The Spectator, a British magazine on politics, culture, and current affairs (anno 1828) once described the insurance sector as “the boring uncle of the financial services family—a little drab and likely to be found in a basement listening to Daniel O’Donnell on a Saturday night.”
The insurance sector has been perceived for aeons to be set in its ways, deeply conservative, dull, monotonous, lacking innovation, and with no desire to change.
I beg to differ.
Recently—and for the first time during my quarter of a century in the City of London—long overdue change is happening, happening now, and happening fast. No longer content to be behind the curve, the insurance sector is going through a revolution and shaking off its dusty image, much to our collective surprise.
What’s driving this change, and why is it happening now?
Some years ago, I visited an insurance firm in the City, meeting with the newly appointed CTO to discuss the simplification and modernisation of their target operating model and system landscape. Touring their premises, I eventually ended up in their server room and was introduced as follows: “Welcome to the Museum of FinTech Curiosities.” Quite a collection it was: a myriad of solutions and systems, databases and operating systems, some dating back 30-40 years. Many past their prime and others badly in need of an upgrade. Miraculously, this “museum” was held together by very competent and creative people with decades of computer experience.
This aging infrastructure was supporting billions of insurance assets on a daily basis. In the corner of the room, in all its orange monochrome glory, was a stand-alone application called RDT. Not connected to any network, it required manual input every morning. It would crunch the numbers and produce a mysterious “asset liability report” a few hours later. It was programmed in APL, a programming language that peaked in 1964 (just like The Beatles). It was maintained by a sole member of IT—he would joke that its stamina and staying power would make it outlive Paul McCartney.
Sadly, the project didn’t take off—but there is a sequel.
Based on this and many other similar scenarios, one could say the change was not only long overdue but was eventually going to happen. Change then did happen, unplanned and unstructured. COVID changed the way we worked and organised ourselves. New technology accelerated a dormant desire and demand for more accurate data and information, challenging the status quo. To a large degree, this was the turning point for the insurance sector. The mentality went from “if it works, don’t fix it” to “just because it works today, doesn’t mean it will work tomorrow.”
While change was needed, that alone was not the impetus for the sudden insurance boom. I see a few key trends driving—and continuing to shape—the insurance industry trajectory.
- Leadership turnover
The great resignation, driven in part by COVID, impacted the insurance sector significantly. This workface shift forced leading firms rethink both hiring policies and career paths. Consequently, we have seen a new generation of C-level executives moving in: younger, more diverse, more innovative, and with a higher appetite for change. The traditional way of working your way to the top, for years or decades even within the same organisation, is no longer the only option for a career in insurance. Cross-industry recruitment is now the norm. With women now holding 29% of board positions in insurance, the industry is also making progress toward proportional gender representation
- Investment opportunities
The sector is embracing a more adventurous asset allocations, looking into alternative investments, global opportunities, credit etc, seeking higher, long-term returns. Given the very nature of the insurance business and its risk profiles, one can’t help wondering if the question is “why not sooner” rather than “why now”?
- Technology innovation
Given the size of the insurance market, well established software houses as well as newcomers have been targeting the sector, developing products, and addressing the specificities of the challenges of the industry. Consequently, and more than ever before, firms now have a wide range of high-calibre solutions at their disposal that will transform their world and facilitate growth and efficiencies.
- Data underpins change
The need and the desire to drive business growth, expand global footprints, refine products, and add sophistication through accessibility and availability of data are top of mind for insurance leadership. But data means different things to different people across the investment lifecycle and the insurance business. Data will continue to underpin innovation from investment strategy to ESG reporting, and insurance industry leaders and solutions providers must refine data priorities to drive change agendas.
This quartet of trends are just examples. There is a lot happening and we provider a deeper dive in a recent whitepaper you can download here.
I recently revisited the insurance prospect I mentioned in the introduction. Years have passed, and they are in the midst of change. Management is new. There is a mix of ideas and a willingness to evolve and modernise. A lot of the systems I looked at are now gone. RDT is still there but scheduled to be decommissioned. I just learnt that RDT stood for “Roger’s Dodgy Terminal.” It was vital for the company for a long time, just like Roger himself. After 50 years of service, Roger moved on to the great IT department in the sky a few years back.
Change is inevitable, but the speed of change is never constant and the drivers are not always easy to identify, control, or manage.
As far as insurance is concerned, it’s booming and (no longer) boring.