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Insurers are stepping up their investments in information technology after several lean years during and after the recession. At least, that's what Atlantic American Corporation CIO John Dunbar said during a recent interview with PropertyCasualty360.

"If you go back into the mid to late 2000s, there were either constrictions or a 'marking time' mentality to IT budgets," Dunbar said. "Over the last two to three years, things have loosed up a little bit just as business has improved."

Other insurance executives who gave interviews voiced agreement on this count, and indicated that their organizations plan to continue stepping up their investments in new IT systems during the current year. Shawn O'Rourke, CIO of Amerisure, added that his company is planning on "investing more aggressively in 2014," increasing its annual IT budget by almost 10 percent over last year's total.

Although Amerisure's increase is greater than most, a survey of 95 U.S. insurance companies conducted by Novarica found that there is an overall trend to increase spending on investments in IT industry-wide. Almost 60 percent of respondents said they have increased their IT spending in 2014 and the average year-over-year increase reported by these insurers was approximately 3.5 percent.

Insurers' IT priorities include legacy modernization, predictive modeling

O'Rourke explained that his company's priority is to replace an internally developed claims system that is more than 15 years old. This effort is "specifically targeted at our customers—making our service platform more efficient, automating manual processes, improving compliance," he said.

"Additionally, we believe with the more rich data we'll be able to collect with the new system, we can find ways to expand on the already excellent claim service we provide by processing claims more efficiently and making better business decisions with more detailed and more timely data," O'Rourke explained, adding that his organization is currently evaluating external vendors.

The company had planned to wait, but in light of the expected benefits, there was "a compelling argument for replacement now." Amerisure's overall IT goals are reportedly shared by many other companies, with core system replacement commonly ranked as the top priority, according to Frank Petersmark, CIO advocate for IT consultancy X By 2.

"Core system transformation and legacy modernization efforts still top the priority lists irrespective of the size and market presence of the insurer—the variable is how aggressively they can pursue it given their size and market presence," Petersmark said. "At least for our clients, the rest of the priority list is some form of data effort—advanced analytics, predictive modeling, and so on."

The turn toward outsourcing also appears to be fairly broad. Novarica reported that 25 percent of insurers plan to spend more on outsourced IT solutions this year. According to the firm, this trend is being driven by companies' belief that dedicated technology providers offer greater access to the type of specialized IT skills and reliable support staff that they need, relative to what they would be able to assemble with an internal team.

Where do companies see the greatest opportunities to maximize returns?

For some insurers, such as Midwest Employers Casualty Co.(MECC), the name of the game isn't so much increasing IT spending as sustaining it.

"We don't make major swings in our IT investment when the market hardens or softens," explained Michael Foerst, vice president of information technology at MECC. "Instead, we constantly analyze where we're spending and reallocate it to maximize return on the efforts that are most important to the business."

Where does the company currently see the best opportunity to maximize the return on investment in IT? Analytics and predictive modeling. Forest said his organization is determined "to move on to the next level of analytics in our data models." Specifically, it plans to incorporate more data sources into its system to better predict its losses. MECC will primarily be using its analytics capabilities to evaluate the potential costs of treating workplace injuries, but the company's broader goal is readily applicable to property insurance.

Accurate replacement cost estimates help protect the bottom line

It can be difficult to predict when a natural disaster or other event will cause widespread damage to insured structures, which is why having accurate property value estimates is essential. The January polar vortex storm system that became one of the season's hottest buzzwords caused upward of $1.5 billion in insured losses, according to reinsurer Aon Benfield.

Globally, the growth of insurers' IT budgets is projected to be as high as 6.5 percent per year through 2017, according to U.K.-based IT consulting firm Ovum. Insurers' boats may currently be getting a lift from the rising tide of the broader economy, but companies still need to ensure that they are making the right investments to drive long-term performance improvement. Investing in web-based property valuation software may be one of best ways for insurers to make sure that their IT investments are generating value by allowing them to manage risk more cost-effectively.