Shared Sentiments

In what even Craig Weber felt was a surprise, the managing director of Celent's insurance practice disclosed IT spending among European insurers was greater than the amount being spent by their North American counterparts. The dollar figures are part of Celent's "IT Spending in Financial Services: A Global Perspective."

Weber believes one reason Europe's insurance community is outpacing North America is because Europeans are more aggressive right now in dealing with legacy platform renewal. "[The Europeans] are taking on the bigger, bolder projects," he says, adding Europeans lag behind North American insurers in terms of key technology, which contributes to the difference in spending levels.

The Celent report lists North American spending at $33.5 billion for 2007 with Europeans spending $41.7 billion and Asia Pacific insurers spending $20.6 billion. For 2008, the numbers are projected at $35.7 billion for North America, $46.5 billion for Europe, and $22 billion for Asia Pacific.

The report also lists the top insurance trends in the three geographical areas, and both life/pension insurers and property/casualty insurers in Europe point to core policy administration system replacement as the top trend. However, in North America, life/health insurers say high-end producer service upgrades and property/casualty carriers indicate technology to address profitability concerns.

Despite the fact policy administration system replacement is not mentioned atop the wish list of North American insurers, Weber contends policy admin systems remain a focus on this continent. "I think there are big projects in both geographies with a surprising amount of activity," he says. "Most people think there isn't a lot of policy admin replacement going on [in North America], but our conversations, both in the U.S. and Europe, suggest the opposite is true."

Europeans may have more work to do, Weber asserts, because they haven't been as good about modernizing their infrastructure, but he adds European carriers finally are coming around to North American thinking on the topic of best-of-breed applications rather than sticking with the old strategy of purchasing all-encompassing solutions from a single vendor.

More insurers in North America need to focus on replacing policy administration systems, Weber believes, but he throws out a caveat: "With the softening market for P&C, carriers that need to shore up combined ratios may slow down some of those plans," he says. "But anyone who has the money to invest and wants to make a strategic investment over the next five years will continue down that path."

As far as North American property/casualty insurers focusing on profitability concerns, Weber states this comes down to an increased use of analytics, which enables carriers to understand what markets they are in, what their pricing strategy needs to be, and what sort of market penetration strategy is needed as the market softens. "It's easier to make money when money is flowing readily," he says. "But when money slows down, which is where I think we are right now, you have to dig in and understand which of your segments actually are profitable and steer your business in that direction."

Configurability is another trend Weber sees throughout the global industry as modern core systems have become highly configurable and user driven. "So, rather than lining up a million-dollar IT project to add new product features, business users are configuring those products to accommodate new features," says Weber. "You can't ever get rid of the business users, but you can minimize the spending on IT staff to execute business plans."

Maintenance will never go away, but Weber predicts maintenance as a percentage of IT spending will go down as functionality goes up. "[Total maintenance spending] may not be a much lower number overall, but the functionality that will be supported by that maintenance will be doubled or tripled," he says. "As the products get better and there is more flexibility in the systems, there is real value there even though the [maintenance] costs are going to remain fairly high."

Overall, Weber claims he was surprised to learn the three geographical areas share similar issues, including the continued debate over sourcing and the use of business process management tools. "The technology we think is interesting here also is interesting everywhere," he says. "For a global insurer, [this] experience is very valuable overseas."