How far has digital transformation progressed in the insurance industry? In recent weeks, the market research and consulting firm ISG surveyed 200 business decision-makers and IT experts about their companies' digital roadmaps. The results confirm the megatrends of recent years. However, they also reveal new challenges that the industry must increasingly address.
Digitalization is an ongoing topic. No question about it. But what is currently driving insurers' transformation programs particularly strongly? For nine out of ten respondents, improving the customer experience is key. 40% consider it important, 46% even very important. The desire to respond to current customer requirements more quickly than before is correspondingly high: Three quarters of respondents (75%) see this as an outstanding motivating factor for further expanding their companies' digital programs. Only increasing competitive pressure is weighted somewhat higher, receiving as many as 77% of the mentions.
The issues of customer centricity and increased competition are closely intertwined. After all, the greatest danger comes from precisely those companies that are particularly fast to market with customer-centric digital offerings. It is therefore not surprising that the faster introduction of new insurance products is seen as the fourth most important digitalization driver: 37% of respondents rated the reduction of time-to-market as an important factor, 39% as a very important factor.
So much for the targets. But what about in practice? The expansion of platform business clearly tops the list of measures to be prioritized. 45% of those surveyed see this as a key means of gaining a more comprehensive understanding of their customers' needs and, building on this, of opening up new value creation opportunities. In the context of this development, improvements in process organization and the product portfolio are called for, in particular simplification of the contracting process (40% of responses) and simplification of products in general (37%). Similarly frequently mentioned are the faster examination of customer inquiries (36%) and the development of personalized offers (33%).
In terms of concrete IT support, 43% of the insurers surveyed are focusing on expanding their own web presence into a direct sales channel. They attach a correspondingly high level of importance to the topics of mobile apps (42%), marketing via thematic platforms (37%), and digital payment (34%).
But how do all these measures affect the companies? We then asked the study participants which areas have already seen significant changes. The good news is that the most frequently cited benefit categories are lower costs (40%) and higher process efficiency (39%), two factors that are particularly important for companies' digital strategies. However, the desired effects come at a price, and that is the bad news: the transition to Internet-supported business processes increases the number of potential points of attack. Against this backdrop, 42% of respondents said that sharply rising security issues were also among the top effects of digitalization, such as greater vulnerability to cyberattacks. Other difficulties associated with the digital transformation of the insurance business are also seen, but at a much lower level. These include acceptance problems among the workforce (16%), complying with regulatory requirements (14%), and the loss of customers who do not want to go digital (10%).
COVID as an enhancer
Overall, the vast majority of market participants rate the benefits of digitalization significantly higher than the risks. This view is reinforced by the pandemic experience of the past 20 months. When asked how the corona crisis had affected them, the expansion of direct business via the Internet received the strongest approval with 36% of responses. In addition, just over one in four (27%) confirmed that the ongoing digitalization programs had accelerated significantly as a result of the corona crisis.
In order to expand their digital capabilities accordingly, half of the respondents (46%) express the desire to hire more qualified personnel. In addition, 34% say they are interested in acquiring suitable IT service providers. By contrast, far fewer companies intend to take over InsurTechs. Here, the approval rate is 26%. This result is in line with our market view: At present, the majority of insurers tend to focus on entering into partnerships with InsurTechs and giving the digital newcomers sufficient scope for their development.
It can be assumed that the core trends described here will continue in the coming years. The development path toward all-encompassing customer centricity is irreversible. Accordingly, the business will continue to push for further simplification of both products and business processes. From the IT perspective, this will increase the pressure to remove the legacy systems that are still in place and to completely modernize the application landscape. Using the resources that this frees up, new capabilities must be developed that make the transition to a platform economy manageable and the risks associated with the change controllable.
This is also confirmed by the answers to the question as to which skills companies intend to invest particularly heavily in over the next two years. Data analytics (42% of responses) and cyber security (40%) are the top two areas of expertise. These are two areas of expertise that will make a decisive contribution to shaping the transformation to a purely customer-centric company, without losing sight of the risks of this far-reaching transformation.
Pulse Check – State of the European Insurance Industry 2021