Aviva's £5.6bn takeover of Friends Life spells an opportunity for the new company to invest in technologies for the digital age.
Aviva – which has already embarked on a digital business transformation programme – will take over Friends Life, as part of the multibillion-pound deal aiming to cut costs by over £200m.
The merger will be the ideal opportunity to overhaul the firms' IT and introduce digital services internally and for customers.
Insurance companies, traditionally seen as conservative in their approach to IT, face competition from companies outside the financial services sector. Earlier this year, an Accenture survey of 6,000 consumers in 11 countries revealed that 67% of consumers would consider buying insurance from companies other than insurers, and almost a quarter would consider large internet companies, such as Google and Amazon, as possible insurance providers.
A total of 43% said they would consider banks in their buying decision. Accenture said there could be billions of pounds' worth of policies available globally, as 40% of consumers look to change providers.
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This was backed up in a report from Forrester Research, Trends 2014: European Digital Insurance. It said companies outside the sector threatened insurance companies in Europe, as they fail to keep up with digital developments. Companies in the manufacturing, utility and telecoms sectors could take business from traditional insurers, said the report. It recommended insurance companies open digital labs, run hackathons, tap into internal and external talent and partner with digital firms to catch up.
Data is essential to insurance companies in creating products through risk assessment and understanding customer trends. According to research from business consultancy BearingPoint, most insurance companies do not have an enterprise-wide big-data strategy, despite the industry's reliance on access to accurate information. It found 90% of insurance firms have yet to implement a company-wide big-data strategy and risk being bypassed by new, more agile data aggregators taking advantage of the digital era.
A number of reports have said non-traditional companies threaten insurance companies, due to the industry's slow take-up of new technology. But the research revealed 71% said big data will be a top priority by 2018, but less than quarter (24%) said their company’s big-data maturity was advanced or leading – and only 33% have started a departmental or enterprise implementation process.
A lack of skills was a stumbling block for big data implementation, according to 53% of insurance executives across Europe. It found 16% do not know enough about big data, 53% said IT executives are left alone to seize the opportunities of big data and only 37% view their company as ready to implement new ideas in connection to big data.
To address the need for expertise around data analytics and digital consumers, the global insurance sector will spend about $3.5bn on business process outsourcing in 2015, according to Everest Group.
Aviva is already transforming digitally. In August 2014 it announced Andrew Brem as its chief digital officer. The company said his extensive e-commerce and digital experience will help drive Aviva’s digital transformation, which will affect areas including data analytics, distribution, interactive communication and marketing using social media and mobile.
Tony Tarquini, European Insurance Director, Pegasystems, said: “The Aviva and Friends Life merger could be a real opportunity for innovation but this depends on bold thinking about IT and business processes.”