Insurers to take “cautious” approach to technology in 2005: study

U.S. insurers are expected to be a bit more cautious in their information technology (IT) investments in 2005, according to a new study by TowerGroup. Technology spending is expected to remain relatively flat in 2005, at US$36.4 billion compared to US$35.3 billion last year.
“We expect the current climate for insurance to mitigate aggressive technology investments over the next 12 to 18 months,” says TowerGroup senior analyst Cindy Saccocia. IT spending will remain controlled and allocations will be limited to projects of 12 months in duration or less. This conservative approach to spending is problematic because it often inhibits a company’s ability to be innovative. If this is the modus operandi, then insurers must be decisive and not let controlled IT spending compromise longer-term goals.”
Some insurers will take larger initiatives and break them into “tactical projects” which take less time to implement and can show returns as they progress, she adds.
However, much of the technology spending will be done by p&c insurers, where spending should increase 2.5%-10% this year. These projects will be aimed mainly at operations, profitability and distribution, TowerGroup says.
Life insurance IT spending is expected to remain flat, with life insurers challenged by their complex legacy systems.