Financial crisis likely to flatten insurers’ IT budgets in 2009

As a result of the current financial crisis, Celent is predicting insurers’ IT budgets will be flat in 2009 (compared to 2008), despite downward pressure for the next 12 to 24 months, at least.
In its latest report, ‘Bad News on the Street: Insurance IT Strategy and the Financial Crisis,’ Celent suggests insurers would do well to leverage IT investments to create a leaner and more efficient workflow.
“Certainly, all carriers will subject their IT budgets to scrutiny, and certain types of projects that have not yet begun e.g. a Tier 2 carrier’s multi-year project to re-platform core systems at a cost of US$100 million or more may be taken off the to-do list altogether,” the report says.
“But a more likely scenario is that the project will be re-examined, broken into pieces, and repositioned to make sure that it delivers benefits fairly quickly, and in a manner that supports the broader long-term vision.”
Each insurer must decide how it should deal with the multi-dimensional challenges that the crisis presents including lower revenue, painful fixed expenses and real or perceived balance sheet weaknesses, Celent says.
One option might be to adjust criteria used to review and approve new IT projects and initiatives. For example, how will new projects:
make it easier to take business from current competitors?
enable near-term expense reductions (for example, reductions in headcount, IT development, maintenance expenses, printing, mailing or other support costs)? or
reduce leakage in underwriting, claims and reinsurance?