IT Spending in US Insurance

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10 June 2002


New York, NY, USA June 10, 2002

Total IT Spending by US Carriers is estimated at US$18 billion, up 7% from 2001.

Despite the general, economy-wide pullback in IT spending since 2000-2001 and the many financial challenges faced by the insurance industry in particular, Celent痴 new report, , estimates that U.S. insurance companies are continuing to increase their technology spending, with 2002 budgets an average of 7% higher than in 2001, for an industry-wide total of US$18 billion. Celent estimates that this average growth rate will hold steady for the next 2 years. Celent estimates that IT spending accounts for approximately 12% of an average insurance carrier痴 non-commission operating expenses. Within IT budgets, expenditures on internal staff consume the lion痴 share, roughly 44% on average, with another 11% spent on consultants. Software licensing and support forms the next largest block, with a 20% share, followed by hardware with 15% on average. Connectivity and bandwidth, in an increasingly networked industry, consume about 8% of overall budgets.

An estimated average of 35% of a carrier痴 IT budget is devoted to new projects and initiatives. Insurance carriers are primarily focusing their new project IT spending on improving customer service, increasing delivery speeds, and cutting costs, in that order. Increasing flexibility to enter new markets and introduce new products is also important, but not as high on the priority list as the first three goals.

"There is a renewed focus within insurance IT spending on short-term, demonstrable ROI,"

says Matthew Josefowicz, a senior analyst at Celent and author of the report. "We urge carriers not to confuse the two. While it is of critical importance to set clear, measurable goals and manage projects diligently, an exclusive focus on short-term ROI can discourage carriers from undertaking much-needed but longer-term and more systemic improvements."

The report includes 14 figures and 4 tables, which are listed in an appendix.

A Table of Contents is available online.

of Celent Communications' Property/Casualty Insurance and Life/Health Insurance research services can download the report electronically by clicking on the icon to the left.

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