Has the IT Budget Worm Turned?

As recently as I&T's December issue Financial Services Outlook, in which we reported the survey responses of 140-odd financial services CIOs, it appeared that the days of bountiful budgets might go on for some time and we might escape the scrimping and saving that characterized the industry from roughly 2001 to 2003. However, as the rotten financial news persists, we have to wonder whether, once again, the worm has turned.We already were watching the subprime crisis closely when we published the above-named issue, leading us to remark therein that, "If the confidence of financial services firms was shaken by this year's subprime mortgage lending crisis, it certainly isn't reflected by their IT budgets for 2008." The opinions of our insurance industry respondents didn't differ greatly from those in the other financial service verticals, and in the sometimes unpredictable sector of P&C, for example, more than 70 percent reported budget increases of at least 10 percent, and 15 percent of respondents cited even larger boosts in planned spending. In the absence of any big surprises, it's hard to imagine that these figures will be replicated in the budgets for 2009.

As I've written elsewhere, some industry observers are seeing signs of retrenchment. TowerGroup's David West says he's talked to executives who are preparing to scale back. Deloitte's Rebecca Amoroso sees a slightly milder picture, where she reports "hearing more about how [carriers] are going to spend their limited funds as opposed to their lack of spending."

Whether insurance IT budget makers tend to be more bearish or bullish, it may be that, in light of both proven technological advances and improved IT governance, CEOs and CFOs are more comfortable with technology investment in the face of adversity. My conversations with the above observers and several others indicate that more insurers see the competitive importance, if not necessity, of technology and are accordingly either planning transformation efforts or planning to sustain existing ones. Carriers who have reached a comfortable technological plateau may hold back on major initiatives in the near future, but those who have already embarked on transformational projects will stretch out their deliverables rather than suspend initiatives outright, my correspondents suggest.Whether insurance IT budget makers tend to be more bearish or bullish, it may be that, in light of both proven technological advances and improved IT governance, CEOs and CFOs are more comfortable with technology investment in the face of adversity.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio