Having lagged behind their financial services peers in adopting digital technologies due to regulations, reluctance and cost, a survey by Willis Towers Watson in conjunction with Mergermarket finds an increasing number of insurers now regard investment in digitalisation a priority.
Findings from the survey shows that almost three-quarters of insurers (74%) believe the insurance sector has failed to show leadership in digital innovation. Cost is a major challenge with respondents blaming the length of time required to commercialise new technologies (32%) and the size of investment required to transform (24%).
Fergal O’Shea, EMEA Life Insurance M&A Leader at Willis Towers Watson, said: ”Banks have had more contact with customers, which has given them a head start. The quality and frequency of the information exchange between insurers and customers, who may simply be renewing a policy once a year, just isn’t the same.
“However, insurers recognise the importance of building a sustainable digital infrastructure to improve customer engagement and as an essential distribution channel, which is likely to be addressed through internally-driven innovation, joint ventures and M&A activity. For those that hesitate, there remains the commercial risk that they will get left behind and fail to capture future generations and younger policyholders who are more likely to engage via digital distribution.”
Almost half the respondents to this survey (49%) now expect to make an acquisition over the next three years directly driven by the desire to acquire digital technologies, including 14% that intend to make more than one acquisition.
The survey reveals nearly all respondents (94%) expect distribution to be the area where digital technologies have the greatest impact over the next five years. Insurers also see claims processing and loss adjustment, and customer management as strategic priorities.
“Distribution is a recurring theme for insurers surveying the digital landscape, as it offers opportunities to find new ways to market - and to build closer, more engaged relationships with the consumers of their products and services,” said
Andy Staudt, EMEA P&C Insurance Leader at Willis Towers Watson. Web and mobile delivery channels are the stand-out technologies over the next two years according to insurers taking part in the survey (77%), with big data, automation, robo-advice and sensors also singled out as key areas over the next five years.
At the same time, insurers also recognise the huge challenge and opportunity to leverage digitalisation to create operational efficiencies throughout the business that will not only manage cost, but also streamline processes to significantly enhance customer experience.
Andy Staudt said: “The tools and technologies now emerging are often so far removed from insurers’ previous experience – unlike, say, digital transformation of distribution – that external innovation models are likely to be their only way of expanding their digital capabilities. This is expected to lead to a wave?of new M&A activity in the years?to come.”
Developing data and analytics tools is also highlighted in the survey as a key part of the innovation race for the insurance sector, with many insurers claiming to have already made substantial progress in this area. Nine in 10 (91%) have been exploring how to gather more information direct from their existing customers. Meanwhile, 79% are using and leveraging social network data and more than half (53%) are looking at how to mine publicly-available data in new ways.
When it comes to digitally disrupting the industry, 45% of insurance companies believe they themselves will be the most likely to do so in the years ahead, while the same number tip start-up businesses to have the biggest impact. Just 8% see new entrants from the technology sector as likely to disrupt their marketplace. While?the likes of Google and
Facebook are inevitably singled out as potential disruptors of many industries, insurers appear relatively sanguine about the threat they pose.
“To improve margins in the current?low interest environment, insurers need to find margins in the way they do business and grow their customer base which technology can help with,” said Fergal O’Shea. “Disruption in how firms do business?is needed for product innovation, as?is improved engagement with future generations of policyholders, which can improve customer lifetime value and profit margins.”
|
