The Perspex wall
Some commentators have said that technology is threatening the traditional business model of the insurance and reinsurance sector. A report published by the European Insurance and Occupational Pensions Authority (Eiopa) in June said that both insurance and reinsurance industries are lagging behind in the digital consumer experience, and it called for the market to drastically review and transform their use of technology. Here, Steve Reid, Business Strategy Director at Xuber, explains why he agrees. If reinvention is not taken seriously, the London market is heading for a collision with a Perspex wall.
The tale of the insurance and reinsurance markets’ failure to get to grips with new technology is well documented.
As a market, we are risk-averse. Most companies do not want to be the leader of the pack, or the first to step into the uncharted territory of new technology.
But keeping pace with what clients want and expect is absolutely vital to any industry or market, and falling behind the latest advances can mean losing market share – or even extinction.
It is a simple fact that the London market is losing share in reinsurance business. According to the London Matters report from 2014, reinsurance purchasing is increasingly centralised and alternative centres such as Bermuda, Singapore and Zurich in recent years have been taking a much bigger share of the business. There is an excellent case for change, for the market to embrace technology and create new foundations for the London insurance market of the future.
In a recent article published in Insurance Day, insurance industry leaders at Monte Carlo issued a clarion call – embrace technology and innovation or risk becoming obsolete. The message could not be more stark. This call to action is not new; the insurance industry has grasped that technology will be pivotal to the success of the industry in the future but now it needs to make it happen.
There is, however, a problem. Huge pressure on costs continues and instead of investing in new IT systems, many insurance and reinsurance carriers are opting for short-term solutions. Some are looking to tweak their current technology estates at the edges, rather than opting for more extensive changes or wholesale replacement. It’s a generalisation, but the attitude of some businesses in the market can be summed up as “if it's not broken, don't fix it”.
My fear, however, is that it’s like the market is running up to a Perspex wall: it’s there but you can't see it - and you have no idea of when or if you will hit it. Hitting the wall means disruption, but without a crystal ball, no-one knows what form this will take. It could be a new business model, or it could be a new market entrant with no legacy issues, that can use next-gen technology innovation and harness data to transform the customer experience and gain market share. Perhaps Amazon or Alibaba will step up. Or perhaps it will be an established forward-thinking (re)insurer that takes a positive step into the digital world
This disruption is what keeps markets evolving. Whatever happened to the dominance of Blackberry or Nokia in the mobile phone market before Apple? Look at how Uber and Airbnb have rocked the taxi and hotel markets and changed them forever. Many say that this kind of disruption could not happen in commercial and specialty (re)insurance markets, but I would not bet on it.
The London market is waking up to the reality that things need to change and it has adopted the Target Operating Model (TOM) to try to make market-wide changes in technology. TOM sets out some clear thinking and makes sense.
But it will take time to deliver the agreed agenda. Will the pace of change be fast enough to avoid “left field” disruption?
The London market has many strengths. It is a centre of excellence with the greatest concentration of specialty insurance and reinsurance knowledge and talent in the world. It has great underwriters, who write a diverse portfolio of risks, a concentration of excellent brokers with access to distribution, and extensive ancillary services. But being a speedy adopter of change is not one of its key characteristics.
Technology will clearly be right at the heart of the London market of the future. It can reduce costs, connect participants globally, and allow access to data like never before. And data is key. Success will come to those organisations that can harness data and use it purposefully to create differentiated propositions and the perfect experience for its customers.
Technology is the catalyst for change. Yet unless the industry enthusiastically embraces the need to change with a sense of urgency, it runs the danger of unexpectedly hitting the Perspex wall.
To learn more about how CSC is transforming insurance in general and the London market in particular, register for our event at Landing Forty Two, Leadenhall Building on the 11th October at www.csc.com/transform-london
By Steve Reid, Business Strategy Director at Xuber, part of CSC