Insurer information technology budgets in 2008 will be focused on getting new business in the door, servicing it efficiently and creating a more modern infrastructure, one leading consulting firm predicts.

"Insurers are allocating very different levels of premium flow to IT," according to Donald Light, senior analyst at Boston-based researcher Celent LLC., indicating that carriers vary in how much priority they give such initiatives.

"There's quite a spread," he noted.

Looking at IT budgets as a percentage of total premium, Celent found that while the average figure for large (3.9 percent) and midsized (3.8 percent) p-c carriers was about the same, the range of budget commitments among midsized insurers was much larger (about nine percentage points), versus only about two percentage points for larger carriers.

Mr. Light's comments came during a recent Webinar highlighting the results of Celent's fifth-annual survey of insurance chief information officers and chief technology officers.

"We wanted to take the pulse of insurance technology decision-makers to find out where they put their emphasis and budgets," he explained.

The survey, covering "a broad range of issues," reported results from 28 respondents, including:

o Four property-casualty insurers with more than $1 billion in annual premium (primarily multiline, personal and commercial).

o 15 p-c insurers with premiums between $100 million and $1 billion (mix of personal, commercial and multiline).

o Five life/annuity/health insurers with over $1 billion in premium.

o Four life/annuity/health companies with between $100 million and $1 billion in premium.

The respondents collectively represented "over $57 billion in premiums--roughly 6 percent of the total U.S. market," according to Mr. Light. He cautioned, however, that while the small sample's findings are "indicative of trends and developments," they do not necessarily represent a statistically significant part of any segment.

The survey found that premium growth in a soft market topped the list of business issues driving IT decisions. Next on the list was expense control, followed by ease of doing business/time to market, which were stronger trends among midsized p-c companies than among larger carriers.

In addition, premium growth and expense control were rated as more important in 2007 than they had been in 2006, said Mr. Light. "The mood of the industry is more cautious, with a drawing in of horns, so to speak," he commented.

Overall, the top three IT initiatives for 2008 among those surveyed were policy administration/core systems, new business/distribution/e-business and data mastery, he noted. Among larger p-c carriers, however, the top three were data mastery, automation/BPM and pricing/product development.

When it comes to slicing up the IT budget, the survey found just over half of insurance IT spending is on staff, contractors and outsource providers, said Mr. Light.

"That means 55-to-60 percent is going into people, both inside the organization and outside," he stated. "Insurance remains a people-intensive business."

The survey also found that new projects are using "a significant share of IT resources." Among larger p-c carriers, the budget split between maintenance and new functionality/systems was 41 percent new versus 59 percent maintenance. Among midsized p-c companies surveyed, the split was 45 percent new versus 55 percent maintenance.

Mr. Light noted that among midsized p-c carriers surveyed, there has been a five percentage point increase in IT budget share allotted to new projects over last year's survey figures. Among larger p-c insurers, the increase was 10 points (from 31 percent to 41 percent).

Core systems and IT infrastructure account for most new project spending, he added, although among larger p-c carriers, underwriting is also a top priority.

While end-to-end solutions from a vendor dominated as a new project development method, custom builds by internal IT staff were much more prevalent (44 percent) among all large carriers than among midsized carriers (24 percent), according to the survey.

Mr. Light added that 71 percent of midsized companies were opting for end-to-end or best-of-breed approaches to new project development.

The survey predicted that Linux would gain ground as a computing platform in large p-c insurers, while both Linux and Windows would see growth in midsized companies. Gains were also predicted for mainframe computing among the larger carriers, while the mainframe platform is expected to shrink among midsized insurers.

In addition, the survey reported that Web services and service-oriented architecture are currently widely deployed in both core and ancillary insurance company systems.

According to Mr. Light, more than half of the insurers surveyed are deploying such systems. "[These systems] are definitely out of the pilot stage and into common use," he remarked.

The survey noted that Web services and SOA are delivering "tangible business value" at the front end of insurer systems, specifically in new business, by linking insurer systems internally and by facilitating external communication.

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IT Spending To Focus On New Business

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