The Challenges Facing Modern Insurers
Modern insurers are navigating a sea of challenges where the pace of change is relentless. Here, we break down these five key areas that continue to pose significant challenges for insurers.
Cybersecurity
As the insurance sector digitises, protecting customer data from cyber threats becomes paramount. Insurers handle vast amounts of sensitive data, making them prime targets for cyberattacks. The rapid advancement of AI technologies will empower attackers to create more convincing large-scale phishing and disinformation campaigns in the future. Ransomware and extortion operations will also persist with the profitability of malicious threat actors compromising networks and stealing sensitive data, which will continue to drive cyber threats.
The rise in ransomware and other cyber threats has prompted insurers to invest heavily in robust cybersecurity measures. According to IBM's 2023 Cost of a Data Breach Report, the global average data breach cost in 2023 was USD 4.45 million, representing a 15% increase over three years. These figures highlight the financial and reputational risks organisations face if they fail to prioritise cybersecurity.
Fintech Disruption
The rise of insurtech disruptors represents a seismic shift in the insurance landscape. These digital-first companies operate without the burden of legacy infrastructure, allowing them to adopt innovative technologies rapidly. According to research from PWC, 74% of traditional insurers see Insurtech innovations as a challenge for their industry.
The use of technologies such as AI, big data, and blockchain to offer personalised insurance products and streamline claims processing is at the heart of the challenge. Traditional insurers have significant legacy "baggage" compared to more agile Insurtech players. The reality is that insurers must adapt quickly by embracing new technologies to stay competitive in the modern marketplace.
Regulatory Compliance
Navigating the complex regulatory landscape of insurance is always a significant challenge. Insurers must comply with numerous financial compliance mandates but increasingly also face evolving digital regulations such as the Network and Information Systems (NIS2) Directive and the Digital Operational Resilience Act (DORA). These regulations implement robust cybersecurity measures and operational resilience, requiring insurers to continuously update their compliance strategies — vital activities that add additional complexity and workload to already stretched insurance IT compliance teams.
The London insurance market is also undergoing a significant transformation with the implementation of Lloyd's Blueprint Two. This ambitious project aims to digitally transform the industry and streamline operations through standardised data exchange and workflows. The implementation of Blueprint Two began in November 2020, with a roadmap outlining the required digital solutions and support mechanisms. With an investment of £300 million, Blueprint Two will revolutionise how insurance is conducted within the market – but nonetheless will involve significant cost and disruption to insurers.
Legacy Systems
The transition to digital presents both challenges and opportunities for insurance companies. Many firms still rely on legacy systems, hindered by outdated technology stacks and neglected architecture. This lack of modernisation makes staying competitive and meeting customer expectations difficult. However, embracing digital transformation in insurance opens up new avenues for growth, leveraging insurance technology for improved customer experiences.
The move to cloud-based solutions continues to gain pace. This migration offers flexibility, scalability, and cost savings, enabling insurers to enhance data analytics capabilities and improve operational efficiency while also benefiting from strengthened security and accessibility. Research from Capgemini reveals that 91% of banks and insurance companies have initiated a cloud journey. However, this does not translate to effective cloud adoption, as more than 50% of firms have only moved a minimal portion of their core business applications to the cloud. The move to the cloud is happening, but still needs much work.
Talent Acquisition
Attracting and retaining tech-savvy talent is essential for driving innovation and maintaining operational efficiency. The demand for digital skills is rising, and insurers must invest in continuous learning and development programs to keep their workforce updated with the latest technological advancements.
However, identifying and recruiting suitable talent is increasingly difficult for insurers. Insurance Times recently cited the challenge of top talent being 'swallowed up' through mergers and acquisitions as causing significant recruitment challenges — but this is not the only challenge. Developing a sustainable and effective program for talent acquisition is a key priority and challenge for all in the insurance space.
