The insurance industry is advancing rapidly. Consumer-power is increasing and as a result insurers are being subjected to more and more external demands. A simultaneous rise in the wealthier, retired generation, and premium-conscious millennial generation is dictating the type of products and services that insurers offer. Customers are becoming less brand loyal and more digitally-minded, meaning that organisations that are not modern, simple, fast, and competitive will fall by the wayside. In this day and age, only the technologically savvy can survive.
Unfortunately, many organisations are being severely hindered by old and redundant legacy systems. Whilst an increasing number of organisations are investing in a digital transformation, the believes that many insurers “are yet to fully capitalise upon the transformative power of digital technology”.
Replacing these legacy systems can be incredibly daunting. Earlier this year, a global survey by the Economist Intelligence Unit of 321 senior executives from insurance companies around the world found that 59 percent of respondents admitted to spending “considerable amounts of time addressing legacy IT issues.” Similarly, a recent report by the consultants PwC stated that “Much of the industry is struggling to keep pace with new technologies, and incumbents feel threatened by new entrants unburdened by legacy systems.”
And yet, as overwhelming as it may seem, insurance companies absolutely must adapt and update in order to meet the challenges of such a consumer-driven industry.
For instance, the increase in third-party data sources could prove invaluable to insurers. Companies that make use of real-time data would be able to alert specific customers to relevant events immediately; efficient data management would allow organisations to better understand customers, enabling them to create personalised and individual services.
Understandably, insurance companies are subject to particularly stringent regulations and compliance guidelines. Such regulations make modernising even more overwhelming. For example, cloud computing could help solve many of the challenges organisations currently face – particularly when it comes to data consolidation, storage, and analysis. IT departments, however, are often unsure as to how to migrate to the Cloud whilst still following the rules: what data is allowed to be stored in the Cloud? What exactly can the Cloud be used for?
Often, in order to avoid contravening regulation, IT departments abandon the idea of the Cloud altogether. In some instances, following pressure to adopt the Cloud, they migrate before they understand the rules.
Navigating the minefield of regulation to replace legacy systems however, is becoming even more crucial. In January 2016, Solvency II will come into force across all EU member states.
Solvency II is a risk-based system which, according to Lloyd’s, will ensure “a uniform and enhanced level of policyholder protection across the EU.” The new ‘Supervisory Review Process’ will shift the focus from compliance monitoring and capital towards the evaluation of risk profiles, an organisations’ risk management and governance systems.
The new system will require companies to publish details of the risks they face; forcing them to become more transparent and open, big data becomes essential. Organisations must introduce robust systems that will allow them to use data to accurately assess risk – not only for the sake of the customers, but also to meet industry requirements.
To read more about the challenges facing the insurance industry, and to discover Trustmarque’s best practice guidelines, download our white paper here.