SunGard Survey Reveals Industry Demand For IT Cost Justification
London, August 24 2006 -� While insurers are increasingly embracing the use of return on investment (ROI) to measure the success and failure of IT projects, many are failing to meet their own targets. In fact, only 11% are able to achieve the ROI targets they set, according to new research released by SunGard�s iWORKS business unit ( www.sungard.com/iworks).
The findings, part of a survey undertaken by Datamonitor and commissioned by SunGard iWORKS*, was based on in-depth interviews with 100 European insurers shows that insurers, driven by concerns around cost, are seeking increasingly sophisticated means to assess IT projects prior to initiation. ROI is one of the most commonly used methods: over 90% of insurers claim to use ROI measurements to justify IT projects.
Insurers are also aiming for very short ROI timeframes due to cost pressures. The survey found that over half (54%) of the respondents aim to achieve returns within 18 months. In the general insurance sector, 92% of institutions seek ROI within two years, while over two-thirds (79%) of life insurers, who also have to deal with the higher complexity of life insurance legacy systems, look for the same return period.
However, the research found that many insurers are not meeting their self-imposed ROI criteria. During 2005, 89% found that some of their IT projects did not meet ROI objectives. In fact, only a third of insurers managed to hit their ROI target in more than 80% of their IT projects, while conversely nearly a fifth failed to reach their ROI target in even 50% of their IT projects.
Daniel Mayo, research director financial services technology at Datamonitor, said, �These findings highlight the need for strategic justification over and above simple ROI calculations in the insurance sector. The more surprising element, however, is the sheer extent to which insurers undertake projects that do not stack up to their own criteria. Clearly, this draws attention to the need for a wider understanding of what drives insurers� IT investments as well as greater project discipline in the insurance sector.�
The survey suggests that the issue of projects failing to hit ROI targets reflects a certain immaturity in insurance IT planning and governance. Failure to achieve targets has much to do with using ROI with inadequate experience, but insurers must also realise that not all projects are primarily justified for direct cost reduction or revenue contribution. Demanding ROI-based justification, therefore, will sometimes leave insurers open to failure to meet targets.
David Spruce, president of SunGard�s iWORKS business unit, commented, �It is encouraging that clear project objectives and robust cost estimates are being used to justify IT spend, and to help maximise the benefits that IT projects can deliver to the business. It is proof of increasing sophistication in insurers� approach to technology investment. However, it is evident that insurers must seriously consider alternative measures that offer other insights into IT efficiency and investment priorities. Only that way will they be able to identify the IT projects that most closely answer the needs of the business and promote corporate objectives.
The report outlines what insurers can do to help improve the ROI process, such as setting realistic timeframes and applying more rigour to calculations to facilitate project comparability. It also recommends benchmarking IT spending against peer group projects and the use of business alignment methods, like balanced scorecard and application portfolio management tools, to provide an alternative view.
A full copy of the research report, �Observations on ROI methodology for technology projects in the insurance sector�, is available on request.
Note: * The research commissioned by SunGard iWORKS was part of the Datamonitor Insurance Technology Survey 2005.
Datamonitor is the world�s leading provider of online data, analytic and forecasting platforms for key vertical sectors. We help 5,000 of the world�s largest companies profit from better, more timely decisions. Our research covers seven major industry sectors. The Datamonitor team includes analysts and professional researchers. We have offices in London, Frankfurt, New York, San Francisco, Tokyo and Sydney. The company has been awarded business Superbrand status. Visit www.datamonitor.com.
SunGard iWORKS is a business-driven IT product family for the insurance industry in each of the following major business lines: life/health/annuities/pensions, property and casualty and reinsurance. iWORKS offers a range of products and services including front-office tools, policy administration, reinsurance, actuarial calculations, financial and investment accounting and reporting. SunGard partners with customers to deliver products and services that align with your changing business and regulatory needs.
With annual revenue of $4 billion, SunGard is a global leader in software and processing solutions for financial services, higher education and the public sector. SunGard also helps information-dependent enterprises of all types to ensure the continuity of their business. SunGard serves more than 25,000 customers in more than 50 countries, including the world�s 50 largest financial services companies. Visit SunGard at www.sungard.com.