Digital innovation expected to "transform" insurance industry within five years, according to survey

According to Accenture, a technology consultancy, 59% of insurance executives expect their competitors to make strategic acquisitions of digital insurance start-ups over the next three years in order to better position themselves in a changing marketplace. Accenture also found that 43% of the 141 insurers based in 21 countries it surveyed had already acquired a start-up or were planning to do so in the near future; while 68% had already invested in mobile communications and apps and 54% in social media monitoring.

However, Accenture said that many firms continued to lack a "clear digital strategy", while 60% of insurers saw their planned digital investments as more "exploratory" than part of a focus on truly disruptive innovation. In addition, 21% of insurers had no digital strategy in place at all while 32% said that their strategy was limited to sales and distribution or customer interaction processes. Legacy systems were the most common issue holding back the development of firms' digital strategies, cited by 42% of respondents; while 30% of respondents said that their firms lacked the right skills.

"The results of the survey are as expected and reflect the sorts of discussions we have been having with clients," said financial services and technology expert John Salmon of Pinsent Masons, the law firm behind Out-Law.com.

"What is clear is that insurers are going through a huge change as they seek to embrace digital as core to their strategy. This is going to involve them having to behave differently. A good example of that which is borne out by the survey results is the different type of suppliers with which insurers are engaging in order to pursue their digital strategy. As mentioned above, this could be done by a strategic acquisition or some form of other procurement. This will involve the insurers working with different sorts of suppliers and will mean that they have to engage and contract in a different way," he said.

"The other issue which comes through clearly is the problem of legacy systems holding clients back. This is going to involve insurers reviewing the systems they have and the contracts which underpin them as they consider whether to replace them. One of the critical problems is deciding whether to replace legacy systems which might be running in a very stable way with an untried new system. Insurers are going to have to be sure that whatever system is implemented as part of the digital strategy is resilient and secure from a data perspective," he said.

"Our experience shows that insurers that have a clear digital business strategy in place, as opposed to siloed initiatives, can achieve even higher growth," said John Cusano, the senior managing director of Accenture's global insurance practice.

"Insurers realise that digital technology will transform the way they operate … Select acquisitions can enable insurers to keep up with technological change, and are a sign that digital has become a board-level issue. Also, the growth insurers believe they can generate with digital initiatives is above industry average, and demonstrates that they are embracing digital as a key level in their business strategies," he said.

Jean-Francois Gasc, a managing director for insurance within Accenture's Strategy unit, said that firms had to adopt "a change in mindset" if they were to fully benefit from the incorporation of digital technologies into their product offerings. He said that it was "critical" for insurers to avoid "simply digitising existing channels by creating upgraded, digital or mobile-friendly versions of existing products and services".

Both property and casualty (P&C) and life insurers surveyed by Accenture expected to see an increase in income from premiums over the next three years as a result of their firms' digital initiatives. P&C insurers expected to spend an average of $47 million in digital investments over this time period, and expected premium income to increase by an average of 5%; while life insurers planned to invest an average of $40m and see premium income increase by an average of 7%. Just under one third, or 29%, of insurers expected premium growth to come from the expansion of their customer base through the use of digital channels.

Nearly three quarters, or 72%, of those surveyed had or were planning to form new distribution partnerships. Of these, 44% said that they would be interested in partnering with technology companies such as Google or Facebook, while 69% were considering partnering with banks. The survey also found that 61% of firms were already or were considering offering non-insurance products and services such as home security, smart sensors and car maintenance alongside their core offerings.

"Digital technologies are dissolving the boundaries between industry sectors," said Thomas Meyer, managing director of Accenture's Europe, Africa and Latin America practice. "Certain insurers seem to understand that, to remain relevant in the digital world and avoid disintermediation, they must expand beyond their traditional business. They recognise the need to develop new types of partnerships and create new products and services – possibly outside the core insurance sector - to position themselves at the centre of an extended ecosystem, allowing them to serve consumers beyond their insurance needs."