Insurance firms shift strategic priorities to focus on operational resilience, efficiency and control according to new research from AutoRek

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

Released today, the report, Insurance industry outlook 2023: Strategic priorities, operations, technology and financial controls, looks to understand the current issues facing the insurance industry today, as well as identify key trends.

It found that over one-quarter (26%) 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 in favour of ensuring 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.

The report also found US insurance organisations have gone to greater lengths to optimise finance operations than their UK counterparts, with 30% of US respondents saying they “strongly agree” that their organisation has optimised and streamlined their finance operations. This is compared to just over 20% of UK respondents, which 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% of UK firms plan to streamline their finance operations as a priority, which 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% saying they do so at least every six months, compared to only 20% of UK firms. The overarching trend, however, is that they view updating back-office technology to be a significant resource burden.

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

Additionally, the survey finds that three-quarters (75%) 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, largely 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.

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

For 40% 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, while reinsurers say it would enhance their overall efficiency.

Gordon McHarg, CEO at AutoRek, commented on the findings of the report, “As the report sets out, there are many challenges which firms have faced and will continue to face over the coming years, both from an external market perspective and 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, which 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.”

The survey was made up of over 500 mid-level professionals working in insurance firms in the UK and US.