The European life and pensions market looks set to grow over the next few years, driving growth in IT investment to win new customers. However, the property and casualty sector will continue to face intense cost pressures, keeping IT budgets tight. Property insurers will only be prepared to splash out on solutions that cut the cost of claims processing.
New research finds European insurers’ IT strategies will vary significantly by sector.
Datamonitor’s new report, European Insurance Technology Spending Strategies, forecasts that European life and pensions companies will spend $13 billion on technology by 2004. Their spend on packaged software will grow at 14% a year between 2001-2004.
The reason is simple: growth in the L&P sector will be a key ‘megatrend’ within European financial services, due to pension reform across Europe. Benefiting from this will require a clearly defined IT strategy, creating a key opportunity for vendors.
There will be two major areas of spending for L&P insurers. Widespread merger and acquisition activity will force top-tier insurers to rationalize back office systems, to reduce overlap and boost synergies. At the same time, they will need to invest in policy administration systems to deal with new products and markets. This spending alone should reach $4 billion by 2004.
However, European insurance is a tale of two sectors, and property and casualty (P&C) insurance will remain under intense cost pressures. At present, the sector is in the trough of the underwriting cycle: costs can exceed income by up to as much as 8% – so any IT spend will need to impact the bottom line in the short term. P&C insurers’ IT investment looks set to increase at just 9% a year to 2004.
Insurers can save money by integrating and automating the whole claims process, from initial customer contact to fulfillment. This should allow suppliers to fulfill claims more quickly and cheaply. Some IT vendors claim they can cut overall costs by 8-16%; if they deliver, these systems could help return insurers to profitability.
Whoever vendors are selling to, they must focus on the business case of their technology, the strategic objectives of the insurer, and return on investment. But while L&P insurers are looking at IT investment to drive growth, P&C insurers are only going to spend on projects that can deliver
considerable cost savings.
Related research: Datamonitor, 2002: European Insurance Technology Spending Strategies
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