Life insurance in the US lags well behind other insurance product lines when it comes to digital transformation – but IT leaders in the sector are struggling to make the case for innovation and change.
These are the findings of a recent survey of life insurance IT leaders, all members of LOMA (the Life Office Management Association), conducted by market research firm Gartner. The study aimed to assess the impact of emerging trends on IT investments and decisions in the sector and found that almost half of respondents (49 percent) are working at firms that don’t even have a digital strategy.
On top of that, many don’t have a clear understanding of how digitalization could help transform their business models, Gartner said, and in this respect, they are trailing other areas of insurance.
“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 Gartner analyst Kimberly Harris-Ferrante.
“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 believe that heightened security and cybersecurity risks will have the biggest impact on the industry during the next three years. Less predictable 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, LOMA’s second vice president, management solutions.
“Our research demonstrates that companies that do not aggressively establish an enterprise-wide digital program will fall behind, leaving them vulnerable to traditional and non-traditional competitors.”
The advice from Gartner to US life insurance companies is to focus on the needs of the digital consumer. For IT leaders in the sector, that means building modern platforms that use mobile and other digital technologies and enhancing the customer experience through behavioural analytics and the use of artificial intelligence, Gartner says.
But, its analysts acknowledge, a major barrier here is the reliance of the life insurance sector on ageing legacy systems. “These systems undermine openness and the ability to develop 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 dealing with older systems that cannot support new business needs and legacy modernization.
Five weeks to go: On 26 & 27 September 2017, Internet of Business will be holding its Internet of Insurance USA event in Austin, Texas. This event will focus on how insurance carriers can capitalize on IoT.