The insurance industry is in the midst of a historic shift. That might sound like an overstatement, but SMA’s research and observations from working with insurers back up this claim. For the past six years, SMA has been tracking and supporting the industry’s evolving maturity by doing research and providing services for insurers and the entire insurance ecosystem. For the first time, SMA’s research is revealing significant shifts in company modes; strategic investments; and project priorities that reflect success, maturity, and a positive momentum across the industry. These shifts are resulting in a bifurcation of the industry, with a gap emerging and expected to widen between the leaders and the laggards.
Leaders and Laggards
The general state of insurers, what SMA calls the “company mode,” has changed dramatically. For many years, SMA research revealed that three to five percent of North American insurers were just surviving struggling to be profitable. Today, 11% of insurers define their company mode as struggling, up from 4% in 2014. When combined with insurers in “sustaining mode,” the result is that one-third of the industry is not doing well. On the other hand, two-thirds of industry participants are growing or transforming. In fact, the percent that are transforming has grown from 13% back in 2010 to 34% in 2015. This supports what SMA and others have been saying that the companies investing in technology and innovation are separating from the pack and positioning for higher growth.
Customers and Agents
Business drivers for strategic technology investments have typically been related to growth, cost management, and business optimization. Now, for the first time since SMA surveys have tracked the drivers, customer demands/expectations and agent expectations are both in the top five business drivers list. This is leading to a shift in technology investments. The way this manifests in individual IT projects is that they are grouped and integrated to support the major strategic initiatives. Customer experience, enterprise analytics, and new product initiatives are examples of major initiatives that often require multiple supporting IT projects.
Investments will continue in core system modernization, but as insurers complete their modernization, the shift in type and amount of spending will accelerate to these new strategic initiatives that address customer/agent needs and enable insurers to respond to new marketplace realities and opportunities. As a result, in 2015, customer engagement and experience is the number one strategic initiative for insurers. These types of investments beyond core systems are aimed at winning in the areas where traditional industry boundaries are fading, and in the digital world at large. Many insurers have arrived at the inevitable conclusion that becoming a digital insurer is not only a necessary business imperative; it is mandatory.
Innovation and Transformation
The technology investments taking place by leaders today are not just step-changes aimed at improving operational efficiencies. They are positioning the company for major business strategy changes launching new business models, partnering with companies outside the industry, and venturing into new product and service areas. To accomplish this, insurers must create agile technology platforms and harness the power of emerging technologies, tasks that require innovation. And, as it turns out, innovation is sweeping the industry. One-third of insurers now have active, formal innovation initiatives, and the number is growing daily.
2015 promises to be an exciting and eventful year for the insurance industry. Every insurer has a choice to make. Embrace innovation and aggressively transform in order to capture new opportunities or just continue with business as usual and run the risk of becoming a casualty in the new competitive battle.
For more information on Insurer’s Strategic Initiatives, read SMA’s new research report, "2015 Strategic Initiatives: Making sense of the shifts," contact Deb Smallwood for further information at dsmallwood@strategymeetsaction.com.
Deb Smallwood is the founder of the Boston-based SMA Strategy Meets Action, a strategic advisory firm offering research, advice, and consulting exclusively to the insurance industry.
Readers are encouraged to respond to Deb using the “Add Your Comments” box below. She can also be reached at dsmallwood@strategymeetsaction.com.
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