Insurance companies plan to spend most of their technology budets on data and analytics, cloud, and insurtech, according to new research from Celent.
Worldwide technology spending by insurers is slated to reach $185 billion this year, according to the researcher’s “IT Spending in Insurance 2017” report. That represents a two percent decrease year-over-year.
The study, surveying more than 50 carriers, hints North America is the catalyst behind the drop off in total spend. IT spending in the region is expected to decline six percent to $73 billion, compared to Europe and Asia whose tech spending habits are steadily rising. The dip is credited to CIOs downward projections for IT investments as a percentage of premiums, Celent says.
North American carriers still lead the pack in technology investments, however, according to the report; followed by Europe at $69 billion, Asia ($33 billion), Latin America ($5 billion), and a group of territories categorized as “other” by Celent, including Africa, the Middle East and Eastern Europe at around $5 billion, collectively.
“The difference is the amount of money available to spend on IT varies by region,” said Karen Monks, an analyst in Celent’s North American insurance practice, adding carriers are actually working to invest more strategically in IT. “Long-term projects taking tens of millions of dollars are not acceptable anymore. It’s about turning them around quickly to satisfy today’s customers at low costs.”
Celent forecasts insurers will spend their IT budgets on analytics capabilities, retiring legacy systems in lieu of cloud for core, and upgrading websites, mobile applications and portals for a more user-friendly experience. Industry efforts to leverage insurtech, through venture capital arms or accelerators, will be dominated by North American and European tier-one and two companies, Monk says.
“Insurers want the best risk pools, the cheapest operations in the background, and the best products to market to customers,” said Monk.
Each focus area is interrelated and an indication of what technology will look like in the future, she adds. Cloud for core offers more flexibility and is inexpensive to maintain. A combination of digitalization and insurtech improves client experience, core products, and data available for insurers and customers to gather. Analytics, in the form of artificial intelligence, can even take over for people as customer service reps in the future.
“Digitalization is happening at a rapid pace, which is not unexpected,” said Monk. “What is more surprising is how quickly insurers are adopting cloud. Insurtech also moved so fast last year it was hard to keep up.”
Monk co-authored the report with Jamie Macgregor, SVP of Celent’s insurance practice, and fellow analysts Juan Mazzini and KyongSun Kong. Additional research support was provided by Swiss Re Sigma.