Inertia is “going to kill” industry players – Pegasystems director

The insurance industry must act and make sure that it has the IT infrastructure in place to compete, or individual players risk being wiped off the face of the landscape.

This is the message from Pegasystems director of insurance EMEA Tony Tarquini (pictured).

Tarquini has spent over thirty years in software houses and the insurance sector and thinks that legacy systems, information and tech director lethargy and a lack of IT investment are holding insurers back.

He has seen the aggregators redefine the personal lines space and now, Tarquini believes, insurance is at another pivotal moment.

“The business model of insurance is going to fundamentally change,” Tarquini said.

No “crystal ball”, but big changes are ahead

While nobody has a “crystal ball” to predict just how the sector might look in 2025, Tarquini added, it will be “radically different”.

Instead of sitting back and waiting for the impact, insurers and brokers must make sure that they have the agility and infrastructure in place to cope with any sudden upheaval, such as an entry by Amazon.

With 70-80% of all budgets spent “just keeping the lights on”, Tarquini said: “As time goes by, not having that agility is going to kill insurance companies. It is absolutely going to kill them.”

Tarquini continued: “A lot of them [insurance companies] don’t have the agility and they are lulled into a false sense of security. And if you look at what’s happened in banking – other industries – exactly the same thing is going to happen in insurance.”

In banking, Tarquini gives the example of card fintech Revolut, one of many companies, he says, which have taken chunks of business from banks.

The incumbent banks are then left with vast amounts of expensive IT architecture.

Keeping up with the data giants

Many insurers are too slow to keep up with the changing technological landscape, according to Tarquini.

It can take months for an insurer or large broker to produce new releases, but Google replaces half of its source code every month, while Amazon releases new software every 11.6 seconds.

Even forgetting about the data giants, insurance is still “way behind” other industries, Tarquini suggested.

This needs to change, according to Tarquini. 

It is possible to be quicker – Tarquini pointed to life insurer Aegon, which releases weekly.

Insurtech investment

Venture capitalists (VCs) are jumping on the sector, which is viewed as ripe for disruption, while in 2017 insurers and reinsurers themselves invested in more insurtech companies than ever before.

Tarquini warned that insurance is the most popular VC investment destination in technology. 

Distribution models are the most attractive area for technology companies to target, he added, with new players looking to avoid the burden of heavy regulation.

Dealing with risk head on

In addition, Tarquini expects that the insurance business model is going to alter radically as the Internet of Things (IoT) becomes more advanced.

Insurance providers will need to seize the opportunities in risk management and mitigation if they are to survive, as claims and premiums shrink.

“If you are not able to respond to the challenges then your profitability is going to go through the floor,” said Tarquini, “Your combined operating ratio is going to go massively up.”

Looking forward a few years, Tarquini cautioned: “There are going to be a lot of players who we know as existing insurance companies who won’t be around.”