March 25, 2010 by Terri Goveia
Global bankers may be announcing the recession’s end, but insurers are slower to agree, even though they’re more positive about the industry’s longer-term prospects.
Insurer may be more optimistic than previous quarters—ranking their outlook for company performance at 3.4 out of 5, compared to 3.0 last quarter; and launching new products—but they indicate that the troubles aren’t fully over, according to global insurers surveyed in Celent’s “Is the Crisis Easing? Q2 Industry Expectations and Strategies” report. Budgets, staffing levels and reconfigured IT strategies still require a recession mindset, according to the survey report, released August 31.
And though their expectations for longer-term performance are high—88% expect performance to be “somewhat” or “considerably” better by this time next year—insurers remain practical about current cost-cutting measures. Well over half (80%) have already frozen discretionary spending and travel, while two thirds are in the process or have already cut staff salaries. And compared to the first quarter, more have taken action on further measures: downsizing is already completed or underway for 62% of respondents, compared to 43% in Q1; and 45% have begun or completed a change in strategy this quarter, compared to 25% in Q1.
“Not surprisingly, insurers have made more progress in implementing tactical responses,” says Craig Weber, senior vice president of Celent’s Insurance Group and the report’s co-author.
What’s more, 67% have finished or are in the process of adjusting their 2009 budgets; 77% had streamlined processes and 70% had refocused on their core businesses in the second quarter. Over half—56%–had outsourced IT processes.
The industry’s IT strategies were particularly hard hit. The percentage of respondents acknowledging a “moderate” or “high” impact on the sector rose to 38% from 31% since Q1, though budget-related reponses were mixed: roughly one-third said their budgets shrank, while the same amount reported higher budgets for the second quarter. IT saw other changes–the report notes that, “in quarter one, 54% of CIOs had no plans to make salary reductions, whereas by the end of Q2, 60% had made this difficult change. This huge swing in a short space of time is a clear indication of how seriously insurers have had to react to current economic challenges.”
When it comes to specific IT projects, respondents show similar caution. Over half of respondents (71%) report revising project portfolios based on new priorities, almost half have changed their level of outsourcing and 70% say they’ve renegotiated terms with suppliers.
In the long run, these measures may pay off. The report cites one respondent–a
senior European CIO –as saying, “we will invest through this downturn so as to be ahead of our competitors when the cycle turns.”
Celent’s survey is the second in a series gauging insurer responses to the economic downturn.
This story was originally published by Canadian Insurance Top Broker.