes with regard to IT delivery expectations, especially during this economic crisis.
According to Smallwood, an insurer's IT budget (see "A Typical Insurance IT Budget,") always includes certain things such as salary, benefits, headcount, hardware, software, install base, networking, services, and maintenance contracts and enhancements.
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