Insurance IT spend to hit $101 billion globally in 2015, says IDC

Global insurers will increase IT spending to almost $101 billion in 2015, a 4.4 percent yoy increase compared to 2014, according to market research firm IDC.

“We expect the global insurance industry to invest more rigorously in technologies, and project global IT investments rising to almost $101 billion this year as these support campaigns to boost efficiencies and innovation,” said Li-May Chew, CFA, associate research director, and global lead for IDC Financial Insights’ Worldwide Insurance Advisory Service.

Geographically, the emerging markets continue to shine. While cumulated spending for these nations may still be a comparatively smaller $19 billion, this will rise at a 3-year CAGR of 6.7 percent between 2015 and 2018, which is double that of mature nations.

While, the 3-year CAGR in mature nations is expected to be 3.1 percent and globally to be 3.8 percent.

Herein, IDC sees especially noteworthy IT developments within the insurance sectors of the Big Five BRICS economies (of Brazil, Russia, India, China, and South Africa); Chile, Colombia, Mexico, and Argentina in LATAM; and the Southeast Asian countries such as Thailand, Indonesia, Malaysia, and the Philippines.

Chew sees investments centering around new core applications development and management such as data warehousing, claims and policy administration systems. “These replacements or refreshes are required as legacy IT systems become increasingly complex, inflexible, and archaic, to the point of negatively affecting technology integration and interoperability.”

Insurers are further spending on change transformation and business optimisation initiatives to augment productivity and support intermediaries, as well as in knowledge management, business analytics and customer relationship management applications to improve underwriting insights, raise customer centricity and intimacy. Also critical is the need to enhance not just the intermediated distribution channels comprised of insurance agents, brokers and bancassurance, but also newer, disintermediated digital portals of the Internet, social platforms and mobile delivery.

Chew added that insurers are cognizant that strategic execution needs to be technology-enabled and are hence proactively embracing technology-driven innovation. She is thus confident that their budgets for such deployments will continue to rise alongside, and oftentimes, quicker than annual premiums growth.

In addition, IDC shares nine other predictions:

-- Legacy modernisation will gather momentum with zero-tolerance for infrastructure failure and demand for reliability and availability, driving the adoption of modular approaches to upgrades and replacements; meanwhile, the value proposition of cloud will continue to strengthen

-- Insurers will be under pressure to enhance processes efficiencies and reduce cost for core operational functions such as policy administration, underwriting, and claims performance; focus will be on transforming the IT enterprise with effective reengineering programs

-- Customers will be increasingly shaping the policyholder-insurer relationship and influencing insurers’ customer-centric strategies; marketing heads will collectively spend $6.6 billion in 2015 to enhance the total customer experience

-- Big Data Analytics will transition from descriptive applications to predictive and even prescriptive capabilities, with these serving to create data-driven insights and enhance propositions to customers

-- Insurers’ channel outreach will be increasingly digitally driven, transforming their distribution delivery with up to a third of premium sales transacted via Internet-enabled computer or mobile devices and social networks by 2018

-- Despite the rising popularity of direct distributors, intermediated channels will continue to dominate at up to 70 percent of global premiums; Insurers focused on agency or broker management will need to inject these with a new lease of life

-- As the threat of fraud heightens with the digital revolution, insurers will need to spend $3.3 billion in 2015 to invest on information security and to counter financial crimes

-- Rigor on risk management will continue as insurers enter an era of re-regulation; risk and compliance are more than just threats but opportunities for value-creation that insurers have to embrace without stifling innovation

-- Potentially game-changing, disruptive technologies stemming from the Internet of Things (IoT) evolution will raise insurers’ competitive advantage, but such radical innovations need to be closely aligned with strategic objectives

As insurers currently undertake renovation of their legacy systems and upgrade to newer, more innovative infrastructure, IDC Financial Insights recommends that they utilise this as the opportune time to make a quantum leap and incorporate wholesale transformations (built on 3rd Platform technologies around mobile computing, cloud services, social networking, and Big Data analytics) into their IT organisations.

“Emerging technologies are driven by an experiment and learn culture and hence failure is a distinct possibility. Insurers have to be prudent in developing a portfolio mindset for their innovation projects, be ready to write off sunk investments, and cut loses for seemingly ineffective projects.”