Analysis from research and advisory firm Celent shows that global insurance and reinsurance industry IT spending is expected to reach $184.8 billion by the end of this year.
Celent estimates IT spending, on software technology and infrastructure as a percentage of premium and says that digitalisation, data analytics, and legacy and ecosystem transformation still dominate investment in technology in the insurance and reinsurance industry.
“In a few markets globally, we have seen a slight reduction in IT spending this year. Generally, the more mature markets remain under pressure to demonstrate value through efficiency,” Senior Vice President at Celent Jamie Macgregor said.
When it comes to technology adoption and transformation of legacy IT systems, different geographical regions are at different stages of maturity.
Developing markets are particularly aggressive in their focus on new platform acquisition and technology in support of sales distribution, Celent explains in its latest report on the sector. Where as the more mature re/insurance markets are focused on digital transformation and modernisation.
“Digitisation and, increasingly, analytics are a dominant piece of the technology investment agenda, with a clear focus on the front end of the business in sales and distribution,” Macgregor added.
Increased spending on IT, technology and software is expected to continue in insurance and reinsurance, with global IT spend expected to reach as much as $202.1 billion by the end of 2018.
Insurers and reinsurers remain hampered by legacy systems in many cases, the costs of replacement of these could be a drag on their earnings as spend to modernise increases, but the costs of not addressing these and not moving to more modern software and IT configurations could be more expensive.
Re/insurers are also spending money on investing in third-party IT and software companies, the insurance technology or InsurTech wave. This is an additional expense and as with other sector’s venture investing many of these investments will prove not to be fruitful, in terms of adding to the bottom-line, while a few may be extremely profitable for the companies taking this route to IT modernisation.
Of course, there is a risk that becoming blinded by InsurTech investment opportunities, while not addressing legacy system issues may result in companies being unable to take full-advantage of front-end or customer facing benefits that new start-ups can offer.
Hence resolving legacy issues and having a modernisation program is as important as the innovative or modern in insurance and reinsurance IT and companies would be well-advised to ensure both are a focus.