insurance
Insights Insurtech North America

8 in 10 Insurance Financial Departments Rely on Spreadsheets as Legacy Tech Lingers

Strategic priorities in the global insurance sector are shifting as firms increase their focus on operational resilience. This is according to new research from AutoRek, a reconciliation and finance automation fintech.

The report, Insurance industry outlook 2023: Strategic priorities, operations, technology and financial controls, looks to understand the current issues facing the insurance industry today. This is in addition to identifying key trends. The survey was made up of over 500 mid-level professionals working in insurance firms in the UK and US.

It found that over one-quarter (26 per cent) of respondents have focused on customer experience, acquisition and retention, and back and middle-office optimisation over the last two years. However, over the next two years, firms plan to reduce efforts in these areas. Instead, they are looking to ensure overall operational resilience.

This news comes after the FCA recently imposed new operational resilience guidelines on UK insurers, and with US regulators reconsidering their approach to the issue.

Comparing US and UK insurance trends

The report also found US insurance organisations have gone to greater lengths to optimise finance operations than their UK counterparts. Thirty per cent of US respondents said they “strongly agree” that their organisation has optimised and streamlined their finance operations. This is compared to just over 20 per cent of UK respondents. This could explain why US insurance professionals are more likely to report their firm to be highly profitable than UK.

However, over the next two years, 42 per cent of UK firms plan to streamline their finance operations as a priority. This has doubled from the previous two years. Only a third of US respondents said the same.

The survey also revealed that US insurance firms have more agile back-office systems than their UK counterparts. Likely, because they’ve also been quicker to adopt new technology. US firms are more active in reviewing their back-office systems, with 30 per cent saying they do so at least every six months. This is compared to only 20 per cent of UK firms. The overarching trend, however, is that they view updating back-office technology to be a significant resource burden.

Challenges for the sector

Brokers face more complex processes than any other sub-sector. Almost two-fifths (38 per cent) of firms point to process complexity as a material operational challenge. The figure rises to half (51 per cent) for brokers. Responses also highlight efforts to overcome issues: around eight in 10 (78 per cent) plan to streamline their operations over the next two years.

Additionally, the survey finds that three-quarters (75 per cent) of insurance organisations acknowledge that legacy technology has a negative impact on their operations. In the previous two years, firms have mainly focused their tech investments on finance and accounting. This has largely been driven by regulatory requirements such as Solvency II and IFRS 17. However, this isn’t set to continue with tech budgets for 2023 and 2024 favouring accounts receivables and operations automation.

Legacy systems are hard to kick 

The global insurance industry still has some distance to go before it fully embraces automation. Spreadsheets are still prevalent for financial controls. More than one-third state that they rely on Excel for reconciliations. And 85 per cent of firms said their finance departments still rely on spreadsheets more broadly.

For 40 per cent of respondents across both the UK and US markets, faster processing times are the key driver behind automation initiatives. But drivers differ across sub-sectors. MGAs and life insurers say that automation would bring them greater data confidence. Meanwhile, reinsurers say it would enhance their overall efficiency.

Gordon McHarg, CEO at AutoRek, commented on the findings of the report: “There are many challenges which firms have faced and will continue to face over the coming years. Both from an external market perspective and a competing business-as-usual processes perspective. How well-prepared firms are to meet the challenges discussed throughout this report will define their success over the months and years to come.

“It’s promising to see firms continuing to invest in technology across finance and operations departments. This often played second fiddle to front-end enhancements. Adopting the latest advancements in technology and automation is instrumental to the success of insurance organisations. The question for most will be to decide which areas to focus investments on, especially given the highly specialised nature of the insurance industry.”

Piers Williams, insurance lead at AutoRek, added: “Picking the right overarching strategic objectives is far from a simple task, particularly with insurance businesses balancing multiple competing demands. The back-office is really the engine that drives any financial organisation and efficiency gaps in this area are detrimental to the bottom line and ultimately customer-facing activity.

“We hope this report goes some way to help insurance firms prepare to overcome the challenges of the coming years and highlights potential opportunities.”

Author

  • Francis is a journalist and our lead LatAm correspondent, with a BA in Classical Civilization, he has a specialist interest in North and South America.

Related posts

Nice Actimize Tackles Complex Networked Financial Crime With AI-Powered Case Management Solution

Tom Bleach

Blockchain’s Use in Global Trade Finance Supported by BNY Mellon Through the Marco Polo Network

Francis Bignell

Button Welcomes Bnext As Its First Partner in Southern Europe: Enabling Users to Shop and Save Money With Leading Brands Like AliExpress and Groupon

Dominic Brough