Report Looks AT IT Spending

A new report by independent market analyst Datamonitor has found signs that insurance carriers' use of technology vendor services is on the rise.

According to the report, "U.S. Insurance Technology Strategies," U.S. insurers will turn more and more to professional services providers and consultants to develop implement and manage complex technology projects. The report reveals that for the first time (year-end 2005), spending on external information technology (IT) products will outpace internal IT spending.

Through 2009, Datamonitor predicted that investment in external products will grow by 6.5 percent in U.S. Life insurance, compared to 1.4 percent for internal IT. Non-Life external spending is expected to grow at an even faster clip, 7.2 percent, compared to just 2 percent on internal spending.

"The ongoing need to re-engineer core systems, the number one area of investment for 2005, coupled with the implementation of regulatory controls is driving spending in insurance," said New York-based Datamonitor.

It added that, "The need for specialized skills, particularly in the areas of Sarbanes Oxley [the federal disclosure act] compliance and in migration of legacy systems onto new platforms, will provide a market opportunity for vendors."

Datamonitor said it expects spending on professional services to grow by 5.5 percent from 2005-2009, driven largely by on-going reengineering projects. Systems integration spending will grow even more quickly, at 7.2 percent, the company added.

Also, according to Datamonitor, outsourcing will enjoy another wave of interest, driven by the success of infrastructure outsourcing agreements and business process outsourcing (BPO).