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Anthony O'Donnell, Maria Bruno-Britz and Penny Crosman
Anthony O'Donnell, Maria Bruno-Britz and Penny Crosman
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Financial Services Firms Increasing Spending, But Priorities Differ

Spending is increasing among financial services firms across the insurance, banking and securities/capital markets sectors. But priorities differ, according to a joint survey conducted by Insurance & Technology and its sibling publications, Bank Systems & Technology and Wall Street & Technology.

If the confidence of financial services firms was shaken by this year's subprime mortgage lending crisis, it certainly isn't reflected in their IT budgets for 2008, judging by a joint survey of insurance companies, banks and securities firms conducted by Insurance & Technology and its sibling publications, Bank Systems & Technology and Wall Street & Technology. The responses of roughly 140 senior technology officers from representative companies in the various financial services verticals indicate a continuation of the better budgetary times that have been the rule since the economic turnaround following the dot-com bust.

A closer look at spending priorities, however, shows anything but a "fat and happy" picture, as companies seek to invest in technologies that can help distinguish them in a time of intense competition. Furthermore, much spending may be characterized as essential rather than discretionary, as companies grapple with labor shortages and compliance demands. But whether driven by opportunism or necessity, financial services IT organizations are getting more money to spend.

The great majority of insurance companies continue to enjoy at least modest budget increases. More than 70 percent of respondents from the least predictable sector, property and casualty, reported budget increases of up to 10 percent, with 15 percent reporting even larger gains. More life insurers (25 percent) reported modest decreases in spending, but among the 75 percent that reported increases, a greater proportion (17 percent) indicated budget increases of more than 10 percent. Health insurance respondents reported increases across the board, with an average increase of about 20 percent.

These figures indicate a continuation of the more opportunistic investment seen since 2002/2003, when the only business cases approved needed to include a direct IT cost take-out, according to Matt Josefowicz, Boston-based Celent's insurance practice manager. "Cost take-out is not enough to get projects approved now," Josefowicz contends. "Companies are now looking for the creation of some business advantage, and that means the creation of some kind of productivity enhancement or new business capability."

That characterization is borne out by the top three areas of IT spending increases reported by survey respondents. Each insurance sector identified application development as a top priority, with P&C respondents choosing it most often (63 percent). Health insurers identified enterprise applications most often (67 percent) and life insurers more consistently identified security among the top three areas of spending increase (67 percent).

In terms of the top three initiative priorities, creating or upgrading customer portals was high on every sector's list, but highest on that of P&C companies (37 percent). Life insurers identified "accelerating applications and building SOA" most often, and health insurer respondents most often chose business process management.

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