Insurtechs turn up the heat
Insurers face an uncertain future amid increasing pressure from insurtechs, according to interviews with industry leaders.
The inaugural Insurance Industry Report by technology services provider TAS warns insurers are struggling to leverage data analytics and overcome the constraints of legacy systems.
Half of participants in the survey are concerned about the rapid rate of change in the sector due to disruptive innovation, with 20% highlighting “how to innovate and adapt to disruption” as the biggest challenge in the year ahead.
“Incumbents are experiencing a sink-or-swim mentality, with leaders acknowledging that they need to keep up, but expressing uncertainty about how to best do this,” TAS says.
For 21% of participants, the second major change affecting the sector in the year ahead is market consolidation, with mergers and acquisitions activity shaking up the industry.
For about one-third of industry leaders interviewed, legacy systems pose the biggest risk to business success, slowing companies’ embrace of innovations such as telematics, Big Data and robotics.
Leaders are further challenged by the industry’s negative reputation (22%), tech-led disruption (22%) and the rate of new market entrants (11%).
Maintaining margins and remaining cost-competitive keeps 27% of leaders awake at night, while 20% are concerned about client retention.
For one in three, embracing an innovative culture will help drive an enhanced focus on the customer.
Of the leaders championing innovation, more than half are focused on internally led improvements, with disruptive new technologies paving the way for more streamlined operations.
Leveraging disruptive technology is identified as the biggest business driver for the year ahead (22%). This is followed by forging more strategic partnerships (19%), reviewing internal operations and procedures (19%) and adopting a more customer-focused sales and marketing approach (15%).
In terms of investment, 61% of leaders report an increase in spending for the year ahead, while the remaining 49% expect either no change or a reduction.
The areas in which insurers are investing mostly include internal training and development, strategic partnerships with insurtechs and new technologies.
TAS CEO Shane Baker says Australia’s insurance industry is at “a tipping point”.
“Insurers are concerned about the outlook and how best to adapt quickly rather than be left behind. Until now, insurers have felt that regulation would protect them from disruptive market forces – but that is no longer the case.
“In the year ahead, we will see further consolidation. The insurers that prosper will be those that get behind innovation, drive strategic partnerships with insurtechs and challenge themselves to continually innovate and better service customers.”
The report draws on in-depth interviews held between February and June with 50 leaders from a broad range of private and publicly listed insurance companies.
Mr Baker told insuranceNEWS.com.au the study will be repeated annually.
“We have more than 50 financial services companies as customers, and we really wanted to explore what is going on in our marketplace. We have seen some of these changes in the banking sector and it has become very relevant to start looking into insurtech.
“This first report has been a pulse-check of the industry, and in future we will dive much deeper. The report shows there is a clear realisation that insurers need to do something now. That sink-or-swim rhetoric is coming very much from themselves.
“They know they need to change and disrupt from within, or they will be disrupted by someone else. The next challenge is how to do that.”