Good investment

The results of a recent study by the Property Casualty Insurers Assn. of America and information technology researcher/consultant Gartner Inc. might seem intuitive, but I guess the real point is that the findings quantify that intuition.

The survey of 35 PCI member companies found that information technology investments better position insurers in the marketplace.

Companies surveyed in the second annual joint  IT spending survey by the Des Plaines, Ill.-based PCI and Stamford, Conn.-based Gartner averaged $371 million in revenue and 434 employees, with IT expenses as a percentage of revenue of 3.0% vs. a 4.1% industry average. The survey found that companies’ revenue increased an average of 5.1% from 2005 to 2006. In planning for 2007, the companies surveyed increased IT spending plans 11% from 2006.

In a statement announcing the survey results, Stephen Forte, a principal research analyst with Gartner’s Insurance Industry Advisory Service, said the increased spending is going towards aggressively replacing legacy IT systems.

“In order to try to understand how this spending might impact the bottom line for these companies, the study also looked at the relationship between IT spending on management of claims and the overall expense of processing a claim,” Mr. Forte said. “The next generation claims management systems will reduce the total cost of processing claims, reduce the cycle time of end to end claims processing and provide greater customer retention.”

The survey participants’ average total cost to process a claim was $584, of which 12% was attributed to IT costs such as hardware, software, and applications development, and the rest was dedicated to non-IT functions such as salaries for claims management personnel. The study found that an average increase of 1% in the portion of claims processing dedicated to IT correlated with a decrease of $180 in total cost per claim.

Companies spending less than peers on IT activities may actually find themselves at a competitive disadvantage, according to the PCI and Gartner, while companies making significant IT investments may find those investments helping them transform their business.
 

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