OREANDA-NEWS. October 05, 2015. The insurance industry is at a competitive disadvantage and vulnerable to new competition, according to a recent report from Ovum sponsored by SAP SE (NYSE: SAP).

Due to the continued use of software landscapes that are fragmented, inflexible and costly to manage, many insurers still lack integrated core software systems.

The report, “Core Operations Modernization in the Global Insurance Industry,” concludes that despite significant investment in projects to modernize core operations, a majority of insurance carriers continue to run multiple and fragmented software systems. This makes it difficult for carriers to ensure that products and processes comply with regulatory requirements. It also exposes carriers to threats posed by new competitors in the industry who market themselves as more digitally-savvy.

Despite the significant investment in projects to modernize core operations over many years, more than 40 percent of insurance carriers continue to utilize at least 11 different core operation platforms, with nearly a quarter of all U.S. insurers running 20 or more platforms. SAP and Ovum found that 42 percent of carriers see an “integrated channel” model as the optimal architecture to support a growth strategy. This model directly couples digital channels and core processing functionality within a single platform. However, to date, updated, digital customer front-end software systems remain essentially isolated from the core operations environment and 46 percent of carriers need at least two years to implement the ideal “‘integrated channel” model.

According to Charles Juniper, principal analyst, Financial Services Technology, Ovum, “Core operations environments in use today are simply not up to the challenges facing the industry – whether that comes from powerful new entrants, agile start-ups or not being able to respond to changed customer expectations. This leaves many established insurers exposed to real competitive threats.”

The disconnect between digital channels and core processing continues to be a major impediment for carriers’ ability to deliver on customer service. In fact, enhancing the customer experience was noted as the most important goal of core operations modernization projects. Given the commoditized nature of new business models, the impact of poor customer experience is seen as the most important consequence among the majority of insurers over the next 24 months.

Failure to implement successful technology strategies will also leave insurance carriers at a competitive disadvantage compared to new market entrants who offer products through an “integrated channel.” According to the study, 23 percent of insurers in emerging markets are aggressively implementing software-as-a-service and cloud technologies in order to transform their core business models rapidly and mitigate threats from these new entrants better.

The full report can be accessed here. To learn more about insurance software from SAP and its core operations software for insurers, please visit go.sap.com/solution/industry/insurance.