Since COVID-19 hit, businesses have been quickly adopting technology driven by digital innovation to mitigate disruption. Georges Rehbane, CME, focuses on the insurance sector and elaborates more as insurers look ahead to a bright yet demanding future.
The COVID-19 outbreak was an event that caught the world by surprise, causing unprecedented disruption across every vertical. Yet in the period since, digital innovation has introduced industries to new possibilities, with plans now being pursued to accelerate technology-led projects and ensure digital is used as a force for good that benefits all. For insurers, this has recently entailed delivering new value through health and wellness initiatives, which emerged as a major trend due to pandemic repercussions. Now, with further initiatives sure to follow, market players must pursue a new approach, one that considers awaiting challenges and identifies the most prudent ways to deliver new value.
As insurers look ahead, the bright, demanding future that approaches will be shaped by three key disrupters: customers, innovators, and regulators. Already, customers are driving today’s radical shift from traditional to digital channels, innovators are changing long-standing models with the delivery of new services, and regulators are introducing more constraints to ensure privacy and streamline solutions – actions that have led to growth in insurance. According to KPMG, in the UAE alone, total insurance industry assets increased by 3.0 percent to USD 11.5 billion by the end of 2020, while insurance receivables rose by 4.2 percent to USD 1.2 billion and gross written premium (GWP) by 3.8 percent to USD 5.0 billion.
These trends are certain to continue unfolding, setting the scene for a scenario whereby growth comes from new service-based models and innovative products. As per Deloitte, by 2024, 33 percent of premium volume in the insurance segment will also come from brand new propositions, with technology and innovation sure to solidify its winning formula status. However, such benefits will not always become apparent right away – and insurers can expect to encounter impediments while innovating digitally.
For all the advantages made possible through technology, discrepancies can transpire, particularly where IT is concerned. Digital transformation is accelerating rapidly, yet many players still rely on outdated legacy systems, which are known to mature every nine years in the insurance industry. Legacy systems can pose several issues, including incompatibility with new technologies, inefficient performance, and increased risks in terms of compliance and security.
Whether they be a hindrance or become a prominent driver of operational excellence and business growth depends on two factors: company strategy and company budget. Insurance companies and TPAs with a sufficient initial budget and resources should replace legacy systems. This is a process that can be done incrementally, which will allow for a smooth transformation and the reaping of related benefits progressively. Companies with fewer resources can enhance what they already have at their disposal. It is important to note that those who steer a successful transformation through the latest IT systems and capabilities will capitalise on opportunities, as well as bring more value to customers, their brand, and ultimately establish themselves as business leaders.
Whatever the scenario, insurers must also decide whether to build or buy based on their IT capabilities. In simple terms, buying would be prudent when a required tool or service is a commodity, while building would be applicable when one’s own expertise is relevant. For those unsure which option to select, several points need to factor into the thinking process. If creating value is the objective, one should build rather than buy. With internal knowledge, experience, and IT processes, finding a suitable solution on the market may not be possible or necessary. Meanwhile, those who boast a commodity should purchase a system already created that can be tested and implemented quickly – and technology partners can also support the co-creation of new value in terms of concepts, solutions, products, and services. Whether insurers decide to build or buy, the industry will witness a host of IT initiatives over the coming years, with several imperatives essential for success.
As insurers pursue digital innovation projects in due course, a mix of offensive and defensive actions will be required to accelerate longer-term recovery efforts and thrive in light of continued challenging economic conditions. Rather than revolving around single offerings, simply changing a delivery channel, or maintaining traditional products that do not serve the expanding digital-first customer base, IT initiatives should enable business model changes, drive diversification, and be a catalyst for a successful transformation in the services offered. Moreover, insurers can implement specific tactical moves to mitigate disruption and ensure projects are successful:
As the insurance industry continues navigating challenging conditions, the era of digital disruption should be embraced by players, rather than resented. Whether companies choose to buy or build, enhance legacy systems or completely upgrade IT capabilities, the possibilities and potential for digitally innovating will prove limitless moving forward. The aforementioned measures will support and bolster related initiatives, helping insurers lay the foundations for newfound value delivery.