Almost half of life insurers in North America have no digital plan, and, even as elements of the industry change around them, many are struggling to build an internal case for innovation and change in cultures that resist it.
Those were the findings of a recent survey by Gartner. Inc. and the Life Office Management Association (LOMA) of LOMA members.
“While other insurance sectors, such as property and casualty (P&C) and health, are transforming at a faster pace, the life insurance industry continues to be more risk-averse and traditional in its business approach,” said Kimberly Harris-Ferrante, vice president and distinguished analyst at Gartner. “IT leaders in North American life insurers often underestimate the impact of technologies and trends such as disruption from insurtech companies, changes in consumer lifestyle, and growing adoption of the Internet of Things (IoT) among consumers for health and lifestyle management.”
According to the study, participants considered heightened security and cybersecurity risks to have the biggest impact on the industry during the next three years. More-unpredictable risks, such as changes in consumer lifestyle, spending and savings, were considered less threatening.
“The failure to understand the pace and breadth of industry change will be risky in the long term to life insurers, which will find that it is increasingly difficult to respond to new market entrants and keep up with consumer financial and life insurance needs,” said James Huffman, second vice president, Management Solutions, LOMA. “Our research demonstrates that companies that do not aggressively establish an enterprisewide digital program will fall behind, leaving them vulnerable to traditional and nontraditional competitors.”
The survey was conducted from February 13 through March 13 of 2017 among 51 respondents in North America. Participants were members of LOMA. The study aimed to assess the impact of emerging trends on IT investments, IT decisions and organizational decisions.
Based on the study’s findings, it is critical for North American life insurance CIOs to rethink their approaches to digitalization, Gartner reported. Insurers that are unable to transform face higher risk due to market disruption and growing pressures from outside the industry:
Insurtech companies that present new options for consumers to access life insurance are emerging — New insurance brands offer digital consumers the option of a new buying experience, and aggregators that allow life insurers to reach consumers in a digital marketplace are maturing. Traditional life insurers offering commodity products such as term life will need to learn to better compete with these disruptors, possibly collaborating with them or acquiring them.
Life insurers failing to evolve will risk not being able to meet the emerging needs of the digital consumer — Gartner research shows that increasingly, North American consumers want to engage through digital channels and their expectations for life insurance are shifting. To support enhanced content delivery and user experience, North American life insurance CIOs will need to build modern platforms that leverage mobile and other digital technologies. CIOs will also need to support business process changes, integrate current and new sales and service channels, modernize their back-end systems, and enhance customer experience through behavioral analytics and the use of artificial intelligence.
Seek new partnerships — Business and IT executives from innovative North American life insurers should be seeking new partnerships with distribution partners, consortiums (such as for blockchain) or insurtech firms to advance products and services best suited for today’s consumers. Currently, most insurers don’t have large, effective business ecosystems. CIOs will need to help drive ecosystem innovation and educate their business partners on the IT changes required to support these ecosystems as they develop.
Legacy systems are a challenge — Digitalization will be challenging for most companies because of their reliance on their legacy systems. These systems undermine openness and the ability to develop the next-generation insurance products (such as those leveraging wearables) and build digital front-end platforms. The Gartner-LOMA study found that the top two challenges for the next three years will be aged systems that cannot support new business needs and legacy modernization.