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Will IT be Spending the New Insurance-IT Budget?

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The brutal competition in the P&C market may be driving increased spending on technology.  But this could be a two-edged sword for in-house insurance technology professionals as BPO and cloud based services offer alternative strategies.

As published in Propertycasualty360.com, a recent report by Celent, titled “IT Spending in Financial Services: A Global Perspective”, noted that North American insurance IT spending is projected to increase to US$35.7 billion in 2011, up from US$34.1 billion in 2010, and US $33 billion in 2009.  As significantly, the amount earmarked for new investments in 2011 is expected to be 47 %, versus 43.5% in 2010.

This sounds like good news for workers in the insurance IT community, except that they might not be the ones spending the money.  Ara Trembly, a respected commentator on technology in the insurance industry, recently noted that another Celent report found that half of the insurers surveyed reported they were making real progress in the drive to replace legacy technology that inhibited flexible responses to business requirements.  This begs the question: what about the other half?  Tremblay correctly points out “that various forms of middleware have made it easier to hang on to legacy applications, because the middleware allows the old fossils to keep on being productive. In other words, legacy systems may not be cool, but they can still get the job done, especially with help from modern middleware.”

So, as this blog noted in an earlier post, making a solid ROI case for in-house modern technology is not easy when looking at pure processing costs.  So what of the new requirement driving the increase in technology spending?  How will these be met?

The Celent report on competition and IT spending offered some insight.  “Insurers are starting to come to grips with the fact that the insurance market has been ‘reset’ at levels that are significantly lower than they were before the global market crisis.”  The report suggests that there is a “new feeling of urgency, where insurers realize that the brutal competition they have been in for years is only going to get worse.”   Significantly, two of the items on the high priority project list are BPO (Business Process Outsourcing) and SaaS (Software as a Service – a component of  cloud computing), which offer the opportunity to have rapid responsiveness with a variable cost model.

Connecting the dots, if the insurance company must maintain legacy systems to continue to process business, but the business  has the money and urgency to acquire new functionality, there may be some role changes.  This blog noted earlier that the role of the CIO might be in transition with Cloud based services, where the senior technology manager is responsible more for vendor relationships than technology architecture.  Could it be that the role of the in-house IT department is changing as well, to the keeper of the legacy systems, with the role of innovator being handled with out-sourced services?

Time (and money) will tell.

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