IT platforms for technology and data sovereignty
The digitalisation of the insurance industry is not least also about renewing the technological basis. Most insurers have a very heterogeneous starting situation. Since the early days of electronic data processing, insurers have invested in systems and often relied on in-house developments.
In recent years, new requirements in the insurance industry have also brought new applications with them, so that the IT architecture has become increasingly complex over time. The business model supported by IT has remained largely unchanged for decades. IT was geared to the paper age and stationary sales networks. Automated end-to-end processing of the main business transactions was never planned. Two different influencing factors have exerted strong pressure for change in recent years.
Administrative expenses for composites - 8.7 percent
On the one hand, insurers must remain competitive by reducing their administrative costs in order to keep up with new digital providers. According to EIOPA data for 2018, average administrative costs in composite insurance were 8.7 percent compared to the EU average of 5.8 percent. This is due to the highly fragmented German market and the slowdown in digitization. On the other hand, customer requirements have changed. Experience from other industries is being transferred to the insurance industry. Purchase and service via digital platforms are naturally expected.
These influencing factors have also changed the definition of the "IT platform". Whereas systems for the administration of contracts, customers, sales partners and financial processes were previously the focus of attention, front-end capabilities are now moving into the foreground. Portals that allow business processes to be shifted to the interface to the sales partner and customer are the focus of further development. Ideally, it will be possible to process all business transactions automatically and in real time in order to effectively address both customer expectations and the cost situation.
The path from the old batch-oriented core systems to the digital world is rocky. First of all, there is the question of the right migration approach and then the right technologies.
The step-by-step replacement is preferred
With the migration approach, most homes opt for a gradual replacement of the old systems over a period of several years. There is a risk that only the technology, but not the business model, will be renewed. In addition, the changeover ties up a large part of the resources in IT and often in other departments as well.
The alternative would be to set up a new infrastructure in parallel with the aim of using it to quickly process new business. The biggest challenge is to quickly implement a contract or, better, customer migration from the old systems in order to reduce the duplicate structures. This path is rarely chosen in practice, as it is considered riskier and more difficult to control. The main problem is the organizational upheaval and the expected resistance of the employees.
When choosing the technology, the market has meanwhile become convinced that standard software is the most likely to be able to solve the problems. At the same time, they are prepared to throw the decades-old tradition of in-house development overboard.
This approach is understandable when it comes to classic administrative applications in the back office, as here it is only possible to differentiate from the competition to a limited extent. Efficiency and compliance are in the foreground. Established software providers from msg, SAP and Adesso to Guidewire offer robust solutions, but they all have their weaknesses in digital interaction.
Front-end solutions are becoming more important
And it is precisely the digital solutions in the front end that will be important in the future. This is where the brand can be experienced. Visual design and usability decide on the profitability of online sales and the acceptance of self-services. The front-end is the starting point for business processes, and in the best case, they can be completed in real time to pay equal attention to customer experience and profitability.
Obviously, real-time case completion requires modern Internet technologies. The InsurTech wave, which has been in full force since 2016, now offers the insurance industry low-cost access to applications, often based on machine learning, that can leverage efficiency potential along the entire value chain from underwriting to claims processing.
The strategic challenge facing insurers in the coming years will be to use the technological opportunities to maintain and expand their competitive position and to help build up a
new digital IT platform to make the right decisions.
A basic requirement for every system and every provider must in future be connectivity via open interfaces. Core systems must have an API layer that allows all processes to be controlled via the front end. Solutions from technology vendors and InsurTechs must be easily integrated to use Iot or other data-based applications. This is the only way to ensure future growth in new business, which is less and less conducted through established sales structures. Aggregators and online retailers require technical expertise just as much as the ecosystems that are created in different areas of life, where insurance protection is merely a provision that is linked to other products and services.
The greatest danger for insurers is that they will lose control over technology and data. When selecting service providers, it is therefore exciting to choose providers who are willing to share software solutions, for example via an open source approach, and who are willing to allow co-development with the insurer's IT department.
In this way, technological know-how can not only be built up, but also kept in the company in an up-to-date form over the long term. Openness for cooperation and the ability to implement these are the guarantee to remain relevant in a changing market.