Gartner Consulting Worldwide and the Property Casualty Insurers Association of America (PCI) recently released a study showing that significant spending of information technology investments will better position insurers in the marketplace .

The 31 US PCI member insurance companies that participated in the study had annual revenues averaging $610 million and an average employee size of 900.

“Sixty-five percent of IT spending is dedicated to ‘lights-on’ support, while the remainder of the IT investments are dedicated to support business growth and transformation,” stated Jed Rubin, director, Gartner Consulting Worldwide IT Benchmark Service. "This trend is expected to hold steady through 2006.”

In many industries, organisations have driven down the "lights-on" costs and are reinvesting or making new investments in business growth and transformation. Typically, when organisations with a heavy focus on “run the business” activities (often above 80-90 percent), it is an indication that IT is operating as a cost centre rather than a strategic partner to the business.

However, it is most important to understand the direction of the business as a whole - if the business is not growing, then typically one would not expect to see heavy investment in growth activities. Companies that use IT spending on growing their business can show significant transformations in their companies, the study said. Organisations spending less than peers on these activities may actually find themselves at a competitive disadvantage.

On average, spending on activities designated for growth and transformation of the business as a percentage of revenue for the peers was 0.6 percent and 0.5 percent respectively. The study found that on average six percent of total company IT spending falls outside of spending on core IT functions.

However, there were organisations spending as much as 30 percent of their total IT budget outside of central IT. While decentralised spending can help facilitate business agility, said the document, it often comes at a higher cost and often implies duplicated spending (to the same vendors, reinventing existing technology, etc), and can also limit process efficiency.