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TowerGroup: Insurance IT Budgets Will Be Flat

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NU Online News Service, March 28, 2003, 12:51 p.m. EST – The insurance industry will spend about as much for information technology this year as it did in 2002, according to a new report from TowerGroup Inc., Needham, Mass.

The research firm estimates insurance IT budgets will increase at a rate of only 1% to 3%, compared with increases of 3% to 6% last year.

Jamie Bisker, the TowerGroup analyst who wrote the report, is blaming the tight budgets more on fierce competition than on the economic downturn, and he predicts that budgets will be tighter at life insurers than at property-casualty insurers.

“Life insurance has recently enjoyed larger IT budgets than other lines,” Bisker writes. “This correlates with the emphasis placed on the sale of financial products and the need for fast growth of modern distribution infrastructures to support increased sales activity.”

But Bisker says the stock slump is taking a toll.

“Life and health [insurers have] been more constrained recently, though in the past they outspent property-casualty insurers,” Bisker said in an interview. “Life-health always tends to be a little out of cycle with property-casualty.”

Bisker is recommending that insurers maintain “technology reserves” to ensure that they can complete major computer-related projects.

“Some already do it,” Bisker said in the interview. “It’s just prudent financial management. You must invest wisely in making strategic decisions, not just reactive ones. If [insurers] had strategic reserves, they could proceed with important strategic investments.”