Celent Examines Pressures, Priorities, Innovation for North America Insurance CIOs

Celent annually surveys insurance company CIOs to determine the pressures, priorities, and practices they face for the coming year. This year's report covers two topics: selected results from the 2013 CIO survey, and how CIOs enable innovation in their companies.

In the report, “2013 North America Insurance CIO Survey: Pressures, Priorities, and Innovation,” Celent describes the range of IT budgets as a percentage of premium, year over year changes in IT budgets, and three strategies for core system replacements. The report also describes how CIOs are dealing with the four levels of Celent's Innovation model: perception; analysis; process, decisions, and experience; and results.

“Insurers who view innovation as integral to their business are focused on creating the right organization for identifying and deploying innovative projects,” says Chuck Johnston, research director with Celent's Insurance Group and coauthor of the report. “In many cases, these are IT-led initiatives, since technology is seen as an innovation enabler.”

Key findings of the report include:

• There are many drivers for insurers to become more innovative, some internal, some external. The 2013 Celent CIO survey shows carriers are addressing the innovation topic and are at various levels of maturity. There are concerns about process, cost, value measurement, and how to deal with large legacy tails. In the survey we saw no real examples of creative disruption in the insurance market, which is why this report is really focused on improvement vs. innovation and the fine line in between.
• As in prior years, the average IT budget is in the range of 3.0% to 4.5% of direct premium written.
• The average year over year increase in IT budgets of the surveyed CIOs was 6.3%. This is a robust increase, somewhat greater than other surveys have reported. Celent believes that this data is correct directionally-and reflects very positive increases in IT budgets.
• A large majority of CIOs allocate between 1% and 5% of their total budget to R&D.
• Four categories of initiatives consume just over half of total new project resources: policy administration; new business / underwriting / rating; distribution and external portals; and claims.

“Four categories of initiatives consume just over half of total new project resources: policy administration; new business/underwriting/rating; distribution and external portals; and claims,” says Donald Light, director, Americas Property/Casualty with Celent's Insurance Group and coauthor of the report.

Regarding their three year plans for core systems, the survey revealed:

1) All CIOs plan to deal with their policy admin systems over the next three years. Consolidation of multiple systems, wrap and extend, and incremental improvement are the most popular options.

2) Nearly two-fifths of the CIOs plan to wrap and extend their underwriting system.

3) For both claims and billing, replacement with a modern package system is the most common strategy; accounting for about one-fourth of all CIOs.

4) Portals are the only category in which “no plans” is the most popular option (40 percent), though the next most popular option is “rewriting using modern code.”