A new report by independent market analyst Datamonitor has found signs carriers’ use of vendor services is on the rise.[@@]

U.S. insurers will turn more and more to professional services providers and consultants to develop, implement and manage complex technology projects, according to the report, “U.S. Insurance Technology Strategies.” For the first time, (as of year-end 2005), spending on external information technology products will outpace internal IT spending, the report reveals.

Through 2009, investment in external products will grow by 6.5% in U.S. life insurance, compared to 1.4% for internal IT, Datamonitor predicts. It expects non-life external spending to grow at an even faster clip, 7.2%, compared to just 2% on internal spending.

“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,” says Datamonitor, New York. “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 spending on professional services to grow by 5.5% between 2005-2009, driven largely by ongoing re-engineering projects. Systems integration spending will grow even more quickly, at 7.2%, the company adds.

Also, outsourcing will enjoy another wave of interest, driven by the success of infrastructure outsourcing agreements and business process outsourcing, according to Datamonitor.