Insurance firms no longer cutting IT costs as they pursue growth

The insurance industry stance on IT projects has shifted from cost cutting to strategic investments in operational efficiency and new revenue growth, according to Ovum.

The technology analyst has forecast that sector spending on IT budgets will increase 6.5%, annual compound growth, through 2017. Ovum said insurers were prioritising investment that will drive customer acquisition and retention – adding that this was a stark change from five years ago when substantial cuts were necessitated by the global economic slowdown.

“As insurers emerge from short-term cost-cutting, they should all, at the very least, be re-assessing their current IT approach to ensure sufficient focus is given to revenue-growth initiatives and to prevent becoming stuck in a 'maintenance only' IT strategy," said Charles Juniper, senior insurance analyst at Ovum.

Ovum added that for European life insurers the key business priority was reducing operating costs. It said this is driving IT investment in legacy system modernisation, online channels, and fraud detection systems.

The report said: “Legacy systems are not a new concern, but market conditions are now forcing insurers to address the problem. Ovum expects to see continued expansion of IT budgets in support of consolidation/transformation and core system replacement projects, with an annual spend of nearly US$5bn by 2017.”