After spending the last few years focused on customer experience and retention, insurance companies in the US and UK are turning their strategic focus to automating their back and middle office processes, a new report finds.
The survey by automation fintech company AutoRek showed that firms plan to focus on boosting their operational resiliency over the next two years, especially amid new regulatory guidelines.
Britain’s Financial Conduct Authority (FCA) unveiled new operational resiliency requirements on UK insurers last year, while US regulators are reconsidering their approach to the issue.
According to Piers Williams (pictured), global insurance lead at AutoRek, a vast majority of insurance companies are still relying on spreadsheets as part of their processes.
“There is a real drive towards automation in the insurance industry,” said Piers Williams, global insurance sales manager at AutoRek.
“We're seeing companies looking to remove manual processes as much as possible and to do that over the next couple of years. There's still a long way to go within the sector.”
AutoRek’s survey, which polled 500 insurance professionals split evenly between the US and UK, found notable differences in terms of each geography’s readiness to adopt new technology.
It revealed that US firms report going to greater lengths to optimize their finance operations than their UK counterparts. Thirty percent of US firms say they review back-office systems at least every six months, compared to only 20% of UK firms.
Across the board, however, US and UK firms agree that updating back-office technology is a significant resource burden.
“I think most legacy systems remain a key challenge within the insurance industry, and that's true across the UK and US,” said Williams.
“Legacy technology has had a negative impact on operations for over 60% or two-thirds of the industry despite there being a lot of automation and agility in the US market.”
Williams pointed out that the UK sector started out more advanced in terms of its level of automation, compared to the US.
“The progression in the UK, being a bit more advanced, hasn't been quite as rapid as it had been in the US,” he said.
US firms’ relative agility and more focused approach to back-office automation could be linked to higher profitability, according to AutoRek. US firms (more than 25%) were more likely to report being highly profitable than their UK counterparts (just over 10%).
Brokers face more complex challenges in automating their systems than any other insurance sub-sector, according to the AutoRek report.
Half (51%) of brokers surveyed blamed complexity as a major hurdle in their automation journey, compared to 38% of firms overall. The level of complexity in automating data also escalates as brokers merge with or acquire other firms.
“The biggest challenge [for brokers] is the data. They rely heavily on external data, whether that's from an insurer, reinsurer, or an MGA to the point that they're very much at the mercy of that external party and how they choose to share information,” Williams told Insurance Business.
“If you're acquiring a new business, you're essentially duplicating teams and knowledge systems, so you've got to consider that centralization process in parallel. You're looking to bring everyone into one system, which involves a significant migration process.”
Despite this, brokers are strongly motivated to streamline their operations: around eight in 10 (78%) said they would make back-office automation a priority in the next two years.
AutoRek survey clearly shows that insurance companies are following other sectors of financial services by automating their back-office operations. The pain of manual processes was also highlighted for many by COVID-19.
“What the pandemic really highlighted was the need to ensure that the business from an operational perspective has the architecture and the processes to be able to adapt to potential changes,” said Williams.
“But also, whilst trying to embrace that efficiency, insurance companies can maximize the profitability of their business as we move into increasingly competitive market conditions.”
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