In an industry as conservative as insurance, it shouldnt come as a revelation researchers arent expecting many changes in the marketplace over the last half of this decade.
Not many observers of the insurance industry would have predicted five years ago Web services would have such a profound effect on the industry landscape. As Celent Communications insurance group manager Matt Josefowicz looks at the next five years, he doesnt see anything as important as Web services affecting the industry but admits there always is the possibility something special may pop up.
Id say [Web services] probably is the biggest IT change weve seen over the last five years. That and the way the Web really has taken center stage in a very integral way, says Josefowicz, author of U.S. IT Spending, 2005-2010, for both the property/casualty industry and the life/health market.
Web services is replacing a lot of traditional integration, and it is making that integration a lot more effective, efficient, and reusable, enabling [insurers] to do more, explains Josefowicz. We tried to focus on the broad categorieshardware, software, staff services, telecomand then look at the insurance life cycle from product definition through claims and reinsurance asset management.
Depending on what kinds of emerging technologies advance during the rest of the decade, Josefowicz believes the industry could experience changes. But when you look at overall IT budgets and think about them from a functional point of view, I dont think were going to see too many surprises over the next five years, he adds.
The biggest changes Josefowicz expects to happen address infrastructure. Youll probably see more use of blade servers and more use of Linux, he predicts. I also think well see more use of wireless. He anticipates there will be a resurrection of a program similar to that tried by Progressive Insurance several years ago involving pay-as-you-drive GPS-related technology. But when you think about overall IT budgets and how big of an impact that [technology] is going to have, I dont see anything really huge, he says.
The report used a rather conservative growth rate for written premiumsfive or six percent on the property/casualty side and three percent on the life/ health sideaccording to Josefowicz. We think IT spending is going to move in lockstep with premium growth, he contends. We projected some shift long term as IT takes out manual costs and staff costs. Some of that operating expense ratio is going to shift into IT. Money that had been spent on staff and paper is going to be spent on IT. I dont think people necessarily will spend less, but theyll do more with less.
Staffing expenses are projected to be the biggest part of the IT budgetestimated at 50 percent for P&C and L&H. You still need a lot of people around to run IT systems, maintain them, and improve them, so I dont see a big shift in IT budgets away from IT staff, Josefowicz asserts, adding he doesnt believe IT outsourcing will have a major impact, either. When you look at the industry as a whole, I dont really see [insurers] radically changing over the next five years the portion of the IT budget they have right now [for salaries].
For many insurers today, the priority for spending is policy administration systems and core systems, notes Josefowicz. I think you are going to see a shift toward product systems and distribution and out into claims and billing as the five years go on, he says. People are focused on the core right now, but then most of these projects are two- or three-year proj-ects, so five years [out] is not really as long a time as it sounds.
The industry is expressing a lot of interest in IP telephony right now, he points out. Its cheaper to maintain, and with most of the long-haul carriers getting into the IP telephony space, thats an imminent shift, states Josefowicz. Corporate America has done that much more aggressively than the insurance industry has. I think insurance will fall in line with the rest of corporate America and move toward that direction.
ROBERT REGIS HYLE
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