Canadian life insurance outlook 2014
Harness the power of digital technology and big data
Digital technology offers insurers the profound ability to improve underwriting, sustainably reduce costs, enhance customer experience, create novel marketing strategies and analyze consumer behavior.
While many insurers are improving expense management through outsourcing, focusing more diligently on core businesses, streamlining existing processes and increasing overall automation, they have not made the more difficult investments in how they operate. In other words, they continue to use legacy systems that require significant resources to operate, rather than implementing enterprise-wide digital technologies.
Legacy systems lack the flexibility to provide the evolving business and regulatory information that insurers must have to address their strategic, operational and compliance responsibilities. Despite continuing cost reductions, insurers must review their current digital technology capabilities with an eye toward further investments.
For the most part, Canadian insurers have resisted these investments in technological enhancements, leery of the upfront costs and potential risks. The EY Global Insurance Digital Survey 2013, Insurance in a digital world: the time is now, indicates that 68% of insurers believe their internal company culture is the key challenge impeding their digital agenda.
By leveraging predictive modeling and consumer analytics, insurers can speed up the underwriting process, resulting in lower costs, faster policy issuance and potentially greater sales. Predictive modeling also decreases sales and marketing expenses by pinpointing those individuals most likely to purchase products. It further facilitates more targeted risk selection, which improves underwriting performance.
Other areas of opportunity include cloud computing, a more scalable, lower-cost alternative to traditional IT delivery methods; mobility; and social networking. Insurers in Canada and around the world have been slow to adopt mobile and social networking strategies. With younger customers increasingly using mobile devices and social platforms to research and buy products, it is critical for insurers to invest in these areas. Once they make such investments, they must also determine how to leverage the resulting data to better build and distribute products, as well as more effectively manage customer relationships over the relevant lifecycle.
All opportunities invite complexities, of course. A keen understanding of cyber risks and data privacy matters is a necessary part of the due diligence into these investments. The Office of the Superintendent of Financial Institutions (OSFI) has heightened its focus on future technology risks and is working with the industry to help develop greater awareness understanding and preparedness. It is critical that companies weigh the potential risks arising from technology enhancements and manage them accordingly.
Digital technology is now a business reality — and it’s here to stay. Other industries have been quicker to adapt and are now competing on a different playing field. Insurers in Canada are currently not ready to compete with these changes. Those insurers that make the necessary investment now will likely be the ones that come out on top in the long run.