Posted on 01 Sep 05
As competition heats up, the US Insurance industry is increasingly looking to IT to provide the edge. According to a new report by independent market analyst Datamonitor (DTM.L), signs are that carriers' take-up of vendor services are on the rise. According to the report, "US Insurance Technology Strategies," US insurers will turn more and more to professional services providers and consultants in developing, implementing and managing complex technology projects. The report reveals that for the first time (year end 2005), spend on external solutions will outpace that of internal IT spend. Through 2009, Datamonitor predicts investment in external solutions will grow by 6.5% in US Life insurance, compared to 1.4% for internal IT. Non-Life external spend is tipped to grow at an even faster clip, 7.2% compared to just 2% on internal spending.
Reliance on outside expertise
The ongoing need to re-engineer core systems, the number one area of investment for 2005, coupled with the implementation of regulatory controls is driving spending in insurance. The need for specialized skills, particularly in the areas of Sarbanes Oxley compliance and in migration of legacy systems onto new platforms, will provide a market opportunity for vendors.
Datamonitor expects spend on professional services to grow by 5.5% between 2005-2009, driven largely by on-going reengineering projects, which increasingly require sophisticated mapping and definition capabilities and hence service support.
Systems integration spending will grow even more quickly, at 7.2%, as data integration, compliance and enterprise architecture projects dovetail in the form of overlapping solutions in the next several years.
"The ability of vendors and consultants to address complex implementation scenarios and provide best practices is more important than at any time in the past," says Ed Blomquist, Financial Services Technology Analyst at Datamonitor and author of the report.
Outsourcing is back on the agenda
According to Datamonitor outsourcing will enjoy another wave of interest driven by the success of infrastructure outsourcing agreements and more business process outsourcing (BPO) options.
Datamonitor expects outsourcing to grow 9.9% over the period, with slightly more robust growth coming in the life space. This is largely due to the relative (to non-life) growth in overall IT budgets after 2006 rather than interest in a particular application.
"Outsourcing, a component of services spending, will regain interest from insurers, due to the proven cost savings, more flexible arrangements and increasing outsourcing service provider credibility," says Blomquist. "Whilst the majority of deals over the coming years will continue to be in the area of IT infrastructure including labor-intensive areas like call centers, BPO in insurance will also see a significant increase."