Insurers increasingly under pressure to go digital via M&A

Nearly half of global insurers expect to acquire new technologies through mergers and acquisitions (M&A) in the next three years, according to a Willis Towers Watson survey.

The survey shows that an increasing number of insurers now regard investment in digitalisation a priority, especially considering the sector has lagged behind its financial services peers in adopting digital technologies owing to regulations, reluctance and cost.

Almost three quarters of global insurers (74 percent) believe their sector has failed to show leadership in digital innovation.

"Insurers recognise the importance of building a sustainable digital infrastructure to improve customer engagement and as an essential distribution channel, which is likely to be addressed through a combination of internally driven innovation, joint ventures and M&A activity," said Nicholas Chen, head of digital solutions at Willis Towers Watson in Asia Pacific.

"Insurers that hesitate could very well get left behind and fail to capture future generations of younger policyholders, who are more likely to engage via digital channels."

Almost half of the survey respondents expect to make an acquisition over the next three years, directly driven by the desire to acquire digital technologies, including 14 percent that intend to make more than one acquisition. The survey also revealed nearly all respondents (94 percent) expect distribution to be the area where digital technologies have the greatest impact over the next five years.

Distribution is a recurring theme for insurers surveying the digital landscape, as it offers opportunities to find new ways to market, and to build closer, more engaged relationships with consumers of their products and services.

In the next two years, insurers say web and mobile delivery channels (77 percent) are the digital technologies they expect to have the biggest impact on the sector, while they anticipate big data, automation, robo-advice and sensors to emerge in importance over the next five years.

Insurers also recognise the challenge and opportunity to leverage digitalisation to create operational efficiencies throughout the business that will not only manage cost but also streamline processes to enhance customer experience.

"The tools emerging are often so far removed from insurers’ previous experience that external innovation models are likely to be the only way of expanding digital capabilities. This is expected to lead to a wave of new M&A activity in the years to come," Chen added.

In terms of digitally disrupting the industry, 45 percent of insurers believe they will be the most likely to do so in the years ahead, while the same number expects start-up companies to have the biggest impact. However, just 8 percent see new entrants from the technology sector, such as Google and Facebook, as likely to disrupt their marketplace.

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