A recent global research study found that 61% of insurance carriers and financial services firms are moving away from traditional, vertically integrated business models. Think about that for a second. More than half of the industry is fundamentally changing how they do business.
Why are carriers taking such drastic measures? The research found three primary market forces – increased competition, evolving customer expectations and new digital technologies.
More than 80% of executives expressed concern that technology giants, such as Amazon, Facebook and Apple, could become major competitors or channel disruptors, and insurtech was also identified both as a threat and opportunity based on recent disruption. For years, insurance leaders have felt comfortable in their position – entrenched in a regulated industry and offering a valued service to customers, but new entrants are offering unique value propositions that are available any time, anywhere.
Unsurprisingly, the study found evolving customer behaviors and demands that are another challenge shaping the industry. As we all have learned over the last decade, consumers are constantly on the go, and they want to interact with insurance carriers the same way they do business with retailers that provide fast and easy digital experiences.
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In addition, 53% of survey-takers said they must better leverage new technology, such as AI, machine learning, blockchain and IoT, to compete effectively in the changing market and keep up with rising customer expectations. These are the very technologies allowing tech companies to affect customer expectations by using data-driven insights to hyper-segment customers and offer hyper-customized products and services. More simply, platform-based companies have agile business models that allow them to better leverage customer data and quickly customize new products at competitive prices.
Given these threats, nine in 10 respondents predictably indicated there is a need for transformational digital change.
Modernization and core systems have been a conversation for years, but insurers no longer have to face the costly and time-consuming option of replacing legacy technology – or continuing on the same limited path. With a digital business platform (DBP), they can adopt and integrate new technologies with their existing core systems, allowing them to work with a global ecosystem of partners to become more nimble and customer-focused.
Initial findings are encouraging, as 85% of respondents indicated that a DBP represents an opportunity to reposition their companies, and 83% agreed that integration of legacy core systems into a DBP is important for competitive positioning in the next three to five years. However, only 23% have a DBP that is working and providing benefits. Quite the dissonance…
On the bright side, 32% of insurance carriers reported having built a DBP, compared with just 23% of banks and 19% of brokerage, wealth management and capital market firms. It isn’t often we hear insurance is ahead of the technology game, but with the opportunities – and threats – at their doorstep, now is the time to act.
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Those who attempt to maintain the vertically integrated business model supported by legacy technology will struggle to remain relevant. Meanwhile, digital-forward insurers that capitalize on the path to modernizing core systems with digital features will reap significant benefits. The current industry environment is best summed up with the phrase often attributed to Charles Darwin – “survival of the fittest.”
For the research, 471 senior executives in banking, insurance, brokerage, wealth management and cards and payments were surveyed across the U.S., U.K., Germany, Spain, Italy and Japan in early 2019. Nearly 50% of respondents were from institutions with more than $10 billion in annual revenue, and 55% of those who completed the survey were C-level executives.
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