Insurers are reorienting their IT operating models to reduce costs and unlock efficiencies and also weaponizing technology to simplify and improve consumer experience; however, digital talent is in short supply.
The coronavirus pandemic has dealt a hard blow to the insurance industry, and the economic outlook for the near term is still uncertain. In addition to facing revenue and profitability declines, insurers must now deliver compelling online experiences to sustain and grow their customer base. Everest Group reports that IT investment maturity is playing a crucial role in insurers’ recovery strategies, particularly as they battle to reduce costs and digitally innovate at the same time.
Defensive stance
First, to achieve cost savings and resiliency, insurers are taking a defensive stance, re-evaluating key levers of their IT operating model. Everest Group identified the five most prominent approaches insurers are using:
- Selling non-core technology assets
- Increasing IT outsourcing
- Balancing offshoring levels
- Consolidating the IT supplier portfolio
- Scaling agile methodologies across the organisation
Digital innovation but with a caveat
Secondly, to create competitive advantage and gain market share, insurers are seeking digital innovation from their internal IT teams and their sourcing providers. Adoption of cloud, platforms, and digital solutions may enable recovery and future success; however, the workforce to guide those efforts is in short supply. Everest Group research indicates the unmet demand for digital talent is as high as 25%.
Ronak Doshi, vice president, Information Technology Services, at Everest Group says the digital talent gap is a significant challenge in the insurance industry as 28% of the workforce in the insurance industry nears retirement. They take with them valuable institutional knowledge that can be lost if not passed along to younger employees.
At issue is the lack of interest among millennials to work in the insurance technology space. This comes from the negative perception they have about the industry being slow to adopt technology and having an antiquated culture.
“To attract the type of digital talent needed to build a more profitable future, insurers must make themselves appealing by offering disruptive work, robust training, attractive employee propositions, and agile and collaborate ways of working,” says Doshi.
Everest Group examines each of these areas in more detail in its recently published report, “Insurance IT Services – State of the Market 2021: Future-readying Insurance Business Through Continuous Digital Unravelling.”
Key Findings
- Cost transformation and resiliency goals will prompt insurers to trim their technology asset portfolio and focus on strategic competencies.
- Insurance enterprises will turn to outsourcing as they re-evaluate their IT operating model and sourcing strategy. This will mean balancing their sourcing location footprint and consolidate their IT supplier portfolio.
- Insurers will shift to scaled agile developments and digitise their IT operating model while keeping customer-first culture as a priority.
- Insurers will shift from continuous modernisation to continuous simplification. This means investments will go to optimizing service interactions to transform experience management. Core systems modernisation will be put on hold.
- Insurers will weaponize technology to drive growth and differentiation. Investments in composable technology platforms, value chain-specific solutions, and nurturing digital talent are the top insurer priorities in the near term.
