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Insurance companies in Europe know they need to increase digital investments to retain market share amid fierce competition and, to this end, a new group of leaders in the industry have formalised digital innovation strategies.
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Research firm Pierre Audoin Consultants (PAC) asked 200 large and mid-sized insurance companies in Europe about their innovation strategies. It found they are moving from having pockets of initiatives around digital to adopting formal enterprise-wide strategies.
PAC said 70% of Europe’s largest insurance companies had appointed new CEOs the past 18 months, and that it is these leaders who are implementing IT innovation strategies.
With new players entering the insurance market using IT as a differentiator, traditionally conservative insurers need to change to remain relevant – and this competitive threat has not appeared suddenly. Back in 2014, in its Trends 2014: European digital insurance report, Forrester Research said companies in manufacturing, utilities and telecoms, as well as startups, could take business from traditional insurers.
Insurers have reacted. PAC’s study of 200 senior business and IT executives at large insurance companies in Western Europe found that 84% now have formal innovation strategies with dedicated teams and budgets.
Nick Mayes, principal analyst at PAC, said: “There is a new innovation imperative for insurance carriers. Low interest rates, economic headwinds and changing customer behaviour are pressuring all traditional insurance lines. Meanwhile, 80% of carriers are experiencing disruption from new competitors.”
As in many industries, digital is seen as way to improve customer engagement and this is usually the starting point for investments in digital technology. For example, mobile apps can improve customer loyalty and are seen as a way to increase a customer’s spending. Insurers are no exception, according to PAC, with 60% of those surveyed citing improving customer engagement as their main innovation focus.
Read more about IT in the insurance sector
- Insurers are held back from digital transformation by legacy systems, but insurance-focused IT startups offer them hope.
- 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 are 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.
Insurers have a closely related industry from which to learn lessons. Digital technology is already revolutionising the retail banking sector through small suppliers known as fintechs. The retail banking sector, which for decades did little to improve the customer experience, is now rapidly adopting customer-friendly digital technology, such as mobile apps. These apps have one thing in common – convenience.
In the insurance sector, which has also been slow to take up digital and relied on mainframe technology for decades, there is a similar revolution with the arrival of what Gartner calls insurtechs.
A recent example of digital innovation is a free app known as Trov, from Axa Insurance. It enables customers to insure individual possessions via a smartphone. This is a service the company could not have offered in the past.
But the age-old and conservative insurance industry does face challenges in moving to the next level of digital evolution. While insurers see strict regulation in the sector as the biggest barrier to innovation, one-third of those surveyed said ageing technology and infrastructure is a major obstacle, with some saying less than half of their business applications are able to support their future digital strategy.
For example, 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.