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2003 IT Spend To Rise Only Slightly

Industry analysts predict insurance companies will focus on infrastructure and enhancing legacy systems.

As the insurance industry moves into 2003 retaining its cautious mind-set regarding IT spending, analysts and insurance executives alike don't expect to see sudden upswings in IT spending or a sudden shift to a new cutting-edge "hot" technology.

Instead, while Wall Street and insurance industry analysts are staring at carriers trying to determine their next moves, the carriers themselves won't even notice the probing eyes, since most will be looking inward to fix internal IT problems.

"There is still a mess in many of the carriers' core systems, especially in the policy administration areas," says Scott McConnell, vice president at Cap Gemini Ernst & Young (New York). "They are working to bring more efficiency to much of their operations."

Legacy Clean-Up

Paul McDonnell, managing director and insurance segment leader, BearingPoint (New York) also sees insurers in all lines of business cleaning up their internal acts. "There are a lot of issues regarding the hygiene and cleaning up of the core infrastructure systems," he says. "Companies will be looking at consolidating multiple legacy systems to remove redundancy."

In order to make their consolidation efforts easier, a favorite tool of IT shops will be technology that uses Web services, according to Matt Josefowicz, insurance industry analyst with Celent Communications (New York). "Web services will help solve internal integration issues in the near term," he says, "before insurance companies explore using Web services for integration with business partners. The 'Buck Rogers' Web services where companies link to one another's systems will happen in other industries before we see it in insurance."

Kimberly Harris, insurance analyst at Gartner, Inc. (Stamford, CT), also predicts that Web services will be a big focus for carriers in 2003. "Web services will help carriers that are looking to renovate, modify and even replace policy administration systems" she says. "Web services can have a major impact on legacy issues, and companies are just beginning to understand the power of XML and Web services."

But just because insurers are fixing internal problems doesn't mean carriers will not be spending on new IT. In fact, despite popular opinion that many insurers have cut back drastically on spending, Celent's Josefowicz says spending was not down at all during 2002.

"The growth rate may have been down from the aggressive growth rates in the late '90s," Josefowicz says. "But we see IT spending increasing at a modest seven percent in 2003." CGE&Y's McConnell offers a more conservative estimate that spending could remain flat or increase as much as four percent.

Still, don't expect insurers to begin throwing IT money around. "It is going to be quite a while before you see the purse strings as loose as they were in the '90s," says Don Buskard, chief technology officer at AXA Financial (New York, 2001 assets under management of $480.9 billion). "We are closely looking at the spending, and we are of course looking for a reasonable ROI in a short period of time. We have spent a lot of time on the IT governance process."

ROI Is Here To Stay

Jean Delaney Nelson, vice president of information services at Minnesota Life (St. Paul, $21.2 billion in assets), also sees a continued strong focus on ROI and quick deliverables. "Projects that are not too complex and can show good value will be given higher priority," says Delaney Nelson.

But even though carriers will be looking internally, it does not mean thatcustomer-facing and front-office technology will be completely ignored. "Insurance companies are realizing the value that technology can have in the distribution channels, and they will be investing in distribution technology," says CGE&Y's McConnell. "Good technology to support a distribution channel is a competitive advantage." For instance, AXA Financial is currently in the process of rolling out a new browser-based agent workstation that will give agents more functionality and information than they ever had before, explains Buskard.

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio

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