Insurers still intimidated by tech
Digital transformation is playing a key role in merger and acquisition strategy in the insurance industry.
A new survey from Willis Towers Watson and global intelligence provider Mergermarket – ‘New horizons: How diverse growth strategies can advance digitalization in the insurance industry’ – identifies where insurers see the biggest holes in their digital capabilities and reveals how they plan to close these gaps.
It found that 58% of survey respondents said insurance has lagged behind other financial services organizations on implementing digital technologies. One factor that has affected decisions is the significant percentage of insurers that admit to having been reticent about being the guinea pigs for adopting new technologies.
Nevertheless, many companies seem to be intent on conquering this fear, partly through the appointment of chief digital officers. A further positive sign is they’re widening of the scope of digital initiatives. Many are starting to look beyond the most commonly targeted business areas, such as distribution and customer service, to claims processing, customer retention and product design.
Perhaps as a result of this expanding focus, a large majority of survey respondents see the insurance industry itself as the main source of disruption to insurance working practices in the coming years.
While nearly half of respondents expect large technology companies to make incursions into the insurance sector in the next five years, only eight per cent expect them to champion industry disruption. A more widely anticipated model is one of collaboration rather than competition.
But a sign of companies forging ahead is that digital technologies now account for more than 40% of research and development spending at most insurers. Moreover, they recognize the opportunities of a complementary, outwards-looking approach to innovation; 45% say they have a preference for acquiring digital capabilities, particularly from smaller and more specialist organizations.
As yet though, investing in fintech businesses is new territory for many insurers. Only 14% of survey respondents have completed a technology-driven deal within the last three years, although 49% said they expect to complete at least one deal in the next three years.
The window of opportunity is still open for insurers, but it’s closing. To make the most of it, insurers need to: have a clear digital strategy; visualize the future of the business; embrace internal innovation, but be prepared for setbacks; think about the bigger picture; consider external opportunities; make the most of existing data assets; adapt the business culture to expect — and accept — experimentation and failure; and protect margins to avoid disruptions to revenue and profit generation.