Opinion published at 22/03/2016

EUROPE’S INSURERS PUT DIGITAL AT HEART OF THE BUSINESS

by Nick Mayes

The insurance sector has been slow out of the blocks in terms of digital transformation – but this is no big surprise.

Europe’s ten largest insurers have an average age of 139 years, during which time they have accumulated a massively complex tangle of business processes and applications. Insurance is all about risk management, so the overriding approach to digital has been one of caution and conservatism.

The mindset was best summed up by a senior IT executive at one insurer PAC recently spoke to who said that while all the conferences he attended were dominated by discussion of the impact of digital entrants such as uber and airbnb, he just not see the same level of competitive threat looming on the horizon for insurers. He cited Google’s decision to pull its UK insurance price comparison site in February due to poor profitability as an example of how even tech’s big hitters have struggled to shake up the industry.

But will 2016 mark a watershed year for the sector? PAC’s own research found that two thirds of European insurers expect mobile and online channels to increase in importance, and recent announcements from some of the industry’s biggest players suggest a change in pace in terms of digital transformation.

There has been a lot of digital activity at the edge of Europe’s insurers. AXA, Allianz and Aviva have all established venture capital firms in the last two years to invest in innovative start-ups, while the latter has opened up two ‘digital garages’ through which it hopes to hothouse a culture of innovation and agile development.

Some of these initiatives have genuinely helped them to drive innovation, Aegon's digital start-ups Knab and Retiready, have together have attracted 300,000 customers and assets of more than €10bn in just three years.

But while others have been guilty of digital window dressing, there are signs that insurers are looking to bring digital closer to the heart of the business. AXA will unveil a new five-year strategy in June and it is likely to have a strong tech focus, The group’s incoming CEO, Thomas Buberl was quoted this week as saying that the company should focus on digital transformation rather than pursuing large M&As.

Allianz created a new digital transformation unit in November 2015 (led by the former head of its Turkey operation) with a mandate to ensure the company’s ‘Digital by Default’ program is adopted. The German giant has already made solid progress in using technology to improve the customer experience, such as developing an app to enable customers to record accidental vehicle damage, and the use of webcams during the claims process.

In the Benelux region, Aegon has established a center of excellence for digital, through which it will look to build on some pockets of real innovation (its Asian aggregation service GoBear, or its broker app in Turkey) and drive a more consistent approach across the group. It will do this by putting together SWAT teams that can ensure that national operations that may have limited skills in certain areas (eg. analytics) can take advantage of what has already been rolled out in other countries.

To rebuild these organizations to take advantage of digital technology and channels is a massive undertaking. But the wider changes that are sweeping through the sector, including a wave of M&As (driven by the stringent risk requirements of Basel II) and a series of high-profile leadership changes (Generali, Munich Re and Swiss Re) can create a platform and an environment for genuine transformation.