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Europe: Ready for the digital challenge?

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It is difficult to overstate the impact of the digital revolution. To take one metric, the number of global mobile phone subscriptions is now 6.8 billion, according to UN agency The International Telecoms Union. It predicts that this figure will outnumber the number of people in the world (7.1 billion) by 2014. And the majority of mobile phones being sold are now smartphones.

On the face of it, insurers appreciate the significance of such changes. EY's 2013 Global Insurance Digital Survey, Insurers in a digital world: the time is now, which looked at more than 100 insurers worldwide, reveals that most firms have ambitious plans and expect their organisations to be among the industry's digital leaders in the next three years. However, they also acknowledge that there are mountains to climb.

Asked to rate their organisation's current position as a digital leader on a scale from one to five, respondents' average score is under two. Europe fares worst, with 90% of European insurers putting themselves at the lower end of the digital maturity scale (one or two).

What's worse, more than two-thirds give themselves just one out of five for managing and building brand loyalty through digital channel, and three quarters admit that they have only basic skills in using digital to reduce costs.

Despite this, European insurers are, like their counterparts globally, upbeat. Under their plans for the next three years, the average digital leadership rating is expected to increase to almost four out of five, and 68% say they are "making good progress".

However, it is not at all clear that this optimism is justified. Insurers themselves identify a number of barriers to realising their ambitions - and they largely blame themselves. While 86% of European insurers note legacy technology constraints, the most commonly cited reason for limited digital growth in the insurance market is simply the slow pace of delivery by insurers (96%).

They also recognise the fact that they face significant challenges in delivering their digital strategies. Globally, about two-thirds identify cultural and structural constraints as the primary challenges, followed by the ability to gain management buy-in and investment.

In Europe, structure and culture are named as challenges by 90%, and lack of skills by 70%. Channel conflicts are identified by more than two-thirds (67%) - which is another important point, since insurers' distributors are digital customers, too, and agents will face many of these same digital challenges.

More worryingly, for all the lip service, comparatively little is being done to address these issues. More than two-thirds of respondents worldwide, and 84% in Europe, currently spend under a tenth of their IT development budget on digital. More than one-quarter (28%) of respondents in Europe, meanwhile, admit that they currently have no business case at all for their digital strategy.

This seems symptomatic of a certain complacency in the industry. On the one hand, insurers worldwide recognise the world is changing. In Europe, only 7% cite a lack of customer demand as an inhibitor to digital growth. Furthermore, the majority of insurers say they believe they could lose competitive advantage if they fail to embrace digital.

Indeed, 60% of non-life companies believe customers may ultimately leave them as a result. But if that is the case, insurers need to up their game when it comes to digital opportunities.

For instance, 89% of insurance companies do not leverage past interactions when recommending products or services to online customers - and just 43% currently provide mobile quotes.

Insurers' lack of urgency also ignores the likely competition for key skills. Analytics capabilities - such as segmentation, customer data analytics and predictive modelling skills that help businesses turn data into actionable insights - are particularly sought after, according to three-quarters of those surveyed. Organisations that don't start to develop these skills now will not only find it difficult to source good candidates later, but will also miss out on many of the benefits, since these capabilities are a prerequisite for extracting maximum value from digital investment in other areas.

The industry may recognise how much digital is changing the world, but it is not entirely clear whether they appreciate how fast it is doing so. In particular, they need to embrace mobile technology and social media now. Already, 65 % of purchase journeys for financial services start on a smartphone, according to Google. Insurers that are tempted to bide their time should keep this in mind. After all, it is quite possible that the leading digital insurer of the 21st century has yet to emerge.

Graham Handy is EY's Global Insurance Customer Leader

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