Strategic IT spending key in battle to grow business

A new survey offers a glimpse into what portion of property/casualty insurers' information technology spending is devoted to core business activities vs. supporting business growth or transformation, and provides benchmarks companies can use to compare their IT spending habits with those of others in the industry.

The survey, conducted as a joint project by the Des Plaines, Ill.-based Property Casualty Insurers Assn. of America and Stamford, Conn.-based Gartner Inc., suggests that companies that do dedicate IT spending to business growth and transformation can reap dividends in improved business performance, while companies that fail to do so may find themselves at a competitive disadvantage in the market.

"Clearly that's an overall trend that we've been seeing," said Jed Rubin, director, Gartner Consulting Worldwide IT Benchmark Service.

"It's not just within insurance that we're seeing this trend," Mr. Rubin said. Gartner is seeing a lot of activity in general with companies "trying to get a better sense of where the money's going," he said, and trying to get a better sense of how much of their IT portfolio is devoted to basic core business operations vs. supporting business growth and transformation.

"For companies that use IT spending strategically, you'll typically see a greater percentage of spending supporting growth and transformation than for organizations that don't use IT spending strategically," Mr. Rubin said.

The PCI/Gartner survey found that on average, companies are spending 2.1% of total revenue "to sort of just run the business operations," Mr. Rubin said. "If you're coming in significantly above that, it's pointing out you're spending more just to run the business than your competition."

"IT spending on running the business is more about how efficient are my core operations," he said. "If you're running high, you need to do something about that. you're running low, you shouldn't be slapping yourself on the back either."

Companies falling below the benchmark for IT spending on core business operations should ask themselves whether they're doing all they should be to provide the level of service to customers that other industry companies are providing, Mr. Rubin said.

Meanwhile, the survey found that on average the P/C companies surveyed are spending 0.6% of revenue on IT activities supporting business growth, while 0.5% is being spent on IT activities supporting business transformation.

The 31 PCI member companies that participated in the study had average annual revenues of $610 million and an average of 900 employees. IT employees represented 14% of the workforce in the study.

Mr. Rubin said he sees the participants' interest in the survey and in the business benchmarks as positives for the insurance industry, a business that has been criticized in the past for a disconnect between IT spending and companies' strategic business goals.

"These are numbers that I think organizations are going to latch onto," Mr. Rubin said. "They're going to want to know a lot more about that."

For more information about the PCI/Gartner insurance IT spending study, contact Mr. Rubin at jed.rubin@gartner.com.