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Indian insurance companies will spend US$1.8 billion on IT products and services in 2012, an increase of 11.7 percent over 2011 revenue of $ .6 billion, according to Gartner, Inc. This forecast includes spending by insurers on internal IT (including personnel), hardware, software, external IT services and telecommunications.

Telecommunications represents the biggest spending category, and it is forecast to reach $566 million in 2012, up from $512 million in 2011. However, spending on IT services is expected to grow the fastest in 2012, with revenue totaling $447 million in 2012, up 15.8 percent over 2011 revenue of $386 million.

Indian insurers are faced with an opportunity to transform significant aspects of their operations via technology, right across the entire insurance business value chain.

“Indian insurers have shown themselves to be particularly forward with regards to considering alternative delivery models such as business process outsourcing,” says Derry Finkeldey, principal analyst at Gartner. “External factors, such as regulatory change, uncertain economic conditions and the increasing frequency of catastrophic events, are forcing insurers to reassess their approaches to business processes and the IT applications that enable them to derive greater efficiency and achieve more with less.”

“Insurers are looking for ways to streamline their processes from the front office to the back office, and are investing in the next generation of core solutions to help them do that,” says Finkeldey. “These solutions often integrate business process management (BPM) and analytics capabilities, or are offered in an ‘as a service’ model.”

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