The insurance industry is a knowingly competitive industry, but a recent study has shown that advanced technology, regulatory compliance, and sluggish market growth are providing life insurance companies with an increasingly competitive landscape. Tower Watson surveyed chief financial officers (CFO’s) of American Life insurance companies to analyze the overall market, providing each company with the opportunity to benchmark their issues and challenges against those of their competitors.
Only 20% of CFO’s surveyed believe they are well prepared to respond to this increasingly competitive environment, reflecting the lack of confidence in dealing with changes, which are occurring at a rapid pace.Over the past ten years, technology has changed significantly. Cloud technology has been introduced, and has become increasingly popular with a range of potential advantages over traditional legacy systems. Cloud technology is scalable, less costly, flexible, resilient, and can be implemented in a shorter time frame, than traditional legacy systems.
In the last two years alone, integration with mobile portals and data analytics has propelled technology advancement forward very quickly. A number of insurers are still operating using legacy systems, which can be inflexible and difficult to integrate with modern technology. Legacy systems are fine as long as they produce the results necessary for the business to operate efficiently and competitively, although the Tower Watson survey shows that 56% of respondents ranked technology limitations as the number one obstacle in realizing their profit goals.
Research has shown that insurers can spend almost 80% of their technology budget simply maintaining legacy systems, leaving little room for improvement, and even less for a system overhaul. As well as being expensive, a system overhaul can be perceived as risky and disruptive to a business. To reduce risk and disruption, technology upgrades should be implemented incrementally rather than in one swoop.
Technology can affect insurers across a number of business functions, including financial modeling, pricing, product development, distribution, and customer service. Increased industry competition is affecting the growth objectives of 78% of companies surveyed. To become more competitive, insurers should distinguish which business functions affect risk, profits, and growth. Developing a strategy that includes all three elements will enable industry growth.
Contact us today to speak to a claim professional, and improve your position in the market.