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What technological challenges do we face?

The insurance industry in a balancing act between legacy modernisation and digital transformation projects

Information technology has its own challenges in every industry. This also applies to the insurance industry. According to the insurance association GDV, IT spending remains at a high level. As reported by GDV, insurers are prioritising the modernisation of insurance IT. ERGO is also working on the modernisation of its legacy worlds and is continuing to drive forward the digital transformation (see CIO magazine). Reason enough for Mario Krause, CIO of ERGO Germany, to outline six core technological challenges facing the insurance industry in this article.  

1. The IT of many insurers is shaped by existing “legacy” worlds

Many insurers pride themselves on longevity, tradition and security for their customers. Therefore, many “legacy systems” (partly with mainframe technology) can still be found there. With increasing age, these become more and more of a risk for the insurance company. The effort to replace them grows exponentially with each passing day. Resources and skills for adaptation become scarcer. Despite replacement strategies, the history will continue to occupy IT managers and have corresponding budget requirements.

2. The importance of regulation including data protection and data security is growing

Insurers, like banks, sit on vast amounts of sensitive data and information. This makes the industry extremely vulnerable to attacks and breaches. In view of the global trouble spots, the risk potential continues to grow. This and the increasing regulatory requirements, especially for data protection and data security, therefore require a growing share of the transformation budget.

3. Cloud-based models are also becoming more popular with insurers

Due to the aforementioned security requirements and needs, insurers' IT operations are still very much organised in their own data centre “on premise”. However, in the modern and pandemic world, there is a lot of discussion in all industries regarding alternative IT operation and service models – first and foremost “cloud” with all possible variations. Insurers are on the path to significantly streamlining their IT with the help of the cloud. In the course of end-to-end orientation (from requirement to operation) and the convergence of development and operating processes (keyword DevOPs), this also affects the delivery and operating models.

4. The “agilisation” of business and IT in the industry continues

The digital transformation poses major challenges for insurers not only technologically, but also organisationally. The technical legacy worlds architecturally replicate the organisational silo worlds of the past. Without work on the structures, the best technological modernisation fails to achieve its goals. Team-oriented, liquid structures and processes in the interdisciplinary interaction of business and IT are also becoming increasingly popular in the insurance industry.

5. Ecosystems and platforms require improvements in integration capabilities

In the future, insurance will become part of a larger “customer journey” for customers. Insurers are therefore already reflecting their role in the ecosystems of other value chains. Technologically, the platform economy requires not only own platform concepts but also the creation and opening of interfaces in order to improve integration capabilities.

6. Digital transformation fuelled by Corona and current crises

The Corona pandemic turned the world upside down. This was followed by the crisis situation in Eastern Europe. Against this background, insurance companies have to constantly reassess the situation. Employees went home office and mobile working became the new normal. The pandemic ultimately increased the speed of the digital transformation. A slowdown of the transformation after the crisis is unlikely, not only in the insurance industry.

Dealing with the challenges

Many insurance companies have recognised these challenges and have already made efforts to solve them as part of the digital transformation. But this was only the beginning of the journey: Certainly, the demands continue to rise as, in the wake of Covid-19 and the international crises, there is renewed attention from the business side to the costs of technologisation and digitalisation, in addition to the value proposition. But working on the above challenges pays off equally in terms of innovation and cost efficiency. That alone makes the discourse valuable.

Text: Mario Krause, CIO ERGO Germany