Insurers’ IT Spending Continues to Grow

INN Breaking News, April 11, 2014 | Chris McMahon
Top trends include core and legacy system transformation, data mastery, and analytics and digitization, Celent says.

Insurance IT spending across North America, Europe, Latin America, and Asia-Pacific will increase to $162.1 billion this year, increasing to $176.7 in 2016, according to “IT Spending in Insurance: A Global Perspective,” from research firm Celent. The increase represents a compound annual growth rate of 4.4 percent, result of a moderately better global economy, Celent said.

IT spending in North America will increase to $72.4 billion in 2016, Celent said, a compound annual growth rate (CAGR) of 3.7 percent, from 2014 to 2016.

Trends in 2014 build on the past trends of core and legacy system transformation, data mastery and analytics and digitization, Celent said, which potentially are differentiators for insurers. “Insurers that are experiencing changing customer demographics and values as well as increased demands for transparency are finding that these technology trends have a role to play in their efforts to increase sales, control costs, or even meet regulations,” Celent said. And regulation and privacy concerns also must be considered when new technologies are integrated with legacy environments.

“Across the world, we are seeing a return to investing in growth.  Digital distribution and customer acquisition are hot topics as insurers look to keep the cost to serve low,” said Jamie Macgregor, Celent Insurance SVP and coauthor of the report.  “The Americas and Asia are growing strong, but the outlook for Europe is still mixed.”

North American financial institutions account for 41 percent of global IT investments by insurers, Celent said. Those in Europe account for 33 percent; the Asia-Pacific region accounts for 18.3 percent; Latin America, 4.2 percent; the Middle East/Africa/Commonwealth of Independent States account for 3.0 percent.

Latin America is the fastest growing region, as IT spending is projected to increase more than 50 percent in 2014, and compound annual growth is projected at 18.5 percent from 2014 to 2016, when it could reach $9.6 billion.

Celent said 44 percent of  total investment in IT will be dedicated to new projects in 2014, Celent said, with the balance spent on maintaining existing technology and infrastructure.

“Although investment returns are still low, insurers need to focus on improving the core business result,” said Karen Monks, Celent analyst and coauthor. “Simply put, this means investing in technology to attract clients, retain clients, and maximize the underwriting result.”

IT staff accounted for $31.6 billion in 2014, slightly less than half of total IT spending for North American insurers. As a percentage of premiums, spending on internal staff and hardware will remain flat going forward, Celent said, as the adoption of software as a service (SaaS) and use of external software continues to grow.

Maintenance accounts for 56 percent of North American insurers’ IT budgets, Celent said. “Insurers have seen the benefit of replacing older, legacy systems with service-oriented architecture and implementing other practices to ease integration issues. All of these efforts reduce maintenance costs. Celent expects maintenance to remain around 55 percent of IT budgets from 2014 to 2016.”

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