Although insurance-technology budgets are increasing for 2014,spending ratios remain within historical ranges, and the overalltrend for the industry appears to be continuity and incrementaladvancement rather than giant leaps forward, according to a recentreport.

Novarica's report, “U.S. Insurers IT Budgets and Projects 2014,”is based on a survey of 100 insurer CIOs and equivalent-levelmembers of the Novarica Insurance Technology Research Council. Thereport concludes, “Despite the rapid changes in technology acrossthe economy, the main story of 2014 insurer IT budgets and projectpriorities is one of continuity.”

Supporting this assertion, Novarica points out that more thanhalf of insurers in the survey plan to work on the same top-twopriority projects as 2013.

Regarding overall spending, Novarica says that, despiteincreases in budgets overall, the consistent spending ratios—the ITbudget as a percentage of premium—for 2014 relative to historicalnorms indicate that budget increases “are tracking premium growthrather than exceeding it in most cases.”

But Novarica does note that while no respondents are planning“much higher” budgets for 2014, only a handful of carriers in eachindustry measured category (large life and annuity carriers,mid/small life and annuity carriers, large P&C and mid/smallP&C) plan to decrease IT budgets. Additionally, life andannuity carriers are mostly planning increases for the coming year,unlike prior years when these carriers were more likely to showflat or decreasing budgets.

In another recent report, Ovum, discussing projected IT budgetsthrough 2017, noted a similar shift for life companies, stating that these companieswill represent much of the overall spending growth over the nextfew years since they suffered more than P&C insurers during thefinancial crisis, and therefore saw deeper budget cuts during thattime.

The incremental advancement in budgets and prioritiesdovetails with insurers' cautious assessments of their own ITcapabilities. Novarica states that fewer than half of insurers“consider themselves to have strong capabilities in any area exceptIT security, financials, claims and rating,” adding that mostinsurers see themselves as investing “to get up to the bar, notover it.”

For the dollars they are investing, insurers say they mostlyexpect to achieve growth and operational effectiveness, saysNovarica, with “competitive parity” also ranking high amongrespondents. Interestingly, as regulatory scrutiny of the industryincreases, Novarica says only large life and annuity carriers rated“compliance” as a top strategic goal driving insurer IT budgets.“[N]one of the other groups of respondents rated it as more thanaverage importance,” according to the report.

As far as project priorities for 2014, Novarica sayspolicy-administration systems, business intelligence/analytics,portals and claims (for P&C insurers) were the most commonresponses. According to the survey, more than half of allrespondents in every category but large life and annuity insurersrated policy administration in their top-three priorities. ButNovarica adds, “It is important to note that top priority doesn'tnecessarily mean a replacement of the system. Major enhancements,or even minor enhancements, can be top-priority activities forinsurers.”

When asked to list the top three capabilities that insurers wantIT to deliver in 2014 and beyond, business intelligence/dataanalytics was the most common response for all carriers exceptmid/small life and annuity companies (for large life and annuitycompanies, business intelligence/data analytics tied for first withspeed-to-market for new products).

Novarica states, “Core policy administration systems andbusiness intelligence remain areas of continued investment,” addingthat “most insurers still struggle to deploy strong capabilities inmost of their core areas, at least by their own assessment.”

Still, despite the cautious self-assessments and consistentspending ratios and project priorities, Novarica points out thatsome insurers are looking into newer areas of investment, “withslight growths in deployments and pilots in mobile and social.”Additionally, large P&C carriers were twice as likely as lastyear to be investing in, at the very least, piloting theinfrastructure for handling true big data.