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Summary

The latest Ovum insurance technology spending forecasts reveal that the global insurance industry continues to expand IT budgets, albeit in a cautious and controlled way. The industry’s response to the reality of permanent slow premium growth in mature markets is directing this growing spend toward projects that deliver organizational flexibility and improved efficiency.

Insurers are committed to IT investment, but remain cautious

The Ovum IT spending forecast for the global insurance sector reveals that overall IT budgets among insurance carriers will grow by 4.4% in 2015, to reach a total of just over $90bn. This is slightly lower than Ovum’s estimate of 12 months ago, of 5.0% growth, with the dip being accounted for by the lower than expected rate of recovery in some major European economies.

This rate of growth may not be stellar, but it is here to stay. The trend that began to emerge in 2012 – a move away from IT cost-cutting following the global financial crisis and toward modest reinvestment in strategic IT projects – has now firmly taken root among carriers. Ovum expects that IT spend will continue to grow across the global insurance industry for the next five years at a compound annual growth rate (CAGR) of 4.7%, reaching a total of $108bn by 2019.

As the industry accepts the reality of low premium growth in most mature markets, IT priorities are focused on simultaneously improving operational efficiency and organizational flexibility. As a result, Ovum expects much of the expanded IT spend to be focused on legacy system consolidation/transformation and replacement projects. In emerging insurance markets, expanding core platforms and infrastructure to support growth in these regions remains the priority. The irreversible shift in consumer demand for “anywhere, anytime, any way” interactions continues to drive IT investment in digital channels across all regions.

Life insurance remains the most buoyant sector, growing by 4.8% in 2015 to reach just over $38bn, and accounting for 44% of total IT spend by the industry. Ovum also expects this momentum to continue at a healthy CAGR of 5.2%, with global life insurance IT spend reaching nearly $49bn by 2019.

Although IT spending growth among life carriers is partly being driven by strong premium growth, the life sector did suffer much more draconian IT spending cuts over the last five years. As a result, some of the current growth momentum is intended to overcome the backlog of recent IT underinvestment within the sector.

Non-life insurance will grow by 4.1% in 2015 to achieve a global IT spend of $48bn. IT spend in the sector will continue to grow at a more modest CAGR of 4.3%, reaching nearly $60bn by 2019.

However, below these top-level figures there are very significant regional variations depending on the sector and specific market issues, such as regulation, which is currently having a particular impact in Latin American markets. Life insurance IT spend in China, for example, will grow by nearly 11% in 2015, while the French life sector will only see IT budgets expand by 1%.

Appendix

Further reading

Insurance Technology Spending Forecast 2019: Business Function Segmentation, IT0004-000419 (January 2015)

Insurance Technology Spending Forecast 2019: Source Segmentation, IT0004-000418 (January 2015)

2015 Trends to Watch: Insurance, IT0004-000416 (December 2014)

Author

Charles Juniper, Senior Insurance Analyst, Financial Services Technology

charles.juniper@ovum.com

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