’As firms strategise for 2023 and beyond, the integration of technology and the addressing of skill gaps will likely be at the forefront of their agendas,’ says chief executive
There has been a “noticeable shift” in how insurance firms are directing their technology spend, “with a pivot towards front-facing and operational technology,” according to Gregg Barrett, chief executive at insurance industry technology supplier Waterstreet.
Front-facing technology is tech that directly interacts with consumers, such as online portals or mobile apps.
Operational tech, on the other hand, refers to software that assists in the day-to-day running of firms and includes innovations such as policy management systems and risk assessment tools.
Barrett told Insurance Times that insurance firms were directing more of their focus towards accounts receiveable and operations technology, with a general decrease in the tech spend on finance and accounting software.
He noted that this ”could be indicative of a larger trend,” adding ”perhaps many UK firms have already made significant investments in these areas in the past and now the focus is shifting to other crucial sectors”.
At the beginning of August 2023, Waterstreet published the findings from its How Insurtech Innovations are Shaping the Future of Insurance report, which surveyed hundreds of senior insurance leaders across the UK and the US.
The study revealed that the surveyed executives believed the insurance market stood at “a pivotal juncture” despite the UK insurance market being historically robust.
Barrett explained: “External challenges, internal operational complexities and a pressing need for modernisation define the current landscape.
“As firms strategise for 2023 and beyond, the integration of technology and the addressing of skill gaps will likely be at the forefront of their agendas.”
Rigorous regulatory environment
Drawing on the conclusions of his firm’s report, Barrett noted that the market dynamics in the UK and US exhibited stark differences.
He said: “With just over 10% of UK [insurtech] firms registering high profitability, the UK market appears more challenged.”
He believed that several factors influenced the UK market to operate less competitively than in the US.
Firstly, Barrett pointed out that the UK insurance market was “densely populated with both long-standing institutions and a burgeoning insurtech scene”.
He noted that ”intense competition often leads to tighter margins” and said that the UK market was constrained by “stringent regulations”.
“Particularly with compliance necessities like Solvency II and IFRS 17, [regulation] could be influencing profitability metrics. These frameworks, while designed to ensure stability and security, often come with significant costs,” he added.
In Waterstreet’s report, around 36% of surveyed firms identified that skilled staff training was “a primary operational hurdle, matched by concerns over process complexity”.
“Given the UK’s rigorous regulatory environment and evolving digital landscape, this signals a potential skill gap in the industry,” Barrett noted.
”Firms might need staff that not only understand insurance but are also adept at navigating modern tech tools and regulatory intricacies.”
The report also saw 59% of respondents predict that insurtech startups would spearhead sector growth, despite the industry navigating external disruptors.
“Tech giants and non-traditional entrants are diversifying into insurance, leveraging their vast customer bases and tech infrastructure,” Barrett added.
For example, Amazon entered the insurance market in October 2022. Earlier in May 2021, Google also got in on the action, using data analytics to tackle underinsurance with the hopes of closing the global insurance coverage gap.
Quest for speed
Where technology adoption was concerned, 45% of the surveyed leaders said they had prioritised robust customer support in technology transition phases, with only one third of insurance firms reporting that they were still using spreadsheet-based reconciliation.
Barrett said this was “concerning,” but “not surprising”.
He explained: “Many UK firms, with their long-standing histories, are juggling legacy systems with newer digital solutions. This amalgamation often results in suboptimal operational processes.”
These suboptimal operational processes have seemingly lead many to search for solutions, with 47% of respondents seeing artificial intelligence (AI), machine learning and blockchain as game changers in property and casualty lines.
“The quest for speed is evident,” noted Barrett.
Nearly half (40%) of respondents saw faster processing times as the primary motivation behind automation initiatives and 100% of accounting teams highlighted the sluggish nature of manual processes.
“In a market as competitive as the UK, efficiency isn’t just about cost savings – it’s about delivering timely and innovative services to a discerning customer base,” added Barrett.
Waterstreet predicted that policyholders can expect enhanced communication channels, streamlined claims and better service offerings from the technological developments ongoing at insurance firms.