Insurance companies in the five main markets in eastern Europe are expected to spend US$543 million on IT in 2004, according to consultants Celent. Over the next two years, this number will grow slowly: Celent anticipates that in 2006, insurers in Poland, Hungary, the Czech Republic, Slovakia and Slovenia will spend US$569 million on IT initiatives.
The insurance market in these countries is growing quickly and reaping profits, says Celent. “Each sub-market is dominated by a handful of major, mostly foreign-owned players and a former state-owned monopolist,” says the consultant in a new research report entitled Insurance IT Trends in Eastern Europe. “Other carriers in the market are usually sub-scale and are not poised for dramatic expansion.”
Although much has been written about the potential growth of these markets, says Celent, little attention has been paid to the IT strategy issues that will support (or inhibit) this growth, and the potential role that Western IT services providers may play in this newly open market. “Insurance IT Trends in Eastern Europe” provides an overview of the current environment, key IT strategy issues, current and future IT priorities, and overall IT spending in the CEE5 market.
“The IT environment in these countries is generally relatively advanced, and companies have access to a highly skilled technical labour force,” says Matthew Josefowicz, manager of Celent’s insurance group and author of the report. “This relatively high skill level coincides with a relatively low salary level compared to Western Europe. Accordingly, many companies opt for internal IT solutions instead of vendor solutions on the basis of price and skill availability.”
On the vendor side, the market is dominated by the major Western players; their role is supported by their relationships with the Western parents of CEE5 insurers. Local players also have a minor role. Celent expects that the few local vendors with a specialization in insurance-specific functions will have to either team up with their Western competitors or focus on niche markets.
Most of the current IT investment in the CEE5 is focused primarily on distribution, which is not surprising given the market’s focus on growth. However, Celent believes that CEE5 insurers are making a mistake by under-investing in the infrastructure necessary to support that growth over the long term. Many of the smaller players in the market are supporting their niche-player strategies by focusing their IT spending on improving profitability.