Insurers Poised to Change Rates of IT Outsourcing in 2014: Novarica

Only 15 percent of insurers don’t currently rely on external IT services for key technology areas, but a group of those that do outsource IT services expect to scale back in 2014, a new survey finds.

The survey of 95 chief information officers of insurance companies (19 life/annuity and 76 property/casualty) conducted in the fourth quarter of 2013 by Novarica reveals that the heaviest current users of outsourcing are the ones that plan to cut back.

On the other hand, those carriers that are now light users plan to outsource more this year as individual carriers seek optimal levels of outsourcing usage—”balancing cost and capacity benefits against service levels, quality and their own abilities to manage external providers,” Novarica says.

Novarica surveyed the CIOs separately on three areas of IT service—application development and maintenance (ADM), specialized skills, and infrastructure—reporting that ADM outsourcing is the most common type of insurance IT outsourcing. (The percentages of insurers reporting “some” or “heavy” outsourcing in each of these areas is captured in the chart below.)

Eighty-five percent of insurers currently use ADM outsourcing, which Novarica defines as the ongoing use of external service partners to develop and maintain legacy or modern applications.

ADM is also the main area where heavy users plan to scale back, with some 42 percent of heavy ADM outsourcers expecting decreased usage in 2014. Meanwhile, 38 percent of light users of ADM outsourcing will up their usage.

The survey also reveals CIO plans regarding the use of external service providers for specialized skills, such as analytics and mobile development, and for managing infrastructure (data centers, servers, networks, etc.) More than one-third of the CIOs surveyed said they planned to increase their use of outsourcing in these two areas.

Novarica also asked the CIOs about their levels of satisfaction with outsourcers in each of the three services areas. In general, the survey revealed lower average satisfaction levels with offshore providers. The report breaks down the satisfaction levels for each of the three services areas.