Insurers are facing mounting pressure from customers to increase their technology investments.

A whopping 78 percent of the 321 global insurers recently surveyed by State Street say customer demand will be the number one driver of new technology investment over the next three years. Only 3 percent of the respondents said this would not be a consideration.

The other major drivers of technology investment include growth in business volume (75 percent), new regulation (64 percent) and responses to competitors (64 percent) per the survey.

To meet the demand and access new customer segments, says Peter Thurmond, State Street’s North America sector head for the insurance market, the survey found that 59 percent of insurers globally are investing in customer relationship management systems (CRM), 57 percent in social media tools  and 50 percent are investing in technologies to capture new customer insights.

For the complete State Street report, entitled “Platforms for Growth: Technology Innovations in the Insurance Industry,” click here.

Ironically, more than half of the insurers surveyed described the industry’s pace of innovation as moderate or sluggish. At their own companies, however, nearly a third of the insurers described the pace as “rapid.”

The insurers said they were challenged by legacy IT issues (86 percent) and 93 percent said they would need new IT infrastructures to integrate and manage data. Only a little more than a third (38 percent) said their companies were “very effective” at turning multiple data sources into actionable insights, and only 28 percent said their company’s current technology strategy is fully aligned with their business priorities.

In an exclusive interview with INN, Thurmond discussed the implications of the survey, offering insights based on his interactions with senior insurance executives.

INN: What surprised you most about the results of this research?

Peter Thurmond: Two things stood out. That only 38 percent of the insurance companies felt that their internal data sources were actionable tells us that insurance companies are struggling with data and how to pull it together. Even the companies that have it pulled together, that have data warehouse solutions, are still struggling. How do they use that data to drive new products, to look at different markets they want to get into or to manage their risk portfolios? One of the most surprising things is that even the ones that felt like they were doing a good job with data collection still weren't sure that they could turn it into actionable insight.

The other area that I thought was interesting was that 93 percent felt that their current infrastructure wasn't capable of managing the growing volumes of data to keep up with what they were trying to do internally. That’s telling us that they are continuing to struggle with legacy issues. Or, if they've grown through acquisitions, it could be a people play. They just don't have the bench strength to deal with the changing marketplace.

INN: One thing that leapt out for us was the gap between IT's perspective and those of business users; 43 percent of technology managers said their company is very effective at generating data for actionable insights. But only 34 percent of non-technology managers said the same thing. And, in the Americas, only a quarter of respondents said their technology strategy is aligned with their business objectives.

PT: Yes, it could be that insurers traditionally have grown up in a siloed culture. IT has focused on technology, infrastructure and on the way it works for a specific component of the organization. But then, when you get to the higher levels of an organization, where they're really trying to look across their entire franchise, that doesn’t work. So, how do they do that? How do they access and use that content? That's where I think insurers are really struggling. They may have older legacy systems within parts of their organization that may not talk to one another.

We were talking to a very senior person who made the comment that he thought they had somewhere around 100 reports that were going out across his organization. One of the IT folks was in the room and said he thought it was more like 300, or maybe even slightly higher. The senior person said there was no way that could be the case. A week later, when we were following up and talking with him again, he said they really do have 300 reports going out, but that they were not sure whether people were still using them.

The IT staffs feel like they're doing a good job, but the broader organization doesn't know what they don't know. So, how do insurers pull all of that together? How do they get a view across their entire franchise that helps with regulation, product development, geographic expansion and more complex investments?

INN: According to research from other analysts, the number of insurers actively involved with policy administration upgrades and transformations continues to grow. Is that squeezing out opportunities for forward-looking technology?

PT: From a back office perspective, yes. State Street sees this as a huge talking point, especially at the C-levels of the organizations. Having said that, some insurers are looking and saying: Can we get through the next year? Are there ways to grow distribution? Are there ways to get into new markets?

Insurers’ ways of selling products and services also is changing so rapidly, especially when you look at the younger generation, which may buy more online. And the ability to monitor them, whether with a module in their car to see how they drive, a Fitbit-type tool around their wrist, to see how well they are doing physically and set premiums, could soon have a dramatic impact on the industry.

Insurers know that they need to do something from a back-office perspective, and that may be in a componentized way if they believe they have to address this today, or are wondering how to keep up with regulatory changes or need the ability to invest in new asset types. In other words: outsource everything. Or, are there ways that they can do this in a componentized way that will ultimately get them to where they need to be in the next three to five years? It depends on the organization.

Some organizations are at a point where they know that they have to consider a full outsourcing opportunity. There are other organizations that may do certain things well today, but that may be struggling with compliance and regulatory concerns. They may be struggling with other components, such as asset management, and there’s a way for an organization like State Street to come in and help solve those issues.

INN: So legacy issues and silos are holding insurers back. What about talent?

PT: Insurance companies have a great many tremendously talented people, but a lot of times, those people have been in the organization for a substantial amount of time. Many insurers have grown through acquisitions, which can lead to cultural issues, and as they start looking at different technologies and upgrading, one of the big issues is do they have the right bench strength. Do they need to go out and hire, or do they need to outsource certain components? That can enable them to put some of those stronger players into areas where they may be more market facing. That's an area that we see coming up in a lot of conversations. Plus, while a lot of insurers are in large metropolitan areas, there are a lot of insurers that are not, and that makes it harder for them to recruit.

INN: What insights can you offer about data strategy and speed to market?

PT: The most important thing is for insurers to take a comprehensive view of their data strategy: how are they pulling together all of their individual silos to make the right decisions, not only day-to-day, but out over the future; to make sure they have the nimbleness to get into new markets or to come out with new products aggressively.

We're seeing insurance companies evolve very quickly. Two years ago, we thought that variable products may be dead. Now we're seeing a lot of insurers come back into that market. So speed to market is very important for these insurers. If they can't get products out as quickly as they need to, they are going to get beaten in the marketplace and they are going to lose market share. The ability to look at this from a very high level to achieve that nimbleness starts with the ability to understand their entire infrastructure from a data perspective. That helps them set their strategies.

INN: For the CIO who reads this, what's the most important take away?

PT: Particularly with the changing regulatory environment, there are huge pressures on organizations—especially if they're not tied together in terms of understanding their overall risk portfolio. If I were talking to a CIO, I would say we should spend some time understanding their data strategy, what they're doing with it, how they're pulling it together and then looking at the downstream effects. Where do you need it to go? Is it getting out to the right people? Without that, it's very hard for insurers to make intelligent decisions because they simply don't know what they don't know. 

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