By Martin Sarjeant, Head of Risk Solutions Management and Strategy- Insurance, FIS
The findings of the second annual FIS Readiness Report highlights that the industry is indeed at a turning point, shifting focus from operational efficiency to expansion and product innovation.
The report surveyed of 300 senior insurance executives across the globe, asking them to assess their capabilities across six operational pillars; automation, data management, emerging technology, digital innovation strategy, and client value and risk management. The report found that firms who were ‘Readiness Leaders’ were those who had modernised operating models and who have prioritised digital innovation strategy and emerging technologies are growing their revenues 1.75x faster than the rest of the industry.
The emphasis on expansion and innovation initiatives over client retention and operational efficiencies is why we are seeing more investing in digital modernisation strategies. This change has been driven by a number of factors. Investments in data management, for example, are beginning to pay dividends, as has the more effective use of in-house resources. The response to increased regulation following the financial crisis has caused this partly, forcing insurers to make changes. Yet growing digitisation across the industry has significantly increased the competitive importance of innovation, as the marketplace becomes more crowded and accessible to new entrants.
A small cohort of insurers (60 of the 300 surveyed) identified by the report as Readiness Leaders, have pivoted to this expansion agenda faster than the rest of the industry, supported by more mature operating models and more advanced innovation strategies, and are experiencing substantially higher growth because of it.
When it comes to digital transformation, automation is the first step in modernising any operating model. For the Readiness Leaders’ big investments in automation is helping to reduce manual errors in order to enhance data accuracy, with 91 per cent saying they have achieved better data quality and distribution as a result of their automation, compared with just 54 per cent of the rest of the industry.
The next step is to look at cloud technology, artificial intelligence and machine learning. Two-thirds of insurers reported either having plans or being in the process of migrating their mission critical applications to the public cloud. In addition, emerging technology taking centre stage in the insurance industry is centred on risk management. Overall 30 per cent of respondents in the insurance industry are focusing their efforts on developing machine learning and AI. Of that group, 41 per cent are focusing how it can help on risk management applications.
The rest of the industry faces an uphill challenge to keep pace with those firms, and will need to follow their lead in the following three key areas in order to compete in the future.
1) Harness new regulations as an opportunity to streamline operations
New regulatory demands can easily be seen as a drain on both resources and budgets, withholding future investment in growth and innovation. Yet as demonstrated by Readiness Leaders, effectively deployed automation software presents a significant opportunity to turn new regulatory demands into better sources of accurate and reliable data, improving business intelligence and providing greater upside.
2) Assemble the right technology toolkit
Cloud and machine-learning tools are helping to drive more sophisticated risk management capabilities, and Readiness Leaders report going further in embracing the public cloud for mission-critical applications.
Yet focus also needs to sit on freeing up IT resource to focus on new ways to interact with the customer across all touchpoints, as new generations of consumers that are proving more difficult to engage with enter the marketplace. For many, doing so will require substantial upgrades to their technology toolkits to enable teams to deploy new solutions to market faster.
3) Become part of the disruption
As the World Economic Forum appropriately highlighted, the insurance sector faces huge changes ahead, and the ability to respond to this change at speeds the risk-adverse industry will be unaccustomed to are now critical for survival. Insurers must look to evaluate and innovate their current service and product offerings for a fast-changing marketplace.
There is still a long way to go for the insurance sector, but what’s encouraging is the big shifts in attitude and focus that can be seen in this year Readiness report when it comes to digital modernisation. Firms choosing to focus on modernised their operating models and invest in sophisticated innovation strategies are setting the pace for growth and it will be those that join the race late who will be left behind.
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