For years, insurers didn’t consider outdated technology as a top risk. Now they say it’s the greatest threat to their business. This is according to the Centre for the Study of Financial Innovation (CSFI) and PwC’s recently released survey results of the top risks facing the global insurance industry. The biennial “Insurance Banana Skins 2019” report is based on 927 responses spanning 53 territories. The series was first launched in 2007 and ranks the “banana skins” or risks facing insurers.
Outdated technology infrastructure tops the list as the No. 1 threat for the next two to three years. The rank is a jump from the No. 3 spot on the 2017 survey, which was the first time technology ever made the top 10 of a Banana Skins report list. Insurers in all regions—Europe, North America, Asia, and Latin America—ranked technology as their No. 1 concern.
Other findings from the survey include:
- By subsector, life and non-life insurers also felt technological change is their top concern.
- Reinsurance felt the most prepared to handle the risks compared to other insurance sectors, including property and casualty (P&C) and life.
- Other technology-related risks to the global insurance industry include: cyber risk (No. 2), new competition (No. 7), and recruiting talent (No. 8).
The PwC and CSFI report writers say that the overall tone of the responses this year are the most negative since the series launched. “This is largely due to the scale of the challenges facing the industry through technological and structural change, and concern about the industry’s ability to manage them successfully,” they say. “The results should also be seen against a background of growing economic uncertainty around the world, and heavier regulation.”
Here at Workday, we think the survey results are a wake-up call. For years, insurers were squeezing the life out of their legacy systems as a way to avoid high replacement costs. Now, as the survey results indicate, insurers across the industry realize that technology underpins much of their business.
Analysis Paralysis: Insurers Worried About ‘Betting on the Wrong Horse’
Although sticker shock might have been one of the biggest roadblocks to replacing outdated technology, that’s not insurers’ only worry. As one of the survey respondents put it: there’s “significant strategic risk if you bet on the wrong horse.”
Other survey responses are also telling of insurers’ anxiety surrounding technology modernization:
- An actuary based in the UK: “Inefficient insurers risk being left behind, early adopters may end up wasting lots of money on the wrong solution, and new green-field entrants without legacy issues will continue to eat into the value chains of incumbents.”
- A treasurer of a U.S.-based insurance company: “The insurance industry as a whole is woefully behind other financial services firms in implementing technology.”
- A managing director and chief executive of an Australia-based insurer: “The industry is highly likely to select large ‘industrial’ systems to replace current legacy systems. This could well lead to today’s legacy systems being replaced by tomorrow’s legacy system. The industry should look to new ways of using proven technology to provide modern, flexible, adaptable systems.”
But other survey responses indicate that technology modernization isn’t a challenge for everyone: “Some players are not only adapting but leading the change, so the risk is not for the industry but for some incumbents,” says an insurer based in Spain.
Invest in Your Digital Transformation, Not a Legacy System of Tomorrow
After spending years on transforming consumer-facing touchpoints, insurers are prioritizing back office systems, as my colleague Jim Gahagan has written.
As the survey respondents indicated when asked to give their thoughts on technology upgrades, some still fear wasting money on a solution that their business will outgrow in a few years. Chano Fernandez, co-president at Workday, wrote about the ways the modern business landscape is fundamentally changing the expectations of enterprise resource planning (ERP). His explanation is useful for determining whether a technology solution has the foundation to digitally transform your company or if it’s just another legacy system of tomorrow.
“Traditional ERP systems weren’t built with the digital world in mind,” Fernandez says in the blog post. “The rapidly changing demands of a talent-based economy require business systems designed for agility, designed to democratise decision-making, and designed for the way people need to work today.”
In the eyes of many insurers, outdated systems have outlived their usefulness and are becoming a threat.
We invite you to explore how you can improve your underlying infrastructure and advance your insurance business with Workday.