Applying a digital strategy that is customer-centric and geared toward profitable growth is becoming critical for the insurance industry. Globally, insurers are notching up technology innovation to meet new client expectations, address increased regulatory changes and balance the mismatch between assets and liabilities. And the overall pace of innovation across the industry has been rapid, especially so in the Asia-Pacific.

 

Based on responses from senior executives at 321 insurance companies globally, the research shows those firms that embark on a digital transformation will reap the rewards. Optimism prevails among insurers in Asia-Pacific, with more than four-fifths (85%) of respondents saying they are positive about profitability over the next three years. Optimism prevails among insurers in Asia Pacific, with more than half (51%) of respondents saying they are “very optimistic” about profitability over the next three years.

 

Insurers are striving to align their technology strategy to meet their top strategic goals. In our research, targeting new client segments in existing markets was cited by nearly a third (33%) of respondents as their top strategic priority. A fifth (20%) said that the need to strengthen their distribution model is the No.1 focus.

 

Setting the priorities / Making change happen

 

In Asia-Pacific, several factors are fuelling growth for insurers. These include the low penetration of life premiums in the region’s emerging markets, the rising income of a young, upwardly mobile population, urbanization and increasing demand for non-life insurance products.

 

Although distribution channels are vastly diversified across the region, giving customers an individualized and consistent experience remains a core focus. About 84% of the region’s respondents say technology investment over the next three years will be driven by changing customer demands.

 

The top three priorities for investment are improved customer relationship management systems, digital distribution and customer servicing channels including mobile platforms, and tools to strengthen risk management.

 

Customer needs are evolving in the Asia Pacific and many consumers have also become more sophisticated and are increasingly relying on the internet to research and buy insurance products. Online buying trends are boosting competition as tech firms such as Google and Amazon eye up the sector. More than three-fifths (63 percent) of respondents in our research say the actions of competitors are a major driver of technology investment at their organisations.

 

Constant updates

 

In Asia-Pacific, the digital revolution is also transforming many aspects of an insurers’ investment and business models. Data, research, risk and compliance are dictating change in technology investments.

 

Consumer demands are changing and better integration of data across channels will also help insurers create a more integrated view of customer data.

 

Generating better insights, for example, should allow insurers to tailor products more closely to the new segments they identify. Life insurers might, for instance, design short-term policies for young, financially constrained customers. Health insurers can tailor policy benefits (and premiums) to customers in different categories of fitness. Risks can also be more accurately assessed and pricing can be tailored to the individual.

 

Regulation remains a major focus of attention for insurance companies in the region and technology investments are made to either meet regulatory compliance or comply with the insurers’ own governance requirements.

 

Second-generation risk-based capital rules and standards are being implemented in Singapore and also in Hong Kong within the next two years. A three-pillar Solvency II-styled approach is expected to be adopted in China, focusing on quantitative capital requirements, qualitative controls and reporting/market discipline.

 

Although the evolving regulatory environment is a continuous challenge for insurers, regulators in the Asia-Pacific are changing the framework to enable insurance companies to invest offshore, in other asset classes or to diversify within an existing asset class to meet their long-term obligations.

 

In Taiwan, for example, regulatory authorities are easing rules on investment and offering insurers wider investment options. Taiwan’s Financial Supervisory Commission is encouraging insurers to invest in infrastructure projects and studying the feasibility of insurers being able to use their enterprise funds for offshore mergers and acquisitions, allowing them a wider choice in allocations.

 

Such new investment options would widen the need for solutions to manage more complex investment strategies.

 

New investment options

 

As asset managers expand their investment into asset classes, such as alternatives and emerging market equities, risk management and performance measurement will become even more important for insurers in the Asia-Pacific. Yet only 51% are very confident their current technology and operating platforms can support these changes to investment strategy. And only 10%  rank as “excellent” their ability to integrate investment data from multiple sources to achieve a comprehensive portfolio view.

 

Our findings show that a fifth (20 percent) of the region’s insurers is looking to increase investment in alternatives. Fourteen percent of respondents are looking to boost their existing ETF investments and 29 percent say they will increase investment in emerging markets.

 

Clearly, any new investment strategies will demand better and more-timely data as well as increased investment in advanced risk and performance analytics. It is important for insurers to have an enterprise-wide view of asset allocation and risk management, be forward-looking and find the most sophisticated tool and techniques to help them make such assessments.

 

Postponing digital transformation is not an option for insurers in the Asia-Pacific.

 

There are no guaranteed formulas for success for insurance companies in the region but firms recognize the need to devise creative ways to overcome their technology constraints. And they recognize where they need to invest to gain an edge through the innovative use of technology.