European insurance companies struggle with operational challenges

15 November 2023 Consultancy.uk 4 min. read
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Insurance companies are struggling with operational challenges, as the market continues to encounter headwinds across the continent. A new study suggests that most firms find it a challenge to access the data needed to excel in their work, while lacking an operating model that is fit for purpose.

The UK’s insurance market is experiencing a number of headwinds at present. A recent overview of the UK’s insurance sector suggests that UK insurers are still on course for a healthy performance in 2023. According to the most recent ‘EY ITEM Club Outlook for Financial Services’, UK insurers are expected to close this year reporting strong overall premium income growth – thanks in part to sizeable premium increases, and improved household spending power.

However, beyond those positive figures, the UK’s insurance market – and that of Europe more broadly – is experiencing a number of key headwinds that should not be ignored. Other recent EY research found that Britain’s home insurance market experienced its worst performing year on record in 2022, for example, with further losses forecast across 2023 and 2024. Meanwhile, another study by Deloitte found life insurers are rethinking their strategies, business and operating models – as while profits are growing in defined contribution pensions, bulk annuities and drawdown, profits in other lines of business look set to shrink.

European insurance companies struggle with operational challenges

Now, a new report from Clearwater Analytics and Sionic has further expanded on the hurdles the industry is facing in the coming years. The researchers engaged with C-level executives and heads of department from European insurance firms to assess their progress on the digital transformation journey and identify the key operational obstacles holding them back. The outcome of this endeavor revealed crucial insights on data strategies and peer reviews.

Chief among the insights was that while data is seen as crucial for transforming the operating models of insurers to meet with the changing needs of clients, most respondents still cannot easily access it. Whether it is access, aggregation, accuracy or analytics, data is still the number one focus, with 98% of insurers saying a digital data strategy was key to their future prospects. But a blowout majority of 90% of respondents also said accessing data was still a challenge.

Of the firms who found data access a challenge, more than half found it difficult. Meanwhile, a sizeable chunk added it required regular manual intervention – a major blocker to progress within the firm’s operational model. In fact, 64% of respondents said that a strategic data strategy was “very important” to their targeted operating model.

European insurance companies struggle with operational challenges

Data is an industry linchpin, driving the need for and development of more digitally automated operating systems – and forming the basis of technology transformation such as cloud migration. However, close to nine-in-ten firms often or regularly had trouble having to spend time on manual tasks that slowed operational change. Meanwhile, the same number suggested this meant that bespoke and adhoc reporting also became more of a challenge – and almost as many added that this stopped them being able to process client requests quickly.

The result of this is that at present, 90% of European insurers feel their current operating models do not support future business needs. More specifically, insurers identified the key problems with this over the past three years to be: inadequate infrastructure, scalability, and supportability. These shortcomings will need to be addressed quickly if firms are to mitigate the immediate pain points of internal bottlenecks, process duplication, and slow responses to client reporting requests – but in that case, firms will also need to strengthen their data strategies first.

Summarising these findings, the paper concludes, “The [insurance] industry recognises the need to become digitally native. Interestingly, with the pressure to resolve the operating challenges discussed in the survey, most respondents feel they are lagging, or at best, level with competitors. The level of continued operational and data constraints indicates that there is still a huge gap to fill.”