Technology has disrupted almost every major industry over the past 30 years and financial services is no exception. Yet a closer examination reveals that there have been vastly different rates of innovation and adoption of new technology in the constituent sub-sectors that make up the industry. The insurance sector, unfortunately, remains one of the laggards1. What are the reasons for this lack of technology innovation?
Incumbent insurers face significant challenges when it comes to technology adoption and they know it. While the insurance sector has often been categorised as a slow-moving herd mentality industry, firms face the very real possibility of their operations and business growth being compromised by legacy systems that can no longer meet the increasing demands of regulators and clients and which are increasingly expensive to maintain.
Insurance companies are having to face the realisation that maintaining their own IT estate is impacting their ability to adopt new technologies quickly enough. With internal technology projects often lasting many months or even years, any ‘new’ technology being implemented is close to being obsolete before it’s even deployed.
The number of insurtech companies entering the market continues to grow, with annual investment in the sector increasing by 36% to $2.6bn during 20172. There seems little chance that incumbent providers can keep up with their rate of innovation whilst at the same time maintaining hugely expensive legacy systems and software platforms. In the face of these challenges, the pace of change in technology has literally become an inhibitor to adoption for many traditional businesses. Allied to this “inertia” is the fact that the existing systems account for so much of the available budgets that there are often very limited funds left over to allocate to innovation.
With all industries becoming increasingly data-driven, technology needs to be represented at board level and everyone up to and including the CEO should understand how technology relates to each part of their business.
Critically, though, innovation is a state of mind and, much like enterprise risk management, needs to be ingrained throughout the corporate culture. Every function of the enterprise business model – underwriting, risk modelling, sales, product development, claims management, customer service and marketing – must be engaged and company-wide buy-in needs to be driven from senior management. This would be a major step-change for many firms, but much can be gained from adopting a technology-focused approach supported by a commitment to undertake change at a swifter pace. The technology function should be viewed as a key part of overall strategy and can no longer be the sole remit of the IT team. With all industries becoming increasingly data-driven, technology needs to be represented at board level and everyone up to and including the CEO should understand how technology relates to each part of their business.
Leveraging new technology platforms can enable firms to realise the benefits of having a fully inter-connected architecture with the ability to access and deliver data throughout their organisation on a global basis. New technology such as artificial intelligence, blockchain and cloud offer the potential for efficiency gains, better modelling, more accurate forecasting, improved risk management and enhanced analytics.
Critical to delivering change more rapidly than we have traditionally seen in the industry will be the ability and willingness of incumbent firms to identify and partner with specialist fin/insurtech providers. These specialists can accelerate technology innovation and ensure firms have an agile, fit-for-purpose technology platform that delivers operational improvements and can also grow and adapt to meet the future needs of clients and regulators.
Insurers who recognise they need to change and who adopt new technologies will become more efficient, more effective, and able to access new markets. Identifying and embracing emerging technologies will prove to be crucial in the future of the industry. The key to survival is to see technological disruption as an opportunity, not a threat – inertia only leads to extinction.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.