Will Insurers Spend More or Less in 2009?

As the financial crisis unfolds, technology vendors exposed to the insurance sector are asking one question: will insurers spend more, less or the same on technology in 2009?There are several factors dampening technology spend next year. First and foremost, investment income has and will likely continue to negatively affect net income. Nearly every investment vehicle - stocks, bonds, real estate - has lost value this year. Additionally, today's frigid credit market is elevating the cost of capital, further draining profitability. Lastly, an economic downturn will lower the demand for coverage, particularly for life products. It's not all doom and gloom, though. Given withering investment income, insurers may tighten their underwriting discipline and begin to raise rates. Such a strategy could reverse the current soft market plaguing the non-life market in general and commercial lines in particular and usher in a period of greater underwriting profitability. Of course, raising rates on already strapped consumers and businesses may prove challenging. Additionally, IT spending in certain areas may accelerate. Tops on the list are risk management solutions. The models of old are no longer sufficient, as witnessed by AIG. Insurers will be seeking solutions capable of capturing and correlating every risk from every corner of the enterprise. Furthermore, new regulations, which are likely to materialize in the near term, could drive investments in compliance solutions. Finally, it is important to remember that insurers are relatively strong. Aside from AIG, whose insurance lines are stable, and some mono-line insurers, the industry has not been as badly bruised as the banking sector. For this reason, technology vendors that have offerings across the entire financial services spectrum may turn their attention to insurers. If this happens, insurers will gain immense pricing power that they may exploit. This could drive technology sales in 2009, albeit at the expense of lower margins for vendors.Given withering investment income, insurers may tighten their underwriting discipline and begin to raise rates. Such a strategy could reverse the current soft market plaguing the non-life market in general and commercial lines in particular and usher in a period of greater underwriting profitability.