SAP, Ovum Research Identifies Major Flaw in Insurance Companies' Tech

By Steve Anderson
Contributing Writer

A new report conducted by Ovum (News - Alert) and sponsored by SAP SE shows one major vulnerability in the insurance industry, and one that it would do well to patch quickly lest it find itself under significant fire from new competitors.

The study—titled “Core Operations Modernization in the Global Insurance Industry”—revealed that, for the most part, the insurance industry's approach to software was, at best, fragmented. This meant there was virtually no use of core software systems that were fully integrated with the rest of the operation, and this posed a significant competitive disadvantage.

The study found that this disadvantage left the entire industry exposed and vulnerable to outside competition. It revealed that over 40 percent of insurance carriers are currently using at least 11 different core operations platforms, and nearly 25 percent were running at least 20 different platforms. However, this revelation also showed the industry’s awareness of their inefficiency, as 42 percent of carriers believe that the best model of architecture to support growth was indeed an integrated model.

While a substantial number of carriers believe in the integrated model, most customer software at the front end remains separate from core operations, and fully 46 percent of carriers will need at least two years' development to bring in the desired integrated model. However, in emerging markets, this is proving quite different; the study notes that 23 percent of insurers in said markets are working to bring in both cloud-based systems and software-as-a-service (SaaS (News - Alert)) offerings to take better advantage of the benefits of such tools.

Ovum's principal analyst for financial service technology, Charles Juniper, offered up some comment around the study, saying, “Core operations environments in use today are simply not up to the challenges facing the industry – whether that comes from powerful new entrants, agile start-ups or not being able to respond to changed customer expectations. This leaves many established insurers exposed to real competitive threats.”

It's daunting to think that something like this could knock established competitors out of emerging markets, or even take them out of established markets. But there's also no denying that customers—regardless of what said customers are buying—want a better overall experience that only integrated systems can offer. Customers want faster answers via more channels, a development that's leaving some insurers flat-footed. But with the European insurance technology market slated to grow at a compound annual growth rate (CAGR) of 3.74 percent according to recent Technavio predictions, the case for expansion seems made.

‘Go where the customers’ are is one of the great axioms of business, and here, some insurers are doing just that. The SAP (News - Alert) / Ovum study makes it clear: fail to upgrade the business' systems accordingly, and insurers could be looking at a substantial disadvantage or even potentially lost clients. Go where the customers are...and these days, the customers are going to insurers with more integrated systems.