Insurance IT Spending Stays Level: TowerGroup

Despite the economic downturn, the industry is constrained in budget-cutting for IT largely because of competitive pressures, said TowerGroup's new report, "Technology Spending In US Insurance."

This year, the IT budgets of life carriers are likely to suffer a little more than property-casualty insurers, the report observed.

"Life insurance has recently enjoyed larger IT budgets than other lines," says the report. "This correlates with the emphasis placed on the sale of financial products and the need for fast growth of modern distribution infrastructures to support increased sales activity."

But recent poor returns in the equity markets are taking a toll on life insurers' IT budgets, TowerGroup noted.

"Life and health [insurance] has been more constrained recently, though in the past they outspent property-casualty insurers," explained Jamie H. Bisker, a TowerGroup analyst and author of the report. "Life-health always tends to be a little out of cycle with property-casualty," he added.

P-C insurers may ultimately be forced to scale back their IT budgets if claims from asbestos, mold and natural disasters affect their bottom lines for extended periods, the report warned.

Mr. Bisker suggested that due to the need to maintain strong IT investment levels, insurers may benefit from maintaining "technology reserves"–funds set aside to assure that critical computer-related projects are completed.

"Some already do it," Mr. Bisker said. "It's just prudent financial management. You must invest wisely in making strategic decisions, not just reactive ones. If they had strategic reserves, they could proceed with important strategic investments."