5 key digital transformation challenges faced by major global insurers
There can be little doubt that the Covid-19 era has had a major impact on businesses worldwide, and the insurance sector is no exception. Because of this, digital transformation in the business world - already a rising trend - has accelerated since the pandemic took hold, as organisations harness whatever technology they can to remain not only operational, but competitive.
Our partner, OutSystems, recently sat down with an elite group of IT leaders from across the insurance sector in Australia. Insights from the virtual roundtable session ‘The Need for Speed: How can insurers win the digital race to stay competitive in the 'next normal' post-Covid-19’ will be summarised in a series of upcoming blogs, and we're kicking off with some of the key challenges the insurance industry presents and faces.
Disrupt or be disrupted: the need for speed
Major professional services companies like Accenture will tell you that there is. It's an area where disruption is rife, and this is before Covid-19 even hit. Of all the industries they track, Accenture felt that the insurance sector was the fourth most disruptive up until 2018, but is likely to hit the top spot as Covid-19 changes everyone's approach to business. With that in mind, there's definitely a need to deliver enterprise-grade digital insurance solutions as rapidly as possible.
Learn more about the need for speed for businesses in New Zealand after Covid-19 in our recent eBook.
Challenge #1: Tradition at the heart of the industry
That digital transformation is disrupting businesses on a global scale is no secret. But the insurance sector hasn't been as swift to adopt new technologies as other industries such as retail and banking.
Insurance has always been a traditionally ‘real-life’ relationship sector, with stakeholders insisting on face-to-face over virtual business meetings and has been relatively slow with its move to paperless. With Covid-19 giving all global industries a push into harnessing technology, it's now more important than ever for insurance companies to embrace the digital pivot.
Challenge #2: The cost of change
Because of the industry's major investment in legacy technology over the years, moving to the cloud is not as simple as it might be for other sectors - mostly because of the cost.
The ideation stage of digital transformation is relatively straightforward, but the execution is the hard part. For an insurance company that’s not ‘born in the cloud’ transformation can be very expensive and require complex restructuring to bring in new digital systems to replace their processes.
And with take up rates being very low in this traditional industry, players need to find innovative ways to wrap digital layers over their business-as-usual.
Challenge #3: Abundance of ‘back-end’ systems and data siloes
The insurance sector is well known for its mid and back office systems and outdated technology stacks. Adding that to the exponential growth in data, often results in data quality and security issues.
68% of insurance companies see these legacy systems as the biggest obstacle to digital transformation. Simply turning them off is not an option as there are risks involved like the loss of valuable data and critical process disruption.
Challenge #4: Balancing the speed of change with customer expectations
Insurers must evaluate the level of disruption and maintain a balance between retaining their existing client base and growing revenue by attracting new customers.
They have to walk a fine line between better product distribution, a better customer experience and coping with severe integration issues with their legacy processes.
It comes down to choosing to run the business like a proactive digital-first start-up with the immense costs associated with change or continuing to run with fully depreciated software systems – always the cheapest (and safest) option.
Challenge #5: Keeping up with regulatory / compliance at speed
From a compliance and regulatory perspective, there needs to be good operational controls when planning for a digital change. Managing that risk is down to identifying complexities and streamlining the change with automation.
Whatever digital experience you plan for your customers’ needs to look seamless and compelling on the front end, while effectively hiding the complexity that comes from various underwriting rules and compliance and fraud checks. The challenge is getting these layers to work together effectively.
Meeting these challenges is down to harnessing technology in a way that allows insurance companies to adapt, grow and move as they go forward - it's how to really enhance the customer experience and stay competitive. There's no doubt that innovation and digital transformation can be genuinely challenging, but now more than ever, it's essential to take risks and experiment.
In the next blog of this series, we cover the ‘build vs buy’ challenge – the age old choice between a standard off-the-shelf solution and the bespoke build. Check back to find out what option would work best for you.