In the urgent landscape of 2024, insurers relying on legacy systems face a risk of falling behind competitors who are leveraging agile technologies. However, there’s hope amid this urgency: today’s technology stands ready to revolutionise scalability, offering a quicker and more efficient path to peak performance. Here’s why.
It’s no secret the insurance industry is facing more pressing challenges than ever. Interest rates, regulation, market turmoil, the list goes on. And while technology and digital transformation might be on that list for many, it might just be the one item that could change the game if looked at from a new perspective.
The rules of the game today
Many organisations are still operating on on-premise IT systems, which can be costly and unsuitable for a modern business. Meanwhile, smaller, nimbler companies are emerging to take on established giants, who are failing to consistently invest in technology transformation. Ultimately, for established firms, it will make it harder for them to remain competitive in the upcoming years.
Meanwhile, a large percentage of the insurance workforce is expected to retire over the next few years, leaving a significant talent shortage and knowledge gap. This impending wave of retirements poses a threat to insurers that are overly dependent on experienced employees with expertise in their company’s legacy systems. The retirement cliff may also leave companies struggling to secure sufficient talent to effectively manage their middle and back office functions.
If leaders aren’t careful, these industry pressures could become a perfect storm, putting the survival of their businesses at risk.
Recognising these challenges and a need for change, 74% of European insurance firms view becoming digitally native as a core strategy for 2024 and beyond, according to recent research from investment management solutions provider Clearwater Analytics. But while there has been some clear progress with digital transformation efforts over the last two decades and the data suggests most insurance firms are prioritising becoming digitally native, the industry still has a long journey ahead. In fact, 80% of firms in the 10-50bn segment reported that they still need to use manual intervention for accounting tasks and reporting.
“Everyone knows that we can’t avoid digital transformation forever”, says Josef Sommeregger, head of DACH at Clearwater Analytics. “My question is, when will we realise that this has to happen now?” Organisations have to recognise the need to change their legacy operating models and the urgency of taking action now.
He adds: “Without agility, you risk missing out on the growth opportunities it brings.”
For Sommeregger, the first step of future-proofing operations is establishing a solid data foundation. Encouragingly, the vast majority of insurance leaders recognise this, with 98% of European insurers acknowledging the importance of a robust digital data strategy, focusing on access, aggregation, accuracy and analytics, according to Clearwater Analytics’ research.
However, the same research found that less than 25% of surveyed insurance firms consider themselves advanced in their digital transformation journey. It also found that 90% acknowledge that their operating models fall short of meeting future business needs – a gap that highlights a need for immediate action if businesses are to survive.
Achieving peak performance
So, what’s causing this gap between awareness and action? Why are some companies falling behind on essential transformation? The answer is simple: the digital transformation journey can seem overwhelming, and leaders are unsure if their investment will pay off.
Sommeregger urges businesses to step back and prioritise desired outcomes to make the project more manageable. Embracing digital transformation can seem daunting, but the journey begins with a clear vision and a commitment to incremental progress.
Insurers must evaluate their current operating model and consider seeking third-party support to reduce manual processes they rely on. Establishing robust data foundations is crucial for success. Once these are in place, insurance companies can then focus on the areas that set them apart from competitors and deliver for their clients.
For many organisations, partnering with a business process-as-a-service (BPaaS) provider could be the solution to help get the ball rolling. It allows companies to focus on running their businesses efficiently while the challenges around change management are effectively outsourced.
Sommeregger underscores the critical need for insurance leaders to act decisively, posing pivotal questions about their investment operating model: “Where are our resources allocated? What talent gaps persist? Where can we urgently secure a partner with a technology-driven approach?” Failing to act now risks being left behind in the rapidly advancing agility journey.
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