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Capabilities, Complexities, and Budgets

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24 July 2016
Karlyn Carnahan

Abstract

Insurance is being transformed by rapid changes in information technology, skyrocketing customer expectations, rapidly evolving distribution models, and radical changes in underwriting and claims. How are IT organizations changing to accommodate the new capabilities they’re delivering, and how are budgets shifting to accommodate this transformation?

In this environment, IT leaders have had to become very smart about how to run, grow, and transform the business with relatively stagnant budgets. The most effective IT leaders have assumed a strategic role in guiding their companies.

A growing number of leaders have made understanding and maximizing the value of IT a critical part of their missions. Insurers that have moved toward an outcome-based measure of IT value are increasing, and CIOs using value-based metrics are increasingly seen as more strategic members of the teams.

Most carriers have not increased IT resources significantly to meet these challenges. Insurer IT budgets have stayed fairly flat as a percentage of premium over the past 10 years, although the percentage spent on maintenance is shrinking as carriers invest more in new capabilities.

Looking out for the next two to five years, Celent believes that carriers will continue to rapidly deploy new technologies. Measurements of IT value will continue to mature and shift toward value metrics (those looking at the outcomes of cost, time, and value improvements) to rate the performance of IT. This will enable a more informed debate over where to spend scarce IT dollars.

“For many insurers, the approach toward IT budget construction and the measurement of value remains rooted in a traditional approach of centrally planned budgets and top-down portfolio metrics which can mask where IT value is being delivered,” says Karlyn Carnahan, a research director with Celent’s Insurance practice and author of the report. “IT organizations that are seen as more strategic are more likely to measure the overall financial impact of technology delivered.”

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