Global insurance information technology budgets will grow at a 6.5 percent compound annual growth rate (CAGR), with total IT spend reaching $109 billion by 2017, according to a new report from the analyst and consulting firm Ovum Ltd.
“Insurers are prioritizing investment that will drive customer acquisition and retention and improve operational effectiveness,” Ovum writes in an executive summary of the survey’s results. “This is a stark change from the five years of substantial IT budget cuts, which were necessitated by the global economic slowdown.”
The Ovum report forecasts the highest level of IT spending among life insurers to be in the Asia-Pacific region, with companies’ budgets expanding at an 11.6 percent CAGR to 2017, overtaking Europe as the second-largest regional market. Insurers’ IT priorities in emerging Asia-Pacific countries include the implementation of “core processing platforms” and the development of “digital channels to capture the rapid market growth.”
European life insurers, now focused on reducing operating costs, will use IT dollars to modernize legacy systems, online channels, and fraud detection systems, the report adds. Ovum expects annual IT spending in Europe to grow at a 3.9 percent CAGR — the lowest rate by geographic region worldwide — peaking at $5 billion by 2017.
"The sharp decline in new business growth across all life insurance markets following the global slowdown led most insurers to rapidly and significantly cut their IT budgets," says Charles Juniper, Ovum’s senior insurance analyst of financial services technology. "However, accelerating year-on-year growth in 2013 following some cautious expansion from 2011 confirms that life insurers are now moving from a cost-cutting mindset toward reinvestment in strategic IT projects."
The report notes also that North American insurers are implementing digital channels, particularly mobile and social media, due to regulatory requirements.
“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," says Juniper.