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David West, Research Area Director, Insurance, TowerGroup
David West, Research Area Director, Insurance, TowerGroup
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Exclusive Research Report: Insurance IT Spending Slowdown Already Upon Us, TowerGroup Says

While past profits will soften the blow on IT spending, the current down market will result in budget constraints for North American insurers. But spending on improving ease of doing business, agency support, customer interaction and enterprise risk management likely will increase.

The current down market will result in technology budget constraints for North American insurers.

As the credit crisis resulting from the collapse of the U.S. subprime mortgage market continues, the insurance industry's protection from its impact appears to be crumbling. This storm surge has not damaged the insurance industry to the same degree that it has hammered the banking and other financial sectors -- nor will it. But just as a rising tide floats all boats, a falling tide will cause some insurers to get stuck in the mud.

Although TowerGroup previously observed an upward trend in insurance carriers' IT spending with an anticipated slowing in spending by 2009, our latest research suggests that the slowdown already is upon us. A number of carriers indicated to us that they are revisiting their 2008 budgets with an eye toward belt-tightening. There are some bright spots on the horizon, though. >>

Despite the slowdown in IT spending anticipated during 2008 and 2009, some critical initiatives will require increases in spending. TowerGroup sees a shift in spending from customer relationship management (CRM) to performance management and enterprise risk management (ERM) systems. Survey respondents indicated that their companies' spending for ERM is likely to accelerate as 2009 approaches.

Carriers also will spend more to increase ease of doing business, especially in agency portals and customer self-service. To support these initiatives, insurers will modestly increase their spending on service-oriented architecture (SOA) and straight-through processing. Driven by the need to do more with less, insurers also will look to business process outsourcing (BPO) as a more cost-effective means of running the business.

P&C: Renewed Budget Discipline

On the surface, the property and casualty industry appears to be doing remarkably well. 2007 represents an unprecedented third year in a row in which the industry posted underwriting profits. Policyholder surplus remains strong. Barring a major catastrophe, the potential exists for a fourth year of underwriting profit. However, the soft market has caused premium volume to drop for most lines of business in a trend that is expected to continue through 2008, which will translate to a leveling off of IT spending for most P&C carriers. The reduction in IT spending will be more pronounced for those carriers feeling the impact of the economy more than others.

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