IT Spending To Remain Flat, Says Tower
NU Online News Service, Feb. 7, 3:35 p.m. EDT?Information technology spending this year for the U.S. insurance industry overall will remain "relatively flat," with property-casualty insurance posting a slight gain, according to research from Needham, Mass.-based TowerGroup.[@@]
"In the context of such divergent issues as terrorist threats, state and federal regulatory activity, competition from other financial services players and tight global economic conditions, TowerGroup forecasts a cautious approach to technology spending by U.S. insurers in 2005," the researcher said in its announcement of the research results.
TowerGroup said IT spending in the U.S. insurance industry overall will move from an estimated $35.3 billion in 2004 to $36.4 billion in 2005. "Most of the IT spending action in 2005 will be found in the property & casualty sector," the announcement noted. "For most P&C carriers, TowerGroup predicts an IT spending increase in 2005 from 2.5 percent to 10 percent over 2004 spending estimates."
For the life and annuity sector, meanwhile, the researcher said IT spending has been "flat since 2001," and it anticipates little change in 2005. "Only L&A insurers willing to take on enterprise projects will increase spending in 2005 from 5 percent to 15 percent," said TowerGroup.
"We expect the current climate for insurance to mitigate aggressive technology investments over the next 12-to-18 months," said Cindy Saccocia, senior analyst in the insurance research practice at TowerGroup and author of the research.
Miss Saccocia predicted, "IT spending will remain controlled and allocations will be limited to projects of 12 months in duration or less. This conservative approach to spending is problematic because it often inhibits a company's ability to be innovative. If this is the modus operandi, then insurers must be decisive and not let controlled IT spending compromise longer-term goals.
"The current year is a critical one for insurers to close the gap between business strategy and technology investment," she added.
Ms. Saccocia advised that, "Insurers must concentrate on the present opportunities and not let their natural aversion to risk inhibit their capabilities to achieve what is possible with new technology. Recent successes demonstrate that companies can manage this complex business as a profitable operation."
TowerGroup is an advisory, research and consulting firm focused on the global financial services industry.
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