State Street Corporation has released new research that revealed the vast majority (91 percent) of insurance professionals believe they are facing increased complexity in their organisation’s use of data to improve their operating models and infrastructure.
With the increase in data complexity driven by a move to new asset classes in search of yield, global operating models and heighted regulatory and compliance requirements, it comes as no surprise that more than three quarters (76 percent) of the insurers surveyed said they are turning to investment management to improve the management and use of data to enable better outcomes. This was followed by enterprise risk management (45 percent) and sales and distribution (42 percent).
“With such a challenging environment for some insurers who may be behind the technology and innovation curve, many are looking for a service provider who can help them aggregate data, integrate workflows and strip out redundant costs,” said Christian Bongiovanni, head of Insurance in Europe, Middle East and Africa. “As a result, insurers require a consolidated front-to-back operating model and global provider that can cater for multi-jurisdiction and multi-company requirements to support their growth agendas.”
State Street has recently announced a series of enhancements in support of its insurance clients. In addition to strengthening its senior team, the company announced the intention to enter a business partnership with SimCorp to bolster accounting capabilities of State Street AlphaSM, the first bank owned, fully open and interoperable front-to-back investment platform, for insurance firms in EMEA. The partnership will actively address operational efficiency for insurance firms to deliver improved accuracy and timely, high-quality data for their front-to-back operations.
“The benefits that come with an open architecture and interoperable platform like Alpha, allow State Street to work with strategic front-to-back solutions providers such as SimCorp, to offer a significant competitive advantage to its insurance clients,” continued Bongiovanni. “There’s never been a more important time for a single platform that can help insurers determine better ways to inform their investment decisions and create operational efficiencies.”
The survey also found that when choosing the right service partner to help consolidate their operating models, half of the insurance professionals cited regional scale as the most important feature, compared to global scale (45 percent), deep industry knowledge (39 percent), and significant investment in new technology systems and platforms (22 percent).
In relation to their investment strategies, insurers plan to increase their allocation to all major alternative asset classes over the next three years. Three out of four (75 percent) expect to invest more in digital assets such as cryptocurrencies, with infrastructure (72 percent), private equity (69 percent), and commercial real estate (68 percent) closely behind.
“Traditional asset classes, or safe havens are no longer providing the necessary returns for insurers, leading them to expand the range of asset classes they invest in,” added Bongiovanni. “As companies continue to expand their operations, they are accelerating cross regional exposure in terms of currency fluctuations, but also in terms of varying regulatory and legislative jurisdictions. As a result, insurers will be looking to service providers like State Street, who can help them gain control of their data with more effective analytics and a wide range of reporting tools targeted to meet the needs of their clients and regulators.”
Other key findings include:
- 92% of respondents believe a low interest rate environment will be damaging to the investment arm of their business over the next five years.
- More than two thirds (68%) expect a low interest rate environment will increase their organisations’ profitability. However, 88% agree that low interest rates will have a negative impact on their investment management arm’s return expectations and cause a reduction in demand for products, more product innovation or the utilisation of riskier investment strategies.
- 86% of insurers surveyed believe the regulatory environment for the insurance industry will become more restrictive over the next five years.
- 88% of insurance professionals are planning to make a change to their technology strategy over the next five years.
View the full research report, here.