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Insurance companies have accepted that they need to adopt digital technologies at a faster rate if they are to prosper in the post-Covid-19 world.
Often seen as digital laggards in the finance sector, the insurance contingent has been slow to undertake major digital transformations.
And there have been opportunities. Insurers have watched how the banking sector is being transformed by financial technology (fintech) and the insurance technology (insurtech) industry, a sub-sector of fintech, has recently seen small tech firm develop software for the insurance sector and, in some cases, become insurers themselves.
But insurers have been slow to react and Covid-19 disruption has laid this bare. For example, according to research from Information Services Group (ISG), big insurance companies regret not having invested more in artificial intelligence (AI) at an earlier stage.
ISG’s research reveals that almost all insurers understand this and that there is significant ground to make up.
The survey, involving about 300 senior insurance executives, found that 86% expect customer behaviour to change because of Covid-19 and the disruption it has caused. A total of 90% said digital transformation will now be accelerated in the sector, and 95% agreed that customers want more digital products and services.
Also, 64% of the insurers responding to the survey expect the effects of Covid-19 on their business to last longer than a year.
The insurance sector is a heavy user of paper-based manual processes, which in other sectors are being transformed through automation and AI, technologies that are the cornerstone of digital transformation.
But according to Bryn Barlow, partner at ISG, a lack of attention on AI in the sector has left businesses with a lot to do. “All the big insurers are wishing they’d made more ground in artificial intelligence before Covid-19 hit,” he said. “For some, 60% of their processes still rely on paper. That makes everything harder now.”
Part of the problem has been that big companies in the sector have focused on cutting costs to increase profits, rather than win more business and new customers.
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“Most insurers are focusing on cost reduction as the major source of profit growth, but that’s not sustainable,” said Barlow. “Our research shows that insurers know customers want more digital products and services, so why haven’t they done more to transform their businesses? If they don’t invest in digital innovation now, they will lose customers to new market entrants.”
According to the survey, 61.5% of insurance firms plan to invest in creating digital customer experiences, 51.3% will spend budget on cloud transformation and 46.2% will spend on data, machine learning and AI technologies.
But unlike the banks, which are using fintechs to drive digital transformation, the insurers seem determined to achieve many of their tech goals through in-house work, with only 20% planning to invest in insurtech offerings.
For example, insurance company Direct Line Group created its own standalone insurtech business in the public cloud to enable it to continuously test and adapt ways of serving customers. The business, known as Darwin, was set up last year to provide a digital platform that could quickly adapt to changes in demand.
The ISG report said: “The majority of the experts surveyed currently assign a much higher priority to digital technologies, with an increased tendency towards in-house solutions. We predict that this shift in priorities will be temporary. There is no doubt from any of the respondents that insurtechs will continue to play an essential role in solving the challenges of digitisation in the future.”