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Technology infrastructure: Addressing the challenges of global insurance

Today’s insurance firms are experiencing pressure on three fronts. The first is that of evolving customer needs. As tech-savvy millennials become the major consumer base, insurers must adjust their engagement methods. Unlike older customers, millennials expect responsive customer service through mobile and digital platforms, and distrust traditional advertising while looking to social media to support buying decisions. Responding to these needs and expectations requires significant changes for the traditional insurer, both in approach and in the organisational structures required to support new delivery processes.

Second, the rise of InsurTechs is driving a significant change in the competitive landscape. While InsurTechs provide insurers with the complementary capabilities to deliver services through partnerships, such capabilities are also impacting insurers’ traditional models. For example, the platform model could have considerable impacts to the nature of the relationship between insurers and their customers. Platforms’ ability to reach a large customer base and access individuals’ demographic and behavioural data through their activities within ecosystems gives a significant advantage in pricing risks, which could potentially compete with incumbent insurers. Rakuten, Japan’s prominent platform, has been providing financial products including insurance to its members, while in China Alibaba’s e-commerce site Tmall launched a car vending machine this year.

Third, M&A in the insurance sector remains active, triggered by factors such as divestment of non-core assets by Australian banks and continued global expansion by Asian insurers. Insurers are under pressure to preserve deal value for investors and other stakeholders during the post-merger integration phase where technology integration has historically been a challenge for many deals.

A sustainable and nimble digital infrastructure is critical to insurers’ ability to respond to each of these challenges, providing the basis to meet evolving customer needs, capitalise on emerging InsurTech opportunities for future growth, and preserving deal value. However, many organisations are still challenged by legacy platforms inhibiting true customer centricity, faster innovation and a de-risked post-merger integration.

Transforming the legacy platform

Legacy insurance platforms are built on sustainable and scalable mainframe technologies suited to processing a large volume of transactions. However, as a result of historical mergers and acquisitions, pressure to launch new products under time constraint and the need to fulfil specific distribution channel requirements, most legacy systems have added peripheral features, become siloed across lines of business and bound by inflexible integrations.

As insurers embrace the new digital future, change to the organisation’s technology infrastructure becomes increasingly critical not only for current performance but also long-term viability and competitive differentiation. Organisations looking to evolve their tech stack to keep pace with current innovation are recommended to:

  1. Take a holistic, top-down view. Legacy platforms such as policy administration systems touch upon many areas of insurance value chain and affect multiple operating layers: not only technology but also customer segment, channels, process, people and organisation. To capture all possible options of transformation, organisations should look at the issue from the perspective of optimising the overall operating model rather than treating this as a system upgrade or replacement endeavour.
  2. Clarify the objective and opportunities. Each insurer has unique motives for legacy transformation. Some may plan to divest non-core lines of business or the legacy book of business in a future timeframe, while others are looking to launch new products targeting new customer segments via new channels. These parameters will determine the archetype of legacy transformation, such as the two-speed model where legacy portfolio is ring-fenced from the strategic growth platform, as well as the sequence of migration.
  3. Leverage emerging API technologies. As an alternative to full system replacement, organisations should look to use open APIs to repurpose and modernise existing legacy systems. Open APIs can help downsize legacy functionalities, integrate InsurTechs’ advanced innovations, and minimise disruption during the transformation process.
  4. Promote business accountability. To better respond to evolving customer and market needs, the business needs to be involved in key aspects of solution delivery. It has been some time since we heard “agile” among insurers, and organisations have been trying to find the right agile model for their businesses. While it works well with front-end applications, a pure agile approach often poses a challenge for the back-end core insurance platform. Organisations should consider alternative ways to promote business accountability in core insurance applications, delivering a clear direction for the legacy transformation blueprint based on true market needs.
  5. Create a structure that supports innovation across the organisation. While leadership is critical for any innovation or transformation process, sometimes the top-down approach can create disconnects at the local level. Information and feedback from local businesses needs to be fed into the larger innovation process to ensure that the strategy is relevant to the on-the-ground needs of the local office. When approaching the transformation process, organisations should consider a satellite model for innovation where a centralised R&D team works in coordination with the business to develop the innovation strategy.

Responding to evolving customer expectations and shifting market pressures requires insurers solve legacy platform challenges and create a nimble, sustainable and connected platform. Whether investing in customer-facing digital apps, intelligent automation to streamline processes, smart contracts for claims, or more, it is critical that insurers take the optimal approach to transform legacy and accelerate the delivery of exemplary service in pursuit of the corporate vision.

For more insights and developments in insurance and InsurTech, please visit KPMG.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

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