Just 13 percent of insurers said their company’s enterprisewide data management was considered a significant strength, and 19 percent said they are confident in their company’s multi-asset risk tools, according to State Street’s report, “Rethinking The Risk Business Data And Analytics In The Insurance Industry.”
Investment in data and analytics amongst insurers is expected to grow, according to a report from State Street, providers of financial services to institutional investors. Of the 400 institutional investors surveyed, 67 of whom work for insurance companies, 81 percent said they intend to increase spending on data initiatives, such as risk and performance, portfolio optimization and order management. And, 82 percent said data and analytics are a strategic priority. In addition, State Street said it has seed a three-fold increase in the number of insurance clients increasing investments in data-driven risk solutions in 2013.
“To build an effective data-driven business for 2014 and beyond, insurers should focus on building a stronger foundation,” said Scott FitzGerald, EVP and head of State Street Sector Solutions, Americas. “They can do this by improving risk tools with multi-asset class capabilities, developing solutions to manage regulation globally, accelerating investment decisions, and developing a scalable data architecture.”
Highlights from the report:
- Insurers are rethinking their investment businesses. New investment goals and strategies need to be supported by state-of-the-art data processes and systems, State Street said.
- Multi-asset portfolios create a new challenge in how the industry evaluates risk. Only 19 percent of insurers believe their multi-asset class risk tools are a significant strength — the lowest for any industry sector in our survey, State Street said.
- Insurers need to streamline their legacy systems. Insurance stands out in our survey as the sector with some of the biggest challenges around data management. Only 16 percent of insurers were very confident in being able to manage multiple internal and external data streams, State Street said.
- “Data leaders” will dominate the industry. Nearly two-thirds (61 percent) of insurance executives in our survey agree that data and analytics capabilities will be among their most important competitive advantages in the future. But only a minority feels confident about deriving a competitive advantage from these capabilities today — a group we have termed “data leaders,” State Street said.
- Regulation will accelerate investment in technology. Tools to manage regulation in multiple jurisdictions are a priority for 37 percent of insurers, State Street said.
State Street’s five building blocks of data-driven businesses:
- Improve risk tools with multi-asset class capabilities: Increasingly, risk solutions must provide a holistic view of risk across multi-asset portfolios as well as real-time insights into trade positions, State Street said.
- Develop solutions to manage regulation in multiple jurisdictions: Insurers need systems that incorporate compliance rules into investment, risk and trading platforms, plus reporting tools that support a complex and growing array of regulatory requirements, State Street said.
- Integrate data to extract insight from multiple data sources: Insurance firms need to invest in enterprise data warehouses and better data governance to integrate data currently trapped in a patchwork of legacy systems, State Street said.
- Accelerate investment decisions: In a fast-changing environment, the ability to act rapidly on investment strategies and insights is a key consideration for the overall IT architecture. Front-office tools also need to support the alternative asset classes, State Street said.
- Develop a scalable data architecture that will grow with the business: Insurance firms need flexible systems that can adapt as investment goals and strategies evolve, and new regulatory requirements emerge, State Street said.
“Fundamentally transformed markets, a push into new asset classes and a more stringent regulatory environment are all accelerating change and contributing to a rise in demand for data and analytics capabilities amongst insurers,” said Jeff Conway, EVP and head of State Street Global Exchange. “Risk management has always been at the nexus of underwriting and investment, and insurers know what is at stake. The challenge ahead is how to turn fragmented IT systems into a strong and flexible platform capable of adapting to the demands of a more complex investment climate.”
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