Update to "Bad News on the Street, Insurance IT Strategy and the Financial Crisis"

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24 November 2008
Michael Fitzgerald

Since we published Bad News on the Street, Insurance IT Strategy and the Financial Crisis in early October, the economic roller coaster continues to twist and gyrate.One assumption in that report, that there will be a “mild to moderate” recession, is being severely challenged. The mortgage meltdown morphed into a credit confidence crisis which precipitated a consumer confidence downturn, increasing job losses, accelerated by an auto industry meltdown.Suddenly, a question that seemed ridiculous a short time ago seems prudent: “Is $750 billion enough?”

Strange actions have been seen on the street.“Traditional” insurance companies are courting and marrying tiny banks so that they can meet at the TARP alter. Other insurers are vehemently rejecting any government assistance and the resultant “strings” attached.Foreign-owned insurers are directly petitioning the US government for assistance.

Since the report, third quarter numbers have been released and the results are not kind.The third quarter 2008 net income of the largest 25 Property/Casualty and Life/Annuity/Health insurers is 97% below that of last year.(These numbers exclude AIG.)

Discussing the situation with insurers in North America, Celent finds that most are taking a “wait and see” approach to IT budgeting.Strategic projects that are already underway are not being cancelled, but those that were planned to be launched in late 2008 are being delayed.In late October, Celent surveyed CIOs at North American insurance companies about projections for their 2009 budgets.No one reported a decline and 34% said their budgets would remain flat at 2008 levels.When asked to rate this amount against the strategic business and technology objectives they expected, most (75%) characterized this as “adequate”.

Barring economic catastrophe, the next game-changing event will be modifications in regulation.Two central questions loom.First, to what extent will the insurance industry be included in general financial reforms targeted toward banking institutions?Second, which way will the ongoing tug of war between Federal and State oversight go?

A slim ray of optimism exists in rumors that a hard market is coming for commercial Property/Casualty products.We will keep our ears to the ground and our radar on scan for additional developments.

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