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February 22, 2017

2017: A Year of Transition

Summary:

Gains from projects are being optimized as insurers look to solidify their tech infrastructure and prepare for new initiatives.

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The insurance industry is in transition — there’s no doubt about it. So much is happening regarding digital strategies, insurtech, customer expectations, analytics and other areas that are positioning the industry for the future. Despite all the activity, IT budgets for P&C and L&A insurers in North America this year appear to be subdued, with average increases of only 2.7%, following larger increases over the past few years.

There are a couple explanations for this seeming contradiction. For one, business conditions in the industry are less favorable than they have been in recent years, prompting predictions of slower growth for key lines. This results in budgets for the existing tech infrastructure that hold the line. It should also be noted that the percentage of insurers planning decreases has jumped to 15%, which factors into the average and reinforces the notion that there is an industry bifurcation occurring, with a widening gap between the winners and losers.

A key trend identified in our recent research report, “2017 Insurance Technology Spending Priorities and Plans,” is that many projects are shifting from new or replacement initiatives to enhancing systems already in place. There are still plenty of new deals out there and big modernization or replacement projects underway in specific areas (such as commercial lines policy systems). But the big picture seems to be that the gains from many projects in prior years are being optimized and extended as insurers look to solidify their tech infrastructure and prepare for new initiatives.

See also: Innovation — or Just Innovative Thinking?  

But there is another side to the story.

Many of the newer tech initiatives are being driven and funded by business units or at the corporate level. This is not a brand-new trend, but the more that tech strategy becomes intertwined with business strategy, the more often that business executives are the catalysts and sponsors. Chief marketing officers are driving change in digital and customer experience. Newly established chief digital officers are key players at many companies now. Strategists and business unit heads are seeking advantages from analytics, emerging technologies and insurtech. Senior corporate leaders are creating ventures and are asking how the digital connected world changes their customers and the insurance industry.

Insurers expect IT budgets to pick up again starting in 2018. In the meantime, the strategy work that is underway below the surface at many companies is likely to result in increases for tech-based initiatives related to new areas. Major investments and plans for distribution channels, underwriting, core systems and other areas are not going away. In fact, they are vital to maintaining modern systems in these mission-critical areas.

Overall, 2017 will be a pivotal year for the industry — a year of transition. Expect to see investments increase in initiatives aimed at innovation and transformation as the pace picks up and the industry carves out new roles in the digital, connected world.

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About the Author

Mark Breading is a partner at Strategy Meets Action, which helps insurers develop and validate their IT strategies and plans, better understand how their investments measure up in today’s highly competitive environment and gain clarity on solution options and vendor selection.

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