Competition with market disruptors and changes in customer needs are prompting European insurers to push for innovation, according to new research by consultancy firm PAC.
The latest study suggests that major carriers in the region now see innovation, instead of large M&A programmes, as the key to future success.
According to the research, 70% of insurers believe that failure to innovate will restrict growth or see them falling behind the competition. About 10% also fear going out of business due to lack of innovation.
“There is a new innovation imperative for insurance carriers,” said Nick Mayes, principal analyst at PAC.
“Low interest rates, economic headwinds and changing customer behaviour are pressuring all traditional insurance lines,” he added. “Meanwhile, 80% of carriers are experiencing disruption from new competitors.”
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Kraig Rutland, head of insurance at BAE Systems Applied Intelligence, said that the insurance sector is currently experiencing major disruption from online carriers, aggregation websites and changing product demands.
“Innovation is absolutely critical to determining the right responses to a disruptive market, and it is only innovative insurers that will be the future leaders in this market,” he said.
Rutland added that insurers need to break free from legacy IT and have much smarter use of data and digital channels.
The PAC study is based on briefings with 200 senior business and IT executives at large life and non-life carriers across Western Europe. It noted that seven of the 10 largest carriers in the region appointed new CEOs in the last 18 months, signalling a fresh breed of leaders who are laying the foundations for innovation.
The research discovered that 84% of insurers have a formalized innovation strategy, supported by dedicated teams, processes and budgets. About 60% see improving client engagement as the primary focus for their innovation strategy.
Insurers consider regulations as the biggest barrier to innovation, followed by ageing technology and infrastructure. Alarmingly, two thirds of carriers admit that less than half of their business applications are fit and able to support their future digital strategy.
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