(Image credit: Shutterstock.)
Growth and digital acceleration continue to be top priorities for North American life insurers in 2023, with cyber security coming in third, with insurers spending about 8 percent of their IT budget on it, according to Celent’s (Boston) newly published annual “North American Life Insurance IT priorities and Pressures” study, co-authored by analysts Karen Monks and Keith Raymond. Growth and digital acceleration were top priorities for life insurance CIOs in 2022, followed by process optimization, cost reduction, and innovation.
Celent gleaned its findings through a Dec. 2022 online survey of North American life and annuity insurance company CIOs and technology executives, across both individual and group lines. The life insurance IT priorities and pressures report has been published for many years, and several CIOs respond year after year while others are new this year. While the survey was reasonably short, according to Celent, it covered a broad range of topics, including but not limited to business priorities, IT budgets, investment plans, and cloud adoption. Celent publishes analogous annual reports for the EMEA, Asia-Pacific, and Latin America regions.
IT Budgets Resist Inflationary Pressure
The study notes that inflation is causing about half the insurers to expand their cloud investments and new product introductions, but overall it is having a minimal impact on IT budgets and the IT strategies insurers are pursuing. The authors note, however, that inflation could force insurers to maintain and improve profitability wherever they can by optimizing the value of their technology investments.
“They will need to rely on data-driven decision-making in order to make smart capital investments,” a Celent statement on the report says. “A focus on metrics should provide insurers the basis for objective investment decisions.”
Digital Transformation Investments
Celent’s Monks and Raymond North American life insurers are making front-end investments in portals, distribution management systems, and illustrations, with most new investment being directed to portals. After years of investing in underwriting solutions, policy administration and claims systems moved back into investment mode for many insurers, the authors say.
Monks and Raymond call out the following highlights from the study:
- After a challenging two years marked by the pandemic, North American life insurers have returned to some business normality entering 2023. However, uncertainties of new kinds are now influencing insurance CIOs, including political tensions, high inflation, and higher interest rates.
- CIOs are focusing on growth and digital acceleration as they plan their 2023 investments. Inflation is having a moderate effect on plans.
- All but one of the respondents plan on increasing their IT budgets in 2023 despite the tough economic conditions characterized by higher inflation and interest rates. Overall, the average increase is 8.3%, resulting in a 2023 average budget of 8.7% of premiums.
- North American life and annuity insurers dedicate 40.2% of their IT budgets to maintaining their existing systems and keeping the lights on. Maintaining current systems makes up the largest proportion of the IT budget.
- Insurers are planning on spending 27.4% of their budgets on implementing new systems. This is over 20% higher than 2022 and similar to pre-pandemic 2020 levels.
- Internal and external budget allocations are nearing parity as external expenses continue to increase. The percentage spent on outsourced staff and software increased relative to last year’s survey, which increased over the previous year. Insurers’ propensities to move to the cloud and increase mobile and digital capabilities via outside resources are driving their external resource spend.
- Today, over 75% of NA life insurers are considering a cloud deployment approach, depending on the system types.
Celent notes that the survey responses do not represent a statistical sample of all U.S. life insurers. However, based on its continuous contacts with key industry decision-makers, Celent affirms its belief that the report’s findings are indicative of key technology trends and developments in the North American life insurance industry.