IT Spending in US Insurance

June 10, 2002

Abstract

New York, NY, USA June 10, 2002

Total IT Spending by US Carriers is estimated at US$18 billion, up 7% from 2001.

Despite the general, economy-wide pullback in IT spending since 2000-2001 and the many financial challenges faced by the insurance industry in particular, Celent痴 new report, , estimates that U.S. insurance companies are continuing to increase their technology spending, with 2002 budgets an average of 7% higher than in 2001, for an industry-wide total of US$18 billion. Celent estimates that this average growth rate will hold steady for the next 2 years. Celent estimates that IT spending accounts for approximately 12% of an average insurance carrier痴 non-commission operating expenses. Within IT budgets, expenditures on internal staff consume the lion痴 share, roughly 44% on average, with another 11% spent on consultants. Software licensing and support forms the next largest block, with a 20% share, followed by hardware with 15% on average. Connectivity and bandwidth, in an increasingly networked industry, consume about 8% of overall budgets.

An estimated average of 35% of a carrier痴 IT budget is devoted to new projects and initiatives. Insurance carriers are primarily focusing their new project IT spending on improving customer service, increasing delivery speeds, and cutting costs, in that order. Increasing flexibility to enter new markets and introduce new products is also important, but not as high on the priority list as the first three goals.

"There is a renewed focus within insurance IT spending on short-term, demonstrable ROI,"

says Matthew Josefowicz, a senior analyst at Celent and author of the report. "We urge carriers not to confuse the two. While it is of critical importance to set clear, measurable goals and manage projects diligently, an exclusive focus on short-term ROI can discourage carriers from undertaking much-needed but longer-term and more systemic improvements."

The report includes 14 figures and 4 tables, which are listed in an appendix.

A Table of Contents is available online.

of Celent Communications' Property/Casualty Insurance and Life/Health Insurance research services can download the report electronically by clicking on the icon to the left.

        

Send mail to info@celent.com with questions or comments about this Web site.

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

 

New York, NY, USA June 10, 2002

Return to report Abstract

 

EXECUTIVE SUMMARY 3
OVERVIEW OF U.S. INSURANCE CARRIERS 4
  Products 4
  Insurance Carriers 5
  Primary Product Lines 6
  Geographic Location 7
  Distribution Methods 8
INFORMATION TECHNOLOGY AND INSURANCE 9
  Insurance Life Cycle 9
  Value of Technology 10
  Focus on Communications 10
IT SPENDING ESTIMATES 11
  Current and Future Total IT Spending 11
  Definition of IT Spending 11
  Top Carriers 12
  Large Carriers Dominate 12
IT BUDGET ALLOCATIONS 13
  Staffing, Software, Hardware, etc. 13
  Large v. Mid-Size Carrier IT Budgets 13
  Life/Health v. Property/Casualty 14
  New Projects Budgets 15
NEW PROJECT IT SPENDING PRIORITIES 17
FOCUS ON ROI 18
  Positive Trend 18
  Possible Opportunity Costs 18
CONCLUDING POINTS 19
APPENDIX: LIST OF FIGURES AND TABLES 20
  Figures 20
TABLES 20

 

        

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