Insurance cos log into IT, plan Rs 500 cr higher spend

Indian insurance companies are expected to spend Rs 1,800 crore in deploying information technology (IT) tools compared with about Rs 1,300 crore last year.

The increased use of IT tools will not only increase the reach of insurance companies, it will also help them provide more personalised services to policy buyers.

"There has been an increase of at least 30 per cent in both the volume and the technology budget of insurance companies since last year. The trend is likely to pick up further," TCS Vice-President and Head of Insurance Practice K Padmanabhan said.

Life Insurance Corporation's total IT budget was Rs 120 crore this year, compared with Rs 100 crore last year. The publicity budget, however, has remained constant for the last three years at Rs 100 crore.

While there are no official estimates for the total IT spend by insurance companies, it is much less than the annual spend by banks on their IT deployment.

"Insurance companies have only recently started adopting technology and their IT spent is much less than their banking counterparts, which is estimated roughly at about Rs 3,000 crore," said an analyst.

But the pace has picked up in the last one year, and IT companies are finding the insurance vertical increasingly more lucrative. The insurance vertical contributed 12.5 per cent to TCS' revenues, which were likely to increase to about 13.5 per cent over the next 12 months, added Padmanabhan.

The company recently set up an insurance solutions center in Chennai which can house 2,000 people. IT companies like Infosys, Oracle, i-flex, SAS also expect tremendous growth in revenues from this vertical.

These companies, by offering advanced IT tools like customer analytics, provide a more detailed profiling of insurance buyers, allowing for more personalised services.

"Oracle's insurance vertical, as part of the financial services segment, has seen significant growth over the last two years," said Oracle India BFSI Head, Suraj Pai. The company has four of the top five public sector insurance companies as its clients.

Even with this increased spending on IT, Indian insurance companies are way behind their counterparts in developed countries. On an average, IT budgets of insurance companies in developed countries range from 3 to 4 per cent of the gross premium revenues, compared with 2 per cent in India. Most firms expect the increased spending to translate into better distribution channels, thus increasing the reach of their services.

Because IT's worth it

IT tools will increase the reach of insurance companies, help them provide more personalised services

IT budget,volume of firms up 30% since 2004

LIC's total IT budget up Rs 20 cr in 2005

Banks spent around Rs 3,000 cr on IT in 2005

Developed countries' IT budgets range from 3 to 4% of the gross premium revenues, compared with 2% in India