Insurer budgets and priorities for 2022 look like those of prior years, but they also reflect adjustments to competitive and market changes the pandemic has brought. In most cases, insurers are adapting by placing additional focus on things that have been priorities for a long time.
I recently had the opportunity to emcee an Insurer Client Virtual Panel webinar session to present findings from Aite-Novarica Group’s latest Insurer IT Budgets and Projects reports for property/casualty and life/annuity/benefits insurers. My colleagues Rob McIsaac and Martina Conlon lent their expert insights drawn from dozens of conversations with insurer IT executives across all lines of business.
Budgets and Staffing Are Consistent with Prior Years
Insurer IT spending is expected to rise in 2022 to 4.1% of written premium. This figure is a high-water mark for insurers, relatively speaking. It is slightly higher than 3.8% in 2021 and 3.9% in 2020, but a variance of 0.2%-0.3% each year is fairly normal.
Staffing levels are also consistent with previous years, and insurers are focused on maintaining the current staffing levels. There are no significant changes in outsourcing and spending ratios.
Talent Remains a Challenge as Insurers Adapt to Hybrid Work
Talent is always near the top of insurer CIOs’ challenges. Insurers are feeling additional pressure this year as an increase in hybrid and remote work across many industries creates more competition and greater flight risk for key workers. Staffing levels are consistent with previous years, and insurers are focused on maintaining the current staffing levels. There are no significant changes in outsourcing and spending ratios.
Insurers are also feeling the effects of the “Great Resignation” phenomenon as older employees retire early and younger employees seek other opportunities.
Many insurers also indicate human bandwidth issues, especially around executing complex project portfolios. These resource issues extend to solution providers, system integrators, and outsourcing vendors who are grappling with the domestic and international consequences of the most significant labor market changes economists have witnessed since the respective ends of the World Wars.
Like talent, prioritization is often a concern for insurer CIOs. The pandemic seems to have thrown the issue of governance and resource allocation into sharper focus. Insurers should be particularly concerned about knowledge management and key person dependencies.
Digital Remains a Top Priority
Insurer business priorities are similar to those of prior years, with a particular emphasis on digital capabilities. Some of this is a holdover from last year, especially for life/annuity/benefits insurers, for whom the sudden onset of lockdowns and remote work exposed process gaps that they’ve been working to fix.
Among property/casualty insurers, larger insurers have a particular emphasis on digital workflows. This partly reflects adaptation to hybrid work models and indicates benefit recognition from core system modernization efforts, as better core capabilities allow for automated application of business rules and decision-making. Midsize insurers focus on distributor ease of doing business and executing product changes quickly.
Insurers of all kinds are also investing in digital marketing and increasing customer engagement online. Many insurers are prioritizing digitalization through e-apps, e-signature, and e-issue and investing in data and IT operations to improve business processes and reduce operating costs.
Business intelligence has been a focus for insurers for years, and they continue to invest in these areas. High numbers report that they plan substantial enhancement activities to their data warehouses and analytics capabilities. Many of these projects leverage cloud migrations.
A Return to Typical
Broadly speaking, insurer budgets and investments look like they have in prior years. My colleague Jeff Goldberg even quipped that all in all, it looks like a return to typical for insurers. Digging a bit deeper, we can see the continued influence of the pandemic on insurers, as perennial priorities like digital and challenges like talent take center stage.
The pandemic may have intensified challenges for insurers, but the underlying nature of the insurance business hasn’t changed. Insurers need to be able to gather information and evaluate risks, communicate clearly and effectively to stakeholders and distribution partners, and bring innovative products to market quickly.
Insurer IT spending levels overall are at a high-water mark. Still, it remains to be seen whether these are temporary tactical investments, long-term strategic support, or normal year-to-year fluctuations. Technology can enable all parts of the insurance value chain, but it requires continued investment in the underlying systems and people that enable it.
The recording from this session can be accessed here. The full 2022 Budgets and Projects reports are also available for property/casualty and life/annuity/benefits insurers.
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