Study: Insurance Industry IT Needs Significant Housecleaning

With a large proportion of their IT budgets going to maintaining existing applications, and under pressure from a tight economy, IT shops in insurance firms are focusing tightly on making their operations more efficient.

That’s one of the major findings of a survey of 180 U.S.-based insurance executives, conducted by IT consulting firm Sapiens International Corp.

The study revealed that for 57% of the respondents, more than one quarter of their firms’ IT budgets were consumed simply maintaining existing applications. Seventeen percent spent over half their budget on maintaining existing systems.

“The insurance industry was one of the first industries to get into computers, back in the 1960s,” says Judy Johnson, Sapiens Americas’ vice-president of Insurance Strategies. “A lot of the systems they use to process the business, including their accounting and claims systems, are old, usually home-grown systems that have been around for 20 or more years.”

Not surprisingly, 44% of the executives surveyed identified the top driver for new IT initiatives as inefficiencies connected with aging systems and processes. Another 16% said excessive IT operational costs were driving new projects.

Far fewer of the respondents said new initiatives were being driven by a desire to expand their business. Only 9%, for example, listed extending distribution channels to meet new market demands as a driver for new projects.

The top IT priority for insurance companies is upgrading the systems used to administer insurance policies — identified by 22% of the executives — and server and platform consolidation, listed by 16% of the sample.

Despite the buzz around IT outsourcing, the insurance industry does not appear to be turning to outsourcing as a way to reduce spending. Only 2% of respondents listed outsourcing as one of their companies top three IT initiatives.

While the study focused on IT issues, says Johnson, those can’t be separated from insurance companies’ business processes.

“It’s not just the old systems,” she says, “it’s everything that’s wrapped around them, including old processes, old work-arounds, and the white spaces where you have to stick clerks into the process because the systems are incomplete.”

The survey was conducted at IBM’s Insurance Application Architecture (IAA) meeting and the Insurance Accounting and Systems Association (IASA) conference, and included executives from IT as well as other departments.