A growing number of insurers now regard investment in digitalisation as a priority, to avoid getting left behind as the adoption of digital distribution channels gathers pace.
Almost three-quarters of global insurers (74 per cent) believe companies in the sector have lagged behind their financial service peers in adopting digital technologies because of regulations, reluctance and cost.
The finding emerged from a new survey conducted in July and August last year by global advisory, broking and solutions firm Willis Towers Watson together with Mergermarket.
The survey polled 200 senior-level executives in the insurance industry to map changing attitudes towards digital technologies.
It aimed to find out how they plan to close the gaps, as well as examine the extent to which insurers are using merger and acquisition (M&A) strategies to realise their goals and targets.
Percentage of global insurers that believe companies in the sector have lagged behind their financial service peers in adopting digital technologies because of regulations, reluctance and cost.
Percentage of survey respondents that expect to make an acquisition over the next three years, directly driven by the desire to acquire digital technologies, including 14 per cent that intend to make more than one acquisition.
The companies polled were split equally across the Americas, Asia and a region encompassing Europe, the Middle East and Africa.
Mr Nicholas Chen, who heads digital solutions at Willis Towers Watson in the Asia-Pacific, said: "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.
"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 respondents (49 per cent) expect to make an acquisition over the next three years, directly driven by the desire to acquire digital technologies, including 14 per cent that intend to make more than one acquisition.
The survey also reveals that nearly all respondents (94 per cent) expect distribution to be where digital technologies will have the greatest impact over the next five years.
This is because it offers opportunities to find new ways to market their brands, and build closer, more engaged relationships with consumers of their products and services.
Mr Chen noted that, in Asia, having a deep understanding of the customer and the market is key.
"A single solution and strategy might not work across all markets. For instance, in China, consumers are very comfortable transacting on mobile devices, so having a strong mobile offering that leverages leading local platforms including WeChat is expected, along with fulfilment capabilities," he said.
"How an incumbent engages, differentiates and grows through digital channels in a market such as China is also more complex. In contrast, in Indonesia, where there is a large unbanked population and intermittent wireless connectivity, the digital offering will look very different. As a result, we stress the importance of insurers having a clear digital vision and strategy at the regional and local levels."
Insurers say Web and mobile delivery channels are the digital technologies they see having the biggest impact on the sector in the next two years. They expect big data, automation, robo-advice and sensors to emerge in importance over the next five years.
Insurers also recognise the challenges and opportunities involved in using digitalisation to create operational efficiencies across the business that will not only manage costs but also streamline processes to enhance the 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," said Mr Chen.
Respondents said developing data and analytic tools are a key part of broadening their innovation, with many carriers claiming to have made substantial progress already in this area. Nine in 10 have explored how to gather more information directly from their existing customers. Eight in 10 are leveraging social network data, while more than half (53 per cent) are looking to mine publicly available data in new ways.