The COVID-19 pandemic has accelerated the adoption of digital technologies in all sectors and across all regions. In Asia Pacific (APAC), insurers have recognized the importance of system modernization for the long-term success of their business. Yet, most are still allocating slim financial resources on such initiatives, an important hurdle that insurers need to overcome to make a successful move to the cloud, Arvind Swami, director of financial services for Red Hat’s APAC operations, told Fintech News Singapore.
These statements come on the back of the release of a new research his company commissioned Forrester Consulting to conduct. The study polled more than 100 insurance decision makers in APAC and found that although 61% of them view their core system modernization initiatives as the most critical component of their digital business strategies, 69% say their firms spend less than 10% of their IT business on these initiatives.
These findings aren’t surprising at a time when the COVID-19 crisis is forcing companies to cut costs as demand gets muted and as the global economy enters a deep recession.
Arvind Swami
“When times get tough, finance teams get tougher. Business cases that demonstrate a fast, substantial return on investment (ROI) will be funded, driving quick improvements and impact for insurers in the short term,”
Swami explained.
But delaying system modernization initiatives can prove to be highly detrimental in the long run, he said, as the gap between innovators and laggers widens.
“While financial impact drives which modernization efforts win now, insurers must prepare for the future with solutions offering flexibility on multiple dimensions, including integrations, deployment models, and marketplaces for value-added capabilities, in order to support success in the long-term,”
Swami said.
“Investments have to be made if businesses want to reap the full benefits of system modernization, and to prove business value to executive leadership, APAC insurers must embed their system modernization strategies into their companies’ overall strategies and involve the right business stakeholders and ecosystem from the start.”
Ramping up digital transformation amid COVID-19
In just a few months’ time, the COVID-19 crisis has brought about years of change in the way companies do business. A 2020 McKinsey Global Survey of executives found that companies have accelerated the digitalization of their customer and supply-chain interactions, and of their internal operations, by three to four years.
In APAC, insurers’ system modernization efforts have been centered on improving customer experience by, for instance, reducing claims processing time (91%) and lowering underwriting cycle time (76%). There’s also eagerness to achieve better cost savings with 82% of respondents working on modernizing their policy administration systems, and 81% seeking to improve their fraud prevention capabilities.
Core systems with the highest priority for modernization, No Time To Wait- Start Your System Modernization Journey Now, Forrester, Jan 2021
In the long run, APAC insurers believe these system modernization efforts will pay off by enabling for improved customer experience (70%), as well as increased IT speed (65%) and agility (60%) – the top three benefits respondents either have already observed or are expected from these initiatives.
“Leading in the APAC insurance market requires greater customer centricity and meaningful differentiation,” Swami said.
“Modernizing their core systems allows insurers to work better, faster and smarter, which in turn gives them a leg up on customer experience. These then go on to help insurers achieve the expected ROI, demonstrating positive financial impact such as improved customer retention due to better service delivery.”
Benefits realized or expected from modernizing core systems, No Time To Wait- Start Your System Modernization Journey Now, Forrester, Jan 2021
When asked about the top technology challenges they’ve faced in their modernization initiatives, APAC insurers cited data migration (71%), integration with up/downstream systems (61%) and cloud migration (57%). These results are unsurprising given the complex construct of insurance legacy systems and infrastructure which creates migration and integration challenges.
Technology challenges experienced with system modernization efforts, No Time To Wait- Start Your System Modernization Journey Now, Forrester, Jan 2021
To overcome business and technical roadblocks, Swami advises insurers to embrace solutions that provide both agility and flexibility in their system modernization initiatives such as leveraging cloud computing, widening their range of deployment options and adopting low-code capabilities for changes and updates. A hybrid cloud approach can also provide insurers with the ability to move, adapt, and adjust as they see fit, based upon business requirements and at the same time complying with the regulatory requirements for the insurance industry, he added.
Swiss Re Institute forecasts global insurance premiums to grow by 3.4% in 2021 after contracting an estimated 1.4% in 2020. China will remain the fastest growing market with non-life premiums up an estimated 10% annually over the next two years, largely thanks to a strong health business. The other emerging markets will see aggregate premium growth of nearly 4% annually.
In the life market too Swiss Re Institute predicts a rebound led by emerging markets, particularly emerging Asia where premiums are forecast to increase by 6.9% in 2021.
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Source: https://fintechnews.sg/48894/insurtech/apac-insurers-must-ramp-up-system-modernization-efforts/
