The Mandate for Growing IT Spending in the Insurance Industry

September, 2020


Insurance providers are at a crossroads. Many have large, complex legacy systems deeply embedded in back-end processes. These require legions of IT personnel to keep them responsive to changing market needs. Now, these established players face new competitive threats from upstarts, unencumbered by legacy systems, able to rethink how insurance services can be delivered to customers in new ways. At the same time, the coronavirus pandemic has thrown a monkey wrench into strategic planning in the insurance industry.

What to do? If at all possible, insurers should keep spending. The need for digital transformation has never been greater.

This Research Byte is a brief summary on IT spending trends in the insurance industry. The full report is available at no charge.

At the beginning of the year, when we conducted our IT Spending and Staffing survey, insurance companies did plan on addressing their legacy systems and turning toward SaaS when possible. As shown in Figure 1 from the full report, every single insurance company in our survey reports increasing budgets on eliminating legacy systems. At the same time, 73% were increasing their spending on cloud applications. Cloud infrastructure and digital transformation are also priorities.

Fig1ITspendingInsuranceIndustry 1030x687 - The Mandate for Growing IT Spending in the Insurance Industry

To make room for all of these changes, you’d expect insurance companies to increase spending. And at least before the pandemic, they were planning to. Of the insurance companies taking our IT Spending and Staffing survey, which relies on three-year data, 63% were planning to increase IT operational spending versus just 6% planning to decrease spending. The median budget increase was 2.8%.

And, as it turns out, these investments could not have come at a better time. The 2020 coronavirus pandemic has put additional pressure on insurance companies to accelerate their efforts on digital transformation. But can they still make those investments in the middle of a recession brought on by a pandemic?

The bottom line is that they have to. The competitive landscape is changing, and the pandemic has just accelerated the pace of change.  Ironically, the very technologies needed to cope with the pandemic—cloud, digital transformation, improved security controls—are also critical to surviving in the new competitive landscape.

“If the lockdowns and recession have any silver lining for insurance firms it is that it has proven once and for all that IT has real business value,” said David Wagner, senior director of research for Computer Economics, a service of Avasant Research, based in Los Angeles. “Companies thriving right now are farthest along on the digital transformation journey. Laggard companies will need to accelerate that journey to make it through the recession.”

The full report analyzes the IT characteristics of the insurance industry with its various sub-sectors, such as  health insurance, life insurance, auto insurance, property and casualty insurance, and other types of insurance carriers), along with the competitive threats posed by digital disruption. Based on our latest benchmarking survey, it provides key metrics for insurance sector IT organizations:

    • Planned levels of insurance IT spending growth
    • Planned levels of insurance industry IT staffing
    • Current adoption of cloud systems in the insurance industry
    • Extent of custom systems in the insurance industry
    • IT investment priorities, including legacy systems modernization, cloud systems, digital transformation, data integration, disaster recovery, data analytics and business intelligence, and data center automation.
    • IT spending priorities in the insurance industry, including information security and privacy, business applications, networking, IT personnel, data center, and end-user technology.
    • The impact of the coronavirus pandemic on insurance industry IT organizations

We conclude with the outlook for increased IT spending and staffing in the insurance sector in the coming years.

This Research Byte is a brief summary on IT spending trends in the insurance industry. The full report is available at no charge.