2009 IT Budgets: Insurers Value Long-term Strategy Over Short-term Tactical Gains

In an effort to avoid sacrificing long-term strategic plans for short-term tactical gains, those carriers that are able to are demonstrating patience with regards to their 2009 IT spending plans.

As far as the insurance industry is concerned, there was no such thing as a finalized IT budget for 2009. Most CIOs had their budgets in hand in January, but none knew just how far the economy would fall, how their organizations would fare or how technology spending would be affected as a result.

As it turns out, they're still not sure. Optimists can point to signs that an economic recovery is around the corner. And pessimists needn't look far to find indications of further doom. But while the overall economic picture remains in flux, insurers' IT budgets seem to be falling into two key categories: those with a view toward the future and the strategic deployment of technology, and those that are taking a more tactical approach to technology in an effort to realize short-terms goals and ride out the recession.

"I see two diametrically opposed positions," says Mike Sciole, CIO of Burlington, N.C.-based Burlington Insurance Group and Hartford-based Guilford Specialty Group ($315 million in combined direct written premium). "Some companies are opting to execute tactical projects they believe will provide a short-term boost, and they've abandoned their long-term strategic objectives. Then there are other companies that are staying the course, being patient and very methodical about executing their [long-term] strategy."

It's the carriers in the latter group, Sciole suggests, that are preaching discipline and patience and expect the output of their long-term strategy to position them best competitively as the economy emerges from crisis. A key virtue, he notes, is responding to current business trends while remaining methodical and focused on strategic plans.

In the current environment, however, those companies that have been hardest hit simply don't have the luxury to be so disciplined. Many in the life insurance industry, which by and large was harder hit than the property and casualty sector, simply cannot afford to sacrifice short-term savings and premium growth goals for a larger scale strategic vision.

Understandably, in many ways the distinction between strategic and tactical approaches to 2009 IT spending falls along the line between the P&C and life insurance industries. According to a recent Novarica survey, nearly two-thirds of life insurers said they were somewhat or drastically cutting the IT budgets they set at the beginning of the year. A number of life insurers have postponed major policy administration projects, adds Matt Josefowicz, director at Novarica.

"The life and annuities side has gotten hit a lot harder by what's going on right now," Josefowicz explains. "Not only have they had significant investment losses, but they've got real challenges in the marketplace as well. So many of them have relied on wealth management-type products rather than pure protection-type products. Those [wealth management products] are very discretionary, so they're facing issues in terms of top line sales volumes as well as investment losses."

Aside from a few insurers whose deep financial troubles have been documented by the mainstream press, carriers of the P&C variety find themselves in a much healthier position, according to Josefowicz. Most P&C operating execs, he says, remain upbeat about what's going on in the market, and about two-thirds of P&C insurers are sticking to their initial IT budgets or even increasing investment.

Those P&C companies that are making cuts, Josefowicz adds, are focused on reexamining their "customer invisible" projects, such as infrastructure and document management, as increased competition has led many to keep their customer-facing initiatives running full-speed ahead. "On the property and casualty side, in a lot ways the economic crisis has just served to make a competitive market more competitive," he asserts. "The overall market, while it may be shrinking a few points -- most companies in the space aren't in any kind of serious crisis."