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Life Health > Life Insurance

Survey: Top IT expense at insurers is internal staff

By Warren S. Hersch

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New hardware and software for insurance companies can come with big price tags. But new research shows that the companies spend nearly twice as much on existing IT equipment than on new solutions.

Novarica, a research and advisory firm specializing in insurance technology strategy, unveils this finding in a 2015 benchmarking report. Based on 69 responses from the Novarica Insurance Technology Research Council, the study highlights key issues to consider when benchmarking.

The report reveals that insurers spend on average 20 percent of their information technology budgets on maintenance fees for IT solutions they own. This compares to 11 percent for new hardware and software. (See chart below)

The largest percentage of their IT budgets (41 percent) is allocated to internal IT staff. An additional 9 percent is spent on other IT-related needs.

The benchmarking report additionally finds that insurers allocate:

  • About 50 percent their IT budgets to running the businesses.

  • 30 percent growing their businesses, and

  • 20 percent transforming the business.

The study also notes that:

  • About half of large insurers and less than 10 percent of midsize insurers have mostly outsourced IT staffs.

  • The average number of IT staff per enterprise application ranges between 3 and 6.

“One of the benefits of this report is that it takes a supply and demand approach to IT rather than focusing exclusively on spending levels,” the report states. “The supply and demand approach contextualizes spending levels (supply) against company size, new project volume and current state of the organization, technology infrastructure, and product volume and complexity (demand), which can help participants better understand the significance of peer data.”

The report adds that external benchmarking data is used by insurer CIOs for self-assessment and communication with senior business management. Benchmarking data can aid in spending and budgeting decisions, as well as highlight areas of concern.

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