Inflation and Recession Will Accelerate Digital Transformation in the European Insurance Industry

Three-quarters of European insurance industry leaders say geopolitical tensions, persistently high inflation and the threat of recession will drive their companies to accelerate their digital transformation programs in the coming year, a new survey from Information Services Group, a leading global technology research and advisory firm, finds.

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“Pulse Check – State of European Insurance Industry 2022”

The ISG “Pulse Check” survey, conducted in the third quarter of 2022, surveyed 200 business decision-makers and IT experts in the European insurance industry.

Europe’s insurance companies are facing a “perfect storm“ of declining premium income, growing operating costs, emerging competition, rising climate and cyber risk and an ever-tightening regulatory environment, ISG says, forcing them to accelerate changes to their business models.

“Insurance companies are investing aggressively in digitally focused business models to create more opportunities for growth,” said Anna Medkouri, ISG partner, insurance, for EMEA. “Our survey results found insurers are turning to technology solutions and partnerships in the technology sector to help achieve this goal—a trend we anticipate will continue for the foreseeable future.”

Attracting new customers, improving customer retention and optimizing pricing and technology are the top initiatives for insurers, the survey found. Ninety-four percent of survey respondents said winning new customers will be a priority in the next two years, followed by improving customer retention (79 percent), improving customer pricing (78 percent) and developing digital business channels (77 percent).

Cutting costs and simplifying existing infrastructure is also a priority for European insurers, with 67  percent of respondents highlighting the urgency of replacing legacy systems for future readiness. Many insurers are decommissioning legacy systems, rationalizing application portfolios, heavily streamlining products, and migrating workloads and systems to cloud-based solutions and digital platforms.

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Almost six out of 10 respondents (59 percent) are actively pursuing vendor consolidation for improved performance, and 74 percent said they will increase outsourcing to add value, improve agility and lower costs, by expanding the scope of outsourcing to cover primary business processes, such as underwriting, claims settlement and third-party administration agreements.

“Insurers are looking to specialized providers to help upgrade legacy technology ecosystems that hamper their ability to compete with disruptors and born-in-the-cloud insurance providers,” Medkouri said. “The next three years will be critical for insurance companies as more technology penetrates the value chain and customers expect digitally evolved experiences.”

For the first time in this survey series, sustainability was among the top five priorities for insurance companies.

“European insurers are pursuing ESG strategies and mobilizing technology investments and strategic alliances to minimize the impact of climate change, enhance their reputation and increase their shareholder value,” Medkouri said.

Four out of five insurers say they have plans to take advantage of the emerging world of the Metaverse and Web 3.0. However, the scale of this investment is expected to remain small in the next few years, the survey found.

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