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Insurance firms: adapt or die

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Insurance firms: adapt or die

Kathy Gibson reports from Dell Innovation Day in Copenhagen – The insurance industry needs to radically change its business models, or risk becoming irrelevant. That’s the harsh warning from Simon Winter, executive director: banking, financial services, capital markets and insurance at Dell EMEA, who tells IT-Online that insurance is one of the last unreconstructed industries left.

“The core competence of the insurer is to understand risk, pricing that risk and offering an aggregation to its customers,” he explains. “This relies on understanding data. But now, for the first time, there is a real threat to this industry. Technology and the use of technology is set to fundamentally disrupt the industry.”

Smart houses and self-driving cars are just the tip of the iceberg when it comes to insurance industry threats. Winter points out that users are able to use the technology readily available to them to mitigate their own risks and thus reduce the cost of any claim.

For instance, one of the most common household insurance claims relates to water leakage – but often the reason there is major damage is because the leak is undetected for some time. With smart sensors leaks could be detected as soon as they occur, limiting the resulting damage and making the householder question the need for expensive insurance.

On the operations side of the business, there is a lot that can be done to improve insurance companies, particularly on the long-term side of the business, Winter adds.

“A lot of the systems in long-term insurance organisations are 20, 30 even 35 years old now. These companies are running multiple back-end systems for different product types.
“Insurance companies really need to modernise these legacy systems so that they can reduce the cost of operations and enable their businesses to become digitised.”

The old back-end systems mean companies are slow to change and, while customers are looking for digitalised solutions, the insurance companies cannot offer them.

Banks have been successful in making some much-needed changes in this operating models, using technology to do so, Winter says.

“I think the banks have done a pretty good job of becoming digitalised businesses. They started off with multi-channel offerings and are now in the omni-channel space, mostly delivering the services that the customer wants.”

However, what they haven’t done yet is change their product offerings, says Winter – and this needs to be their next goal.

“We are seeing smaller fintech firms going after segments of the banking market, and there is competition as well from the telcos and retailers.

“The banking sector needs to become more efficient. And it needs to start innovating on its product lines, creating customer-specific product bundles that treat the customer as an individual.”

The main problem that banks have to address is their legacy core systems, where the risk involved in changing poses very challenges for the institution.

Winter says one possible solution is to externalise the banking products outside of the core systems.

But some change is vital, he says, and all financial institutions would do well to shift their thinking away from products and towards the customer.

“I think you have to put the customer at the heart of what you do – they are not an adjunct to the product.”

Before beginning any system re-organisation, Winter recommends that financial companies undertake a study of their customers and determine what it is the customer wants. From there, the processes can be determines and then systems can be deployed to streamline the processes. This should aim to drive as much efficiency as possible.

Once that’s determined, decisions can be taken on the legacy systems. Some of them may need to be removed, others streamlined. Removing some of the legacy maintenance will also help to free up budget for implementing new systems and processes.

In the IT department itself, new trends and methodologies are helping to increase efficiency and drive down costs, Winter adds.

The application lifecycle is becoming much more agile, leveraging methodologies like DevOps that allow management through a single pane of glass.

“Organisations are realising that they need IT’s help to become more agile. So IT needs to address its legacy challenges, and make sure its culture and people are up to the challenge. For DevOps, your team needs to have a different mind-set, to become techno-functional.”

Overall, Winter points out that banks are more resistant to change than other financial services organisations because of their critical role in the overall economy.

“But insurance companies have to change,” he says. “The really have no choice. They have got to innovate and technology is going to be a critical driver of that change.

“They can’t just change their systems, either – they have to change their businesses, with new and innovative products that cater to the next-generation customer needs.”

Winter explains that Dell has transitioned itself from a pure hardware and software supplier to offering industry-specific consulting and managed services in the financial services industry.

For instance, he says, the company runs the IT operation for 35 insurance companies in the US on a managed services basis, while it has transitioned another 60 companies on to modern technology using its tooling systems.
“Our strategy is to turn our attention to new markets like South Africa now,” Winter adds.