James Maudslay, Global Head of Insurance, Equinix, talks about why insurers in the Asia Pacific region (APAC) are slow to adopt new technologies, as well as how he expects the industry to change in the next few years.
Bank IT Asia: What are the top challenges faced by the insurance industry in the APAC today?
Equinix's Maudslay: Increased competition, more stringent regulation and shifting consumer's mindsets are causing a significant narrowing of profit margins. Insurers are finding it more and more challenging to increase market share and defend margin.
Even while contending with regulatory requirements, insurers have to innovate to improve their products and service standards. The insurance field of 20 years ago was vastly different — insurance was considered to be a purely risk transfer mechanism, and consumers were well aware of it. In the recent years, however, there has been a visible shift in insurance expectations, and consumers are now focusing on products that almost resemble a return on investment rather than simply risk transfer. This is a trend that is gaining visibility globally, particularly amongst the younger generation.
Additionally, with the rise of mobile usage and sharing economy services (such as ride-sharing) picking up pace, buyers expect policies that are flexible and allow them to make changes instantaneously. For example, when in a shared ride, consumers may want to be able to invoke certain changes in their policy — such as the number of passengers in the car — instantly via an application on their mobile phone.
To cater to these needs, insurers are increasingly working with external partners and putting systems in place to get a better view of customers, so as to serve them better. They are experimenting with FinTech to enrich their services to deploy faster and cheaper insurance.
Despite being of aware of new technologies — such as cloud to lower their compute costs and blockchain to improve transaction processing — insurers seem to be uncertain how to adopt these technologies. Why is this so?
Historically, the relationship between insurers and the IT industry has, at times, been a tricky one. Insurers have often found that the business value in investing in IT services is unclear, and thus, have been reluctant to do so. Similarly, IT companies have sometimes lacked the understanding necessary to provide cost-effective, relevant IT solutions for insurers. Much like the chicken-and-egg conundrum, this is partially a direct effect of insurers being unclear on the types of products and services they require from the IT industry. Whatever the cause, this has resulted in insurers questioning the value of IT and being wary of relying more heavily on technology. However, this is set to change as more insurers are opening up to technologies such as FinTech.
In addition, the regulatory landscape and insurers' dependence on legacy systems contribute greatly to this delay in adopting new technologies. While using legacy systems poses considerable operational risk, insurers are wary of the challenges involved in migrating to new systems — partly because of potential regulatory impact — so they do not blindly adopt newer technologies that are not entirely tried-and-tested. In that aspect, insurers are caught in a classic Catch-22. It is risky for them to change their current recordkeeping systems, but it is also equally risky not to change those systems, given the fact that so many of the current systems are legacy IT.
To overcome this situation, insurers are circumventing the main migration problem by installing satellite IT systems to provide for new services such as internet and mobile access, which complement their existing systems. Over the coming years, improvement and implementation of such satellite systems will reach a tipping point where they will ultimately (and safely) replace the legacy systems.
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