Research on Technology Spending Shows Benefit in Marketplace

September 26, 2006

Gartner Consulting Worldwide and the Property Casualty Insurers Association of America (PCI) recently released a study showing that significant spending of information technology investments will better position insurers in the marketplace.

The 31 PCI member insurance companies that participated in the study had annual revenues averaging $610 million and an average employee size of 900. They were evaluated on the following criteria:

*IT spending as a percent of revenues (The majority of organizations spent 2 to 4 percent of their annual revenues);

*IT spending per policy (This is an industry specific measure that helps to understand IT spending as it relates to total business volume);

*IT spending per employee (The average amount spent per employee on IT support is $23,784); and

*IT employees as a percent of the total employees within the company (It employees made up 14 percent of the workforce in this study.)

“Sixty-five percent of IT spending is dedicated to “lights-on” support, while the remainder of the IT investments are dedicated to support business growth and transformation,” stated Jed Rubin, director, Gartner Consulting Worldwide IT Benchmark Service. “This trend is expected to hold steady through 2006.”

In many industries, organizations have driven down the “lights-on” costs and are reinvesting or making new investments in business growth and transformation. Typically, when organizations with a heavy focus on “run the business” activities (often above 80-90 percent), it is an indication that IT is operating as a cost center rather than a strategic partner to the business. However, it is most important to understand the direction of the business as a whole – if the business is not growing, then typically one would not expect to see heavy investment in growth activities.

Companies that use IT spending on growing their business can show significant transformations in their companies, the study said. Organizations spending less than peers on these activities may actually find themselves at a competitive disadvantage. On average, spending on activities designated for growth and transformation of the business as a percentage of revenue for the peers was 0.6 percent and 0.5 percent respectively.

The study found that on average 6 percent of total company IT spending falls outside of spending on core IT functions. However, there were organizations spending as much as 30 percent of their total IT spending outside of central IT. While decentralized spending can help facilitate business agility, it often comes at a higher cost and often implies duplicated spending (to same vendors, reinventing existing technology, etc), and can also limit process efficiency.

Gartner Inc. provides technology-related insight for its clients and serves 10,000 organizations, including chief information officers and other senior IT executives in corporations and government agencies, as well as technology companies and the investment community. The company consists of Gartner Research, Gartner Executive Programs, Gartner Consulting and Gartner Events. Gartner is headquartered in Stamford, Conn., and has 3,700 associates, including 1,200 research analysts and consultants in 75 countries worldwide.

PCI identifies itself as a national property casualty insurance trade association with more than 1,000 member companies. PCI members write over $184 billion in annual premium, 40.7 percent of the nation’s property/casualty insurance.

Source: PCI, Gartner

Was this article valuable?

Here are more articles you may enjoy.