Sep 01, 2022

Are you ready for the technology revolution in insurance?

Andrew Dixon

Andrew Dixon

Are you ready for the technology revolution in insurance?

The UK insurance market is one of the largest in the world, generating significant revenue and profits for companies who demonstrate underwriting excellence and distribution reach.

But in many respects, UK insurance is an inefficient industry. Disaggregated value chains, heavy manual underwriting, large contact and administration centres, complex IT estates, and a lack of advanced analytics across the value chain have created a sub-optimal model.

Many incumbents have also been slow to respond to changing customer needs. Developments in pay-as-you-go, dynamic underwriting, mobility, embedded insurance, and the sharing economy have resulted in missed revenue opportunities or a reliance on delegated underwriting models to secure volume.

Perhaps not surprisingly, and reflecting the size and profitability of the sector, these industry dynamics are triggering unprecedented levels of private equity investment. And where large-scale private equity enters a market in the search for value, incumbents are forced to respond with significant investment to remain competitive.

The implication is clear: transformation of the UK insurance industry will accelerate over the next 5-10 years. For those of us working in the sector, it’s going to be a very exciting period of change.

So where is the focus of this investment and how should existing insurers respond?

While some of the investment is driving M&A activity, the vast majority is focused on technology enabled transformation. We have seen incredible advances in technology in recent years - particularly in relation to cloud computing, data and advanced analytics, modern software engineering practices, and agile ways of working. These developments have fundamentally changed the economics of technology investment and opened the doors to widespread innovation through experimentation and incubators. In turn, this has led to a proliferation of new technology solutions across the insurance value chain and the emergence of new insurance providers who don’t face the same constraints as traditional insurers.

At Credera, we believe that insurers need to evaluate their current state in three key areas:  

1. Fixing the basics

Historically, technology has been seen as a large expense, rather than a source of competitive advantage. As such, the function has typically been starved of investment, leading to the build-up of complex legacy and end-of life infrastructure.This introduces significant risks to the organisation, particularly with the growing threats in cyber security. Addressing these critical risks requires significant investment in cyber security, technical debt remediation, and ensuring there is an effective risk and control environment.

2. Establishing operating model efficiency

With large contact centres and administration functions underpinned by complex IT estates, many incumbent insurers have an operating model that is heavily siloed, inefficient, lacking in agility, and difficult to scale. This is not sustainable in the future world of insurance. Organisations need to drive digital self-service, automation, and straight through processing. This needs to be underpinned by a rationalisation of the technology landscape and the broader operating model (product shelf, distribution footprint, customer contact model, etc.), while truly embracing the principles of agile delivery to improve efficiency and ways of working.

3. Creating a platform for innovation

As companies unlock efficiency and address the critical risks in their core business, the ability to innovate becomes a key differentiator. Innovation takes many forms, such as opening up new distribution channels, launching new products, enhancing underwriting, integrating IOT devices, and developing partnerships with other organisations to deliver value-added services.

Creating the environment for innovation is part cultural and part operating model, with data playing an increasingly important role. The potential from data and advanced analytics is huge. Efforts to date have largely focused on pricing, underwriting, and claims, and this has driven significant financial benefits for early adopters. However, further opportunities exist across the entire value chain, from customer marketing and distribution management, through to customer operations, product development, and finance actuarial.

Closing thoughts

Whilst the scale of the transformation might seem daunting, depending on the starting point for the organisation, incumbent insurers should recognise that they have distinct advantages over new entrants in the market. But that is not a reason for complacency, particularly as many established competitors are investing heavily in these areas.

How we can help

Credera is a global boutique consultancy, with deep technical expertise in DataCloud, and Software Engineering. We have over 30 years’ experience delivering complex technology transformation programmes with ambitious organisations across the insurance industry. We build and deliver change road maps that embrace the three areas we have highlighted above, helping our clients to understand where they should be investing given their current position. To learn more, please get in touch with a member of our team.


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