Three quarters of insurance firms consider themselves in the middle or back of the pack on their technology budgeting, relative to other financial services, according to a UK study commissioned by CSC.
Client servicing, winning new business and policy administration tasks were cited as big draws on the changeable aspects of IT spending, said the survey, which was carried out with UK insurance title Post, while consumer-friendly projects such as mobile applications were neglected.
“In today’s digital world, insurers - along with other service providers - have had to adjust their service levels to meet the demands of today’s consumer. Any insurer unable to make this adjustment will quickly lose out as customers demand a level of control in how, where, when and on what device they interact with the insurer,” said Patrick Molineux, insurance industry general manager, CSC.
Most insurers interviewed for the report did however signal their keenness to take up newer technologies, such as greater use of Cloud services, which CSC believes represents grounds for optimism, if budgets could be reallocated and efficiencies achieved.
“Insurers, therefore, now have the dual challenge of managing their cost of operation, while at the same time adjusting their business model to respond to customer demand. If unsuccessful, they risk competitors or new entrants eroding their market,” said Molineux.
According to the report, 40% of firms allocate more than 70% of their technology budget to tasks acknowledged as non-discretionary or “run spend”, such as compliance or maintaining creaking systems – ‘holding the fort’ rather than innovating or launching new projects.
“With many firms still grappling with the constraints of compliance and legacy IT infrastructure, there is often little wriggle room left for service innovation,” said Molineux.
The study said a fifth of firms polled – a mix of UK insurers and brokers – allocate more than three quarters of their technology budget just on their run spend.
At the other end of the scale, 30% of respondents said run spend was 60% or less of their total technology budget, and 43% of respondents increased their use of cloud computing for core applications in the last 12 months while 21% claimed to have plans to do so.
Platform simplification and consolidation (68%), core systems modification and upgrade (58%) and leveraging data more effectively and on an enterprise level (44%) were the biggest enterprise projects for respondents at the moment, noted the report.
The need to stay on top of emerging technologies, the changing demands and expectations from customers, and being locked into contracts and previous IT choices came out as the top three barriers to reducing complexity in IT estates.
“The good news, however, is that we find efficiencies could be made. The existing IT complexity that comes from legacy systems that insurers are currently untangling is the results of decisions made 20 to 30 years ago, which are still impacting today. The challenge for insurers is how to reduce the time, effort and money spent on maintaining legacy,” said Molineux.
"The net result is that, not only does this draw resources away from innovation and operational efficiency, but it also makes successful execution even more difficult. Additionally, drawing valuable data out of the complex maze of platforms and applications to improve every part of the customer value chain is also proving cumbersome,” he said.