Jakub Jirsk - Fotolia
Like the big banks, traditional insurance companies are increasingly working with technology startups focused on their sector, but need to do more if they are to remain competitive.
By submitting your personal information, you agree that TechTarget and its partners may contact you regarding relevant content, products and special offers.
According to Gartner, 64% of the world’s largest insurance companies have invested in these tech firms, which it describes as “insurtechs”. The analyst firm predicted that 80% of life and property/casualty insurers would partner with these startups by the end of 2018.
Gartner said the number of technology startups in the insurance industry had more than doubled globally in the past three years, with digital customer engagement, mobile insurance management and analytics the most common technologies they focus on.
Juergen Weiss, managing vice-president at Gartner, said there was growing interest among insurance business and IT leaders in collaborating with the startups.
But Weiss warned that the research found that most insurance CIOs were not familiar with these companies or their value propositions. He said this needs to change and insurers need to identify which of these startups can complement their offerings.
Insurance companies are playing catch-up, according to Gartner, and only 12% of insurance business and IT leaders consider their organisations to be digitally progressive. The majority described their organisations as digital beginners, or intermediate at best.
“Not all [insurtechs] will survive,” said Weiss. “Insurance CIOs will need to develop a fail-fast approach and an exit plan that secures intellectual property and critical resources.”
Legacy IT holding back innovation in insurance
Like large retail banks, insurance leaders cite lack of agility caused by legacy IT systems, mainly Cobol-based, as a major factor holding them back. They also blame flat IT budgets and a lack of the right skills or the delivery models to support new business models.
“Collaborating with insurtechs, or at least evaluating them, could therefore provide a number of potential benefits for insurers,” said Weiss.
Legacy systems have been the bane of the retail banking sector when it comes to modernising IT. Insurers have the same problem.
Read more about IT in the insurance sector
- The UK insurance industry is making a priority of big data to make more personalised customer offers in 2016, research reveals.
- Wearable and other smart technologies set to transform the insurance industry in the next three to five years.
- Most insurance companies do not have big data strategies despite the industry’s reliance on access to accurate data.
Separate research from software quality testing company Cast, which looked into the structural quality of IT applications, revealed that insurers still rely on large amounts of legacy Cobol software to implement their systems. These often large and complex programs are “ill-equipped to deal with the demands of the digital age”, said Cast.
Cast’s research of 250 applications, from 38 organisations in eight countries, involving 174 million lines of code, found that 69% run legacy Cobol applications.
In the research report, William McCarter, vice-president, insurance solutions group, at CGI, said insurance companies continue to use core insurance applications that were originally built in the 1970s and 1980s.
“They continue to maintain these systems to extend their life. It seems these systems never really are retired, but they are run off. Because insurance policies on the life insurance side of the industry can be greater than 20 years in term, the systems are preserved to process older policies,” he said.
“Insurers are aware that their legacy environments are more costly to operate and maintain than modern systems. However, much of the data stored in these systems is difficult to analyse and migrate to newer environments due to the attrition of staff with knowledge of the legacy systems and data structures of many releases of the software. Migration is costly. As an alternative, carriers opt to buy time and run off versus retire the systems,” said McCarter.