Insurers Need to Upgrade Technology to Bridge the Digital Divide
September 30, 2014 – BOSTON–(BUSINESS WIRE)–As insurers look to fuel growth, build better relationships with customers and move into new markets, significant investment in technology will be needed in order to keep pace with change, according to a new report from State Street (NYSE:STT). “Platforms for Growth: Technology Innovations in the Insurance Business,” highlights that although insurers show an appetite for change, they are struggling to build a solid technology foundation that will better serve both their portfolios and customers. The report is based on a research survey of more than 300 insurers conducted in conjunction with the Economist Intelligence Unit (EIU).
The market for insurance products is undergoing disruptive change with 78 percent of respondents facing growing demand from their customers to invest in new technology, more than business expansion, new regulations or competitors’ actions. The report found that to meet that demand and access new customer segments, insurers are investing in customer relationship management systems (58 percent), social media tools (57 percent) and technology to capture new customer insights (50 percent).
Evolving at the Speed of Technology
Meanwhile, new market entrants are changing the competitive landscape and using data-driven technology to transform the traditional insurance business model. However, incumbent insurers are struggling to keep pace, with only 31 percent describing the pace of innovation as “rapid.” Insurers must overcome historical data silos and integrate legacy systems to retain their competitive edge. The report found that 86 percent of insurers are still challenged by legacy IT issues, with 93 percent saying they need a new IT infrastructure to integrate and manage data and only 38 percent are “very effective” at turning multiple data sources into actionable insights.
“Insurers have to focus on turning data from a liability to an asset,” said Pete Thurmond, head of insurance sector solutions, North America at State Street. “However, misaligned objectives may be holding insurers back with only 28 percent of respondents agreeing that their technology and business goals are in synch. To access new client segments and counteract new tech and data-driven competitors, it will become increasingly important for insurers to focus on collecting and analyzing data to understand consumer behaviors and deliver tailored products that match those needs.”
From Retrofit to Future Fit
Advanced data capabilities will also provide an edge as changes in investment strategy force upgrades in the asset management arm of insurance companies. Respondents noted plans to expand their investments into alternatives (21 percent) and emerging market equities (53 percent). However, less than two thirds (58 percent) are very confident their current technology and operating platforms can support these changes to investment strategy and only nine percent rank as “excellent” their ability to integrate investment data from multiple sources to achieve a comprehensive portfolio view.
Underwriting Starts with You
A broader problem may be structural disconnects in managing technology overall. At many insurers, there appears to be a cultural divide separating the IT function from the rest of the business.
Only 36% of respondents who identify as business managers agree that technology managers are flexible in the face of changing business needs and less than a quarter (22%), strongly agree that technology managers are proactive in proposing new, innovative solutions.
Alternately, 26% of respondents who identify as technology managers strongly agree that business managers readily take advantage of new technologies. Additionally only 18% agree that senior leaders in their company give technical initiatives the priority they deserve.
“As insurers deliver tailored solutions driven by big data to consumers, they must also convert investment information into actionable insights for their portfolios,” continued Thurmond. “To bridge the digital divide, both technology and business managers must be proactive in proposing innovative solutions, prioritizing technology advancements and offering actionable data and to support these changes to investment strategy.”
On behalf of State Street, the EIU conducted a global survey of 321 senior executives at insurance companies in June and July 2014 to examine the technology challenges facing the sector. Thirty-six percent of respondents were from Europe, Middle East and Africa (EMEA), 34 percent from the Americas and 30% from Asia Pacific. Eighty-two percent represent firms having $1 billion or more in annual revenue.
To view the full report, click here.
About State Street Corporation
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