#digitalization #insurance #press #op-ed

Question of survival for insurers of all sizes

The German insurance industry is in the middle of a transformation. Not only will IT expenditure rise to around five billion euros by 2020. There will also be increased investment in new digital projects and business areas.

Portfolio management systems, which map the business model from contract preparation to claims settlement, have always been of particular importance. Today, they are a symbol of the so-called "legacy problem" of insurers. This refers to IT platforms that no longer meet modern IT requirements and can often only be operated at great expense. A look into the insurers' machine room reveals a picture that casts doubt on the future viability of many companies. Almost two-thirds of German insurers use inventory management systems that are 20 years or older. In addition, nine out of ten cases are in-house developments for which there is no external support. This clearly explains why a large part of IT budgets must be spent on keeping old systems alive.

For programming languages such as Assembler or COBOL, it is becoming increasingly difficult to find developers, and mainframe experts are also a rare species. But even if it weren't for the personnel issue, the requirements for supporting digital business models can no longer be met by legacy systems. In order to reduce administrative costs, which are also too high compared to European standards, and to shoot new distribution channels, inventory management systems are required that have a powerful interface technology (new German API layer) to enable end-to-end business processes and process them in real time.

For some years now, large corporations have been making progress in modernizing their IT. Instead of in-house developments, they rely on standard software. The decision on the choice of provider is often no longer made in Germany, but at the respective group headquarters. Instead of many different platforms, the switch to standard software should also enable cross-border work without technological barriers. This approach is understandable and has long been implemented in other industries. The regulatory differences in the insurance markets have also proved to be a brake on development in this case, indirectly offering domestic software providers a protective space that no longer exists.

Greenfield Composite

The main beneficiary of this development in composite insurance was Guidewire, a listed IT company from California that was only founded in 2001 and was known to only a few experts until a few years ago. Thanks to good marketing and a good partner strategy, Guidewire was also able to celebrate major sales successes in Europe. IT research companies such as Gartner or Celent have been giving Guidewire top marks for years and are certainly the godfathers of many decisions made by insurers. The second wave will now be exciting. Many medium-sized insurers have not yet made decisions on new portfolio management systems in composite insurance, and in life insurance we are only at the beginning of the development.

The trend towards orientation towards the international market will certainly continue. Medium-sized insurers will also expand their lists of providers to include those foreign providers of standard software who have proven to have resources in Germany and master the regulatory specifics of the German market. However, providers who can respond very strongly to the needs of SME customers, such as Faktor 10 with its open source approach, also have good chances of holding their own against the competition. It will be exciting to see to what extent the Insurtechs can emerge as winners in larger tenders. For example, sum.cumo has been involved in five greenfield projects in composite insurance since 2013 and has the great advantage of having a big head start, especially in the customer and agent portals and the interface technology, which is important for partner integration. It is precisely the capabilities of the digital platform that are increasingly determining the future viability of insurers' business models. The trend towards digital sales and digital services will certainly be further accelerated by the Corona crisis.

The Israeli tech company Sapiens has held a stake in sum.cumo for a few weeks now, thus opening the door to the German market. Sapiens generates more than €300 million in sales worldwide with over 500 insurance customers and, in the eyes of analysts, is on a par with market leaders such as Guidewire. One could also say that with Tel Aviv and Silicon Valley, the two centres of digital pilgrimage for German insurance executives meet here. Israel scores points in particular for its modern understanding of management and high diversity, which can also be seen in the large number of women in management positions. The close cooperation with science and above all the military is part of the success story here and there.

One-stop shopping

Sapiens, a full-range provider offering portfolio management solutions for composite, life and reinsurance companies worldwide, is now strengthening its position with front-end technologies and at the same time securing the German country layer, i.e. knowledge of the specifics of the German market. But sum.cumo, which will continue to operate in the market under its own brand, is also strategically relevant for another reason. While most insurers will have to live with operating several core systems (at least one per line of business), they will want to offer customers, distributors and partners only one digital frontend. This is precisely the playing field that occupies the part of the value chain that will become the decisive competitive factor in the era of digital offerings and ecosystems.

Sapiens and its partner will be the only provider in the market that can offer one-stop shopping. Unlike many of the other industry heavyweights, Sapiens will basically handle the entire software implementation through its own staff. The digital consulting know-how can ensure that thinking is truly end-to-end, because all too often in transformation projects the established processes of the paper age are implemented in new systems.

Strategic decisions in IT are increasingly becoming a matter of survival for insurers of all sizes. The current crisis, which will also hit the insurance industry hard with a certain delay, shows the market how important it is to make the right decisions at the right time and to implement the resulting projects efficiently in terms of competitiveness.


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Ingolf Putzbach
Ingolf
Putzbach
#management Ingolf has been one of the two CEOs of sum.cumo since July 2016. His job is to keep developing the company as an attractive employer of digital virtuosos while also advancing its position as a digital trailblazer for insurance companies and lotteries. Prior to sum.cumo, Ingolf was a founder and partner at Arkwright Consulting and the Germany CEO of Halogen AG. Ingolf cherishes the great enterprising spirit here and says “that every minute at sum.cumo is a pleasure for him.” Innovation, sustainability and individual freedom are important to Ingolf both at work and at home, shaping his actions in every way. Ingolf’s words have appeared in many media outlets, including [Versicherungsjournal](https://www.versicherungsjournal.de/vertrieb-und-marketing/wie-kann-man-als-makler-heute-digital-verkaufen-135254.php), [Intelligent Insurer](https://www.intelligentinsurer.com/contributed-article/purely-digital-insurers-and-their-service-providers-increase-the-attractiveness-of-germany-s-insurance-market) and [Finanzportal Joonko](https://www.sumcumo.com/ist-das-neue-vergleichsportal-joonko-check24jaeger-oder-maklerschreck) and [Zeitschrift für Versicherungswesen](https://www.sumcumo.com/unternehmen/interview-zeitschrift-fuer-versicherungswesen). Furthermore, Ingolf’s commentary on “Guidewire mania” appeared in the magazine [Versicherungswesen 22 (2018)](https://www.sumcumo.com/blog/content/de/zfv-putzbach-guidewire-mania.pdf). All articles by Ingolf