Capabilities, Complexities, and Budgets

by Karlyn Carnahan, July 25, 2016
Industry Trends
North America

Abstract

Insurance is being transformed by rapid changes in information technology, skyrocketing customer expectations, rapidly evolving distribution models, and radical changes in underwriting and claims. How are IT organizations changing to accommodate the new capabilities they’re delivering, and how are budgets shifting to accommodate this transformation?

 

In this environment, IT leaders have had to become very smart about how to run, grow, and transform the business with relatively stagnant budgets. The most effective IT leaders have assumed a strategic role in guiding their companies.  

A growing number of leaders have made understanding and maximizing the value of IT a critical part of their missions. Insurers that have moved toward an outcome-based measure of IT value are increasing, and CIOs using value-based metrics are increasingly seen as more strategic members of the teams.

Most carriers have not increased IT resources significantly to meet these challenges.  Insurer IT budgets have stayed fairly flat as a percentage of premium over the past 10 years, although the percentage spent on maintenance is shrinking as carriers invest more in new capabilities. 

Looking out for the next two to five years, Celent believes that carriers will continue to rapidly deploy new technologies. Measurements of IT value will continue to mature and shift toward value metrics (those looking at the outcomes of cost, time, and value improvements) to rate the performance of IT. This will enable a more informed debate over where to spend scarce IT dollars. 

“For many insurers, the approach toward IT budget construction and the measurement of value remains rooted in a traditional approach of centrally planned budgets and top-down portfolio metrics which can mask where IT value is being delivered,”  says Karlyn Carnahan, a research director with Celent’s Insurance practice and author of the report. “IT organizations that are seen as more strategic are more likely to measure the overall financial impact of technology delivered.”

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Research Questions

1

 

Key Findings

1

Introduction

3

 

Key Research Questions

3

 

About the Survey Participants

4

IT Organizational Value

5

 

Importance and Value of IT

5

 

Measuring IT Value

7

 

The Scorecard

9

 

IT Reporting Structure

9

 

Staffing Levels

13

Complexity and Capabilities

14

 

Organizational Complexity

14

 

Deployment of IT-Enabled Capabilities

16

 

Budgeting for Growth

17

Budgets

19

 

Typical Budget Breakdowns

20

 

Operating Expense / Capital Expense

20

 

Allocating the Cost of IT

22

Conclusion

23

Leveraging Celent’s Expertise

24

 

Support for Financial Institutions

24

 

Support for Vendors

24

Related Celent Research

25

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