Vertical Integration and Information Technology Adoption: A Study of the Insurance Industry

This paper examines how differences in vertical integration and prior IT investments shape IT investment patterns within an industry. We focus on the insurance industry where information technology investment has had an important and sustainable impact and where longstanding, systematic differences in the extent of vertical integration in distribution across firms provides a natural way to examine the effect of vertical integration on technology adoption. We show that although less vertically integrated insurers had slower rates of Internet adoption ceteris paribus, less integrated insurers had greater prior investment in compatible client/server technologies which increased the rate of adoption. Without accounting for prior investments, one might conclude that less vertically integrated firms had higher rates of Internet adoption, ceteris paribus. These results demonstrate the importance of controlling for technology differences when examining the effects of organizational structure on IT investment.