While the insurance industry is seeing some fallout from the current economic crisis, two industry analysts predict that IT budgets here and abroad will feel little effect from such events.

According to independent market analyst Datamonitor, “IT budgets should be more stable than those in the banking sector, with neither robust spending [nor] dramatic budget cuts likely to materialize, and spending priorities shifting toward risk management and compliance.”

London-based Datamonitor reported that in its “Business Trends: Global Insurance Technology Trends” survey of 200 global insurers in the first half of 2008, 61 percent of non-life insurers and 47 percent of life insurers said they were planning to increase investment in risk management and compliance systems in 2009.

“Moving into 2008, U.S. insurers were displaying a proclivity to invest in the online channel for sales and service, with 60 percent and 50 percent of non-life and life insurers, respectively, stating they were looking to increase investments in this area in 2009,” the analyst firm said.

“While improving the customer relationship is imperative, such projects may be scaled back to accommodate the increased need for risk and compliance,” the company advised.

In addition, insurers will be looking to outsourcing partners with compliance expertise, said Datamonitor. “As the regulatory landscape changes, players in the sector will be left with a choice: update rigid systems, implement a new system, or outsource. Outsourcing is attractive, but only if vendors can deliver a smooth transition and elevated service levels.”

Meanwhile, New York-based Novarica said that “while speculation as to how the current market and credit crisis will affect insurers’ IT strategies has run wild in the last two weeks, a survey of 40 members of the Novarica Insurance Technology Research Council indicates that while the crisis is affecting life/annuity insurers’ IT planning more than property/casualty insurers’, its effects are not likely to be crippling in either case.”

The research and advisory firm’s survey results, published in “U.S. Insurers 2009 IT Budgeting and Planning Snapshot,” show that operational effectiveness issues and support for growth strategies continue to have a stronger impact on IT planning than concern over the investment markets or the economic crisis.

“While many insurers are delaying or postponing IT initiatives, most of these are related to infrastructure or back-office functions. Customer-facing systems and core capabilities that directly affect competitiveness are mostly going ahead,” the firm noted.

Matthew Josefowicz, director of the insurance practice at Novarica and moderator of the Novarica Insurance Technology Research Council, said, “Although the coming situation is likely to be even more challenging than the 2001-2002 trough, early signs indicate that insurers are unlikely to react with the hard pull-back in IT investments that characterized that period.”

He noted that business and IT have evolved toward a truer partnership in the last six years and, “while the next period will be stormy and rough, this time IT is standing on the bridge with the captain, not getting jettisoned with the excess cargo.”