We just completed our 12th annual study of Insurer IT Budgets and Projects. While IT budgets vary by size and sector, all are up slightly from last year, reaching an average of 3.9%. Most insurers are planning for increasing or stable budgets in the coming year.
Historical patterns generally remain consistent for budget breakdowns, with staff remaining the largest expense area. On average, insurers will spend an average of 40% of their IT budgets on internal staff and only 10% on new hardware and software investments. However, there is significant variability by size and sector.
Core systems replacement projects remain common for P/C insurers, but there is a continuing shift toward digital and data/analytics. More than 50% of insurers are planning for new systems or major enhancements in portals, business intelligence, and predictive analytics.
Business leaders are simultaneously looking for new capabilities and cost savings. Speed to market, distributor ease of doing business, and BI/analytics are the most common priorities for IT, but 38% of P/C insurers and 48% of L/H/A insurers also prioritizing reduced operating expenses in 2020.
However, as our Three Levers of Value framework notes, “Cost Less to Operate” is a challenging lever, although it seems like the easiest one. Although technology often creates operating efficiencies and productivity gains, it can be difficult for IT leaders to get credit for cost savings unless there are actual hard dollar savings through staff cuts. Additionally, most technology investments are not about cost takeout by automating existing processes or practices—they are about deploying new capabilities, which usually means new expenses.
Other top goals for insurers include improving distributor service and speed to market, which is related to our first lever, “Sell More.” And Business intelligence and analytics is also a high priority goal, tied to the second lever, “Manage Risk Better.”
Overall, insurance IT spending is expanding in 2020 as insurers increase their digital and data/analytics capabilities to push these levers to drive business value.
Security spending is also on the rise, with security now consuming an average of 12% of total IT budgets, up from 10% a few years ago. While this spending is helping insurers manage risk better, insurers’ would rather be investing in improving their ability to manage underwriting risk, which drives profitability. Of course, as any frequent flier knows, you have to secure your own mask before helping others.
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