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IT Spending Going Up: Good News, Bad News, or Just News?

There seems to be a change underway that is both good news and bad news for insurance IT leaders.  The good news is that business leaders see the need for IT in almost everything, and are ready to invest.  The bad news is that business leaders are ready to invest and see the need for IT in almost everything.

After some lean years, it seems that the purse strings are opening for IT projects.  Novarica’s Matt Josefowicz was one of the first to see the trend.  In his blog on October 3, 2011, Matt wrote: “Despite the recession, insurer IT spending will not slow in 2012.  Insurers continue to focus on delivering badly-needed business capabilities to support growth, increase competitive parity, and improve operational effectiveness. ”

Robert Regis Hyle, writing in PropertyCasualty360.com, notes that after years of expressing ‘cautious optimism’ about budgets (meaning some or no growth), insurance IT managers are dropping the ‘cautious’ in describing upcoming budgets.    He quotes Ellen Carney, analyst with Forresters as saying that the industry is showing a “pre-2008 crash level of optimism.”

So why is this bad news?  Well, maybe ‘challenging’ might be a better word.  If IT managers have all the resources they need, they should be able to meet all the expectations, right?  Well, that depends …

Josefowicz points out:  “Most CIOs have a clear-eyed self-assessment of the state of their internal systems — on average, most rate nearly half of their systems below ‘acceptable.’ It’s the need to improve these capabilities rather than external factors like the economic recession and compliance pressures that are the primary drivers for most insurers’ IT budgets and plans.”  He further notes that one third of CIOS in a recent Novarica survey indicated that they are either in the middle of, or just beginning a major policy administration system replacement.

No matter how hard anyone tries, core systems replacements don’t yield positive results quickly.  The implementations alone span years, and benefits realization only comes with several cycles of use.

In the end, of course, carriers with solid infrastructure and core systems can take advantage of new technologies like tablets and social media with greater ease than those carriers with legacy environments.  But if the expectation is that large investments now will bring quick  returns on investment, there is a serious expectation management challenge waiting in the wings.

We’ve been through this before.  The dot com boom/bust, compounded by the Y2K IT spending spree was followed by  almost a decade of skepticism by business leaders.  Before that, the roaring enthusiasm for PCs was followed by budget strain as everyone moved from dumb terminals to expensive workstations.

Now is a good time for some serious discussions about ‘alignment’, where the business and IT leaders have sober conversations about the art and science of the possible, and set up structures to carefully evaluate business objectives, enabling technologies, and methods to measure success.  With that underpinning, the good news and bad news can be just news that  business and IT use to plan proper business growth, supported by IT.

 

 

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