According to a recent report by consultants PricewaterhouseCoopers (PwC), insurers are coping with the credit crunch better than most other financial services sectors. In its Financial Services Survey, produced in conjunction with the Confederation of British Industry (CBI), PwC revealed that while banks, building societies and securities traders have suffered from falling business volumes and rising transaction costs in the past three months, the insurance industry, both life and general insurance, has remained strong. And what’s more, technology investments are credited with sustaining much of this buoyancy.  

That technology can be listed as a priority for insurers in 2008 is a far cry from the sector’s attitude to technology only a few years ago. It is widely accepted that the UK insurance market has been slow to adopt technology compared to other parts of the financial services industry. Traditionally, where there have been technology investments, they have tended to be the formulaic ‘big bang’ projects that have seen widespread renewal of the entire infrastructure or a trend towards embarking on highly complex long-term projects with a clear reluctance to buy off-the-shelf. As a result, insurance companies, across the board, have typically been lagging behind the rest of the financial services sector in embracing technology to make efficiency gains and cost savings.  

However, the tide is turning and compliance is - once again - proving to be one of the primary drivers for technology investment. PwC’s insurance leader Clare Thompson believes that insurers have started to increase their spend in order to deal with regulatory developments, primarily Solvency II and IFRS Phase II. As a result, 2008 is probably the first year in which companies will start to spend in order to reach compliance with Solvency II, which comes into force in 2012. 

Compliance is however not the only factor tipping the balance within the insurance industry as a whole towards widespread technology investment. The Financial Services Authority is having ever greater influence over the industry and imposing further regulatory controls. The industry is also having to face up to the fact that non-insurance companies are moving into the market and enjoying considerable success. These players not only include retail banks but also non-traditional financial services suppliers such as Tesco.  

From an internal point of view, the insurance industry is trying to address the core business issues that many companies across a variety of industries have previously addressed. The reason that the insurance industry is trailing is that such issues were typically put on the back burner as they were viewed as being too difficult to tackle. Such an attitude is due, in part, to the complexities and huge variables that exist within insurance policies, which insurers believe simply cannot be automated. A final pressure that may yet emerge is another wave of mergers and acquisitions. The UK insurance industry experienced consolidation towards the end of the last decade but the wave of M&As came to an abrupt halt in the wake of 9/11. External pressures, particularly in the form of competitive threats, may however be enough to reignite this trend.