Insurers have been warned that they will collectively need to spend US$3.3 billion on information security to counter financial crimes and in the face of heightening fraud brought on by the global ‘digital revolution’.
The alert comes from the latest research report by IDC which says that rigor on risk management will continue as insurers enter an era of what it calls ‘re-regulation’.
“Risk and compliance are more than just threats but opportunities for value-creation that insurers have to embrace without stifling innovation,” says Li-May Chew, CFA, associate research director, and global lead for IDC Financial Insights' Worldwide Insurance Advisory Service.
According to Chew, as insurers currently undertake renovation of their legacy systems and upgrade to newer, more innovative infrastructure, IDC recommends that they utilise this as the opportune time to make a “quantum leap and incorporate wholesale transformations” - built on 3rd Platform technologies around mobile computing, cloud services, social networking, and Big Data analytics - into their IT organisations.
Chew offers a word of caution, however, noting that insurers also need to know “how to fail fast - and fail safely”.
According to the IDC Financial Insights report, global insurers will increase IT spending to almost US$101 billion in 2015, a Year-on-Year (YoY) increase of 4.4% compared to 2014, with rigorous investments in technologies to boost efficiencies and innovation.
Chew sees investments centering around new core applications development and management such as data warehousing, claims and policy administration systems, with these replacements or refreshes required as legacy IT systems become “increasingly complex, inflexible, and archaic, to the point of negatively affecting technology integration and interoperability”.
“Insurers are further spending on change transformation and business optimisation initiatives to augment productivity and support intermediaries, as well as in knowledge management, business analytics and customer relationship management applications to improve underwriting insights, raise customer centricity and intimacy.
“Also critical is the need to enhance not just the intermediated distribution channels comprised of insurance agents, brokers and banc assurance, but also newer, disintermediated digital portals of the Internet, social platforms and mobile delivery.”
"Global insurers need to know where and how to seek pockets of growth amidst economic uncertainty,” Chew advises.
“ In order to regroup and focus on sustainable, profitable growth, organizations will have to confront multiple perils – ranging from reengineering or rebuilding legacy applications, to countering mounting insurance fraud – and still ensure they are well positioned to embrace growth prospects as these present themselves.”
“We expect the global insurance industry to invest more rigorously in technologies, and project global IT investments rising to almost US$101 billion this year as these support campaigns to boost efficiencies and innovation. Geographically, the emerging markets continue to shine. While cumulated spending for these nations may still be a comparatively smaller US$19 billion, this will rise at a 3-year CAGR of 6.7% between 2015 to 2018, which is double that of mature nations.”
In mature country markets, Chew expects the 3-year CAGR to be 3.1% and globally to be 3.8%.
The IDC Financial Insights' projections on investment spending at global insurers, also details other predictions, including:
• Legacy modernisation will gather momentum with zero-tolerance for infrastructure failure and demand for reliability and availability, driving the adoption of modular approaches to upgrades and replacements; meanwhile, the value proposition of cloud will continue to strengthen
• Insurers will be under pressure to enhance processes efficiencies and reduce cost for core operational functions such as policy administration, underwriting, and claims performance; focus will be on transforming the IT enterprise with effective reengineering programs
• Customers will be increasingly shaping the policyholder-insurer relationship and influencing insurers' customer-centric strategies; marketing heads will collectively spend US$6.6 Billion in 2015 to enhance the total customer experience
• Big Data Analytics will transition from descriptive applications to predictive and even prescriptive capabilities, with these serving to create data-driven insights and enhance propositions to customers
• Insurers' channel outreach will be increasingly digitally driven, transforming their distribution delivery with up to a third of premium sales transacted via Internet-enabled computer or mobile devices and social networks by 2018
• Despite the rising popularity of direct distributors, intermediated channels will continue to dominate at up to 70% of global premiums; Insurers focused on agency or broker management will need to inject these with a new lease of life
• Potentially game-changing, disruptive technologies stemming from the Internet of Things (IoT) evolution will raise insurers' competitive advantage, but such radical innovations need to be closely aligned with strategic objectives.