Insurance companies see digital firms such as Google and Amazon as a growing threat to their business, a survey has claimed, with many planning to invest in data analytics to improve customer service.
The study, conducted by The Economist Intelligence Unit on behalf of SAP, surveyed 338 senior executives at a range of insurers, and found that the biggest competitive threat from non-insurance entities comes from e-commerce providers such as Google and Amazon (32 percent).
Banks moving into the sector (31 percent) and large retailers (11 percent) were also seen as competition.
Google for example, has invested in a range of insurance-related services in recent years, acquiring UK-based aggregator BeatThatQuote in 2011, and launching its car insurance comparison service Google Advisor last year.
It has also spent on 'internet of things' technology that could impact the future of underwriting, acquiring 'smart home' thermostat maker Nest Labs for $3.2 billion earlier this year.
Other non-insurance companies have also moved into the market, such as home-inventory mobile app developer, Snupps, and Silicon Valley start-up Sureify, which offers online insurance buying guides to customer.
"Traditional insurers have to become customer-centric to battle back against the real threat these companies pose to their business," said Gilda Stahl, senior editor, The Economist Intelligence Unit.
"The good news revealed in our research is that insurers have started to make real progress on that front."
Core system replacement
The report contends that one of the major obstacles to improving customer service is the overhaul of core technology systems, with many relying on legacy infrastructure.
However, some insurers are already making headway, and there is a trend to replace highly customised applications with off-the-shelf software that is easier to manage and more reliable.
"We're moving away from custom code to configurable package software," said Daniel Greteman, senior vice-president and CIO of Nationwide's commercial insurance business.
"Legacy platform modifications require programming validated by testing. By moving to configurable systems, the time required to make changes could go from months to hours."
Big data and IoT
The survey showed that many insurance firms (82 percent) are now investing in improved data analytics. This involves making better use of external data sources (82 percent), predictive analytics (80 percent) and making data analysis available to more of the business (76 percent).
By investing in analytics, insurers will be more able to capitalise on new trends in the market such as machine to machine communications and connected devices.
"Insurers are already using insights from connected cars and home automation systems to offer premium discounts to good drivers and to policy holders," said Ross Wainwright, global head of financial services at SAP.
"By leveraging this technology and the wealth of information it can provide, insurers now have the opportunity to go beyond premium discounts and to stay competitive in today´s increasingly connected world."
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