The interesting thing is that they're not.
Insurers may not be planning any big increases in IT spending, but they're not slashing budgets either. Instead, they are planning to keep IT spending about flat with 2009 as they make investments aimed at either improving service or reducing long-term costs.
It seems that sometimes you have to spend money to save money.
The planned increase in insurance IT spending from 2009 to 2010 will be about 0.2 percent, according to the fourth annual joint Information Technology spending survey by Gartner and the Property Casualty Insurers
Association of America. That increase is expected even though companies are on average predicting a decrease in revenue of 3.7 percent from 2008 to 2009.
The survey, which was released in September, is based on data from 22 PCI member companies with an average of $400 million in revenue and 474 employees.
That 0.2 percent increase in spending compares with a 1.6 percent increase in planned IT spending from 2008 to 2009 and an 8.1 percent increase from 2007 to 2008.
Most IT spending, about 59 percent, goes to "lights-on" support, while the remainder is dedicated to support business growth and transformation.
Some IT investments will go to improve service at companies that sell commodity products, such as personal auto insurance, and are able to compete on either price or service, according to Steve Forte, a research director with Gartner's Insurance Industry Advisory Service.
For those that can do it, making those investments now may give them an edge against the competition later when the economy and insurance markets improve.
Other insurers are moving forward with plans to reduce costs by replacing aging legacy systems, he said. And there's certainly no lack of fat to cut in insurance company IT costs per both policy and claim--which were $69 and $58 respectively, according to the survey.
The hot IT project a few years ago was claims systems. As new claims systems come on line, IT costs per claim are likely to rise initially as companies run both systems. But once the transition is complete, Forte said he will be watching to see if the IT cost per claim comes down.
While new claims systems are still on the IT investment wish list for many insurers, Forte said he's starting to see a new trend in insurance IT spending--policy administration systems.
These systems are becoming more and more costly to run and fewer people know how to maintain them. At a certain point, something has to be done and the investments can be postponed no longer.
Forte said he's beginning to see some companies actually "pull the trigger" on some of these big, multi-year policy administration system projects.
These projects can carry price tags as high as $50 million to $100 million. But the longer these systems are ignored, the more costly they will become.
While there is belt tightening in some IT budgets, the fact that IT budgets in general are being spared indicates that insurers are committed to making investments that will help to keep them competitive.
PATRICIA VOWINKEL has worked for national media outlets for more than 20 years.
December 1, 2009
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