Total insurance IT spending globally will continue to grow in 2013—but at a slower pace than in 2012—and most of the money spent will go towards maintenance rather than new projects, Celent forecasts.
In a new report, “IT Spending In Insurance: A Global Perspective,” the research and advisory firm says that while IT spending across North America, Europe, and Asia-Pacific will grow to 3 percent to $140.2 billion in 2013, that rate of growth is lower than the 3.5 percent measured for 2012.
Still, Celent expects continued growth—at a compound annual growth rate (CAGR) of 3.3 percent—through 2015, bringing the global insurance IT spending level to $154.5 million two years from now.
Noting that the slower 2013 growth rate is largely driven by regional economic impacts, the Celent report notes that while European insurers currently spend more on IT than North American insurers, by 2015, North American insurers will overtake their European counterparts and account for nearly 38 percent of global IT spending. Currently insurers in Europe account for 36.8 percent of global IT spending, while North American insurers spend 36.4 percent.
IT spending in North America will climb to $58.5 billion in 2015, at a CAGR of 4.6 percent from 2013 to 2015, but European insurers will struggle to get to $53.0 billion in 2015, at a sluggish CAGR of 0.9 percent from 2013 to 2015.
Celent sees the fastest CAGR from will come from Latin America, which represents just 3 percent of global insurance IT spending currently—estimating the Latin American spending CAGR at 6.7 percent from 2013 to 2015.
Overall, across the globe, Celent says that 57 percent of IT spending from insurers in 2013 will go towards maintenance rather than new IT projects.
“Even though economic conditions and the financial crisis have slowed spending on new investments, insurers are often running systems that are too slow and inflexible for their needs. These systems are impediments to efficiency and product development,” Celent concludes.
The Celent analysis reports on property/casualty and life/health insurers, with splits between IT spending for the two segments presented by region. In North America, for example, the report notes that L/H accounts for 39.6 percent of IT spending, with P/C accounting for 60.4 percent.
Because Celent expects P/C insurance premium to rebound more quickly than life, the firm says P/C carriers will be able to spend more on IT “to cut operational costs, gain efficiencies, and deliver differentiated services to agents and customers.”
“North American P/C carriers need to address inflexible legacy systems and to expand technology use in areas like mobile and analytics,” Celent says.
For the purposes of its analysis, Celent’s definition of IT spending consists of outlays on hardware, software, and technology-related services, including both internal and external technology activities. These include spending related to: the management and operation of data centers; hardware and software development; third-party licensing fees; professional fees to contractors and vendor-supplied technology experts; internal technology staff and their management; fees paid to outsourcers; and any other expenditure on information technology or IT management.
The report provides detailed descriptions of exactly what’s included in the internal and external spending components and reports on growth rates for each of the components separately by region.