Five trends that will influence the insurance technology landscape
At this time of year, it’s customary for firms like ours to take a look at what 2018 may hold for our industry.
As we have said already this year, both proposition and technology-wise, things appear to be in a state of flux. Distribution remains the largest battleground in many markets globally with players from within and outside the industry vying for position. Propositions are starting to change with the emergence of external data and artificial intelligence helping to make smarter decisions and smooth the customer engagement process. New innovations and tests of the incumbent model come from both mature and emerging markets. However, it is still a more difficult space to call, with questions like “When will the Internet of Things (IoT) in the home, health, or a commercial segment really take off?” and “When will blockchain change insurance ,and how?” being asked.
Meanwhile, the macro-environment remains challenging. Historic low interest rates and changing demographic patterns continue to apply pressure on both costs and product relevance. Outside of a few growth areas (such as in developing markets and digital risks), making a decent return for investors is simply not the "walk in the park" it perhaps once was.
So, what does this all mean for 2018? Here are our top five technology-led predictions that we expect to take hold in 2018 and then continue to develop over the next few years.
- Industry 4.0 leads to the next wave of cost reduction across the industry. During the '80s and '90s, we witnessed the first wave of cost reduction through automation of simple predictable processes to create what became known as the core systems of insurance. During the 2000s/2010s, we saw the impact of globalization and outsourcing take hold, leading to the growth of new business process and IT services firms and shrinking headcount. Today and into 2018, we’ll see more of the effects from the maturing of interoperability and robotics reshape how we think about back office administration functions and front end customer triage processes leading to the next wave of streamlined organizations.
- Re-emergence of the “build vs. buy” debate, with a variant of “build” in the winning position. Perceived wisdom would suggest that insurance systems should be bought and not built” However, this view is changing due to digital ambitions and the sheer complexity of legacy modernization. Rather than buying existing market solutions for new digital ventures, a bold few are choosing to “build” (or more likely "assemble") all or part of their future applications. This is no longer purely a startup phenomenon either. Even large insurance players are switching to a build/assemble mind-set for launching their most innovative greenfield ventures. The desire for speed, low cost, access to the latest technology, and control of the digital engagement journey are behind these motivations. In 2018, we expect to see this behavior to accelerate as confidence in build returns, and with it the emergence of new B2B insurance component tech players.
- Shaping of the API economy within insurance. As has been evidenced in more advanced digital industries, most notably within firms like Netflix and Amazon, microservices and open APIs, and the opportunities they create, are accelerating. In 2018, we will see the impact of the open banking push while in insurance, we expect to see a growing use of microservices and open APIs to connect to new adjacent risk services, to access data services, and to connect to new digital partners for distribution. The absence of standards to enable the simple swapping in/out of new services will start to create its own challenges and open up space for new aggregation services and markets within a broader innovation ecosystem.
- Innovation and insurtech get serious. Having experienced a brief honeymoon period of excitement and interest in all things insurtech, the space will mature in 2018 as hard questions start to be asked around traction, value and longevity. This is likely to lead to the first round of shakeouts as the successful new players build momentum while the "also rans" start to run out of cash. Picking the winners will require careful selection — or a balanced-risk acceptance of “throw-away” architecture. Leading companies will continue to scan the insurtech market globally for propositions that promise value.
- Data privacy and transparency takes center stage: Internal data, external data, AI, security of data, and the implications around its ethical use. Regulation around data privacy in some territories around the world (such as within the European Union with the General Data Protection Regulation) is already forcing insurers to rethink their operational and data landscape, and ask tough questions around ethics, retention and quality. To meet regulatory requirements, the first wave of actions will be more tactical. However, based upon the lessons learned, a more strategic foundation will emerge leading to a new approaches to data management and new software capabilities. Some territories (including the US) still lag, with minimal regulation around data, allowing incumbents and entrants to experiment further with data, especially when it comes to life underwriting.
Rather than facing a simpler technology environment where the investment choices are obvious, it feels like we’re at a point of inflection where the old established world may have to give way to the new.
At times like these, the bold will experiment and take steps forward, while the rest wait-and-see. Either way, being on top of the latest trends is essential in facing the perennial question of where to place your technology investment dollars. At Celent we will continue to track progress worldwide because valuable solutions know no geographic boundaries.
This blog entry has been reprinted with permission from Celent.