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IT Innovation in Banking and Insurance

Joseph Gulla focuses on innovation and invention in the banking and insurance industries.

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This week, I’m continuing this series on change, innovation and invention involving the use of IT by focusing on the banking and insurance industries. These are two industries that touch most of our lives in a direct way, so it’s easy to see the change brought about through innovation.

Evolutions in Banking

I was surprised to read that banking started around 2000 B.C. with merchants funding farmers and traders. My own experience with the history of banking was taking a personal tour of Stephen Girard’s apartment at Girard College and examining his banking ledgers for the Girard Bank from 1811. He created his bank from the First Bank of the United States whose charter had expired in 1811 when Girard bought all the shares. The bank ledgers were hand written and very neat. All of the ledger books were the same size. It gave me confidence to see all of this order and seriousness.
 
As a child, my parents set up an account at a local bank in my name and deposited my monetary gifts starting just after my birth. The bankbook for this account wasn’t hand written, but it wasn’t what we would recognized as a computer output either. Fast forward to today.

Apparent Innovations in Banking

Thanks to innovations in banking systems, we now have core banking systems that keep all of the bank-related details recorded digitally. These systems have names like FLEXCUBE Core Banking, T24 Core Banking and TCS BaNCS. Organizations such as Accenture, IBM and Tata Consultancy Services specialize in the implementation of these commercial core banking products. Banks have layered features and functions on top of these software packages. Because of this, we have a rich environment with online banking, including the ability to transfer funds from mobile devices and many alternatives to traditional banks for loans. The competition is fierce. I can’t forget to mention ATMs, which are an important tool well beyond just getting cash. ATMs are powerful computers that are engineered to be very reliable front-ends to a large variety of banking transactions like making deposits, withdrawals and paying bills.
 
The change continues and varies depending on retail versus corporate banking, online versus mobile, and region of operation. According to recent digital banking platforms research, the growth of digital banking platform is accelerating for many reasons, including increased use of smartphones and tablets and demand for more straightforward business processes.

Insurance Embraces Technology in a Big Way

Insurance is on a similar trajectory as banking. In my lifetime, legacy insurance systems have made the significant move to using computer applications with functions to help them assume and diversify risk. The essential insurance model involves pooling risk from individual payers and redistributing it across a larger portfolio. Most insurance companies generate revenue by charging premiums in exchange for insurance coverage. They then re-invest those premiums into other interest-generating assets.
 
Insurance companies have done a lot to lower costs while improving the customer experience and making it easier to submit claims, meaning customers can get the money they need to make any repairs. Insurance companies have made significant investments in IT in the past and now must prepare for a future with different implications.

Predictions for the Future

The IBM Institute for Business Value has prepared an executive report called “Insurance 2025: Reducing Risk in an Uncertain Future.” This report is based on a series of studies conducted by the IBM Institute for Business Value over the past few years, in combination with a number of informal conversations and discussions with SMEs and insurance executives.
 
This strategic report looks at cognitive computing and systems decentralization. This is the focus because it’s anticipated that these two technologies will have a significant impact on the future of business across industries and that will affect insurance companies and their customers. As the report indicates, uncertainty surrounds the adoption pattern of these technologies, so organizations will need to consider scenario planning regarding the various potential outcomes of these two waves. Specifically, how will cognitive technologies be deployed? Will it be as utilities or as proprietary tools? And will operations and decision-making happen on “the edge” in distributed models or centrally in common processes?
 
Other trends in insurance are starting to emerge. In “8 Insurance Technology Trends Transforming the Industry in 2019,” the authors at Duck Creek indicate that insurance technology is anticipated to mature even more in 2019. Some of these tools discussed below are already employed by some companies. However, insurers looking for a competitive edge should consider embracing one or more of these eight emerging insurance technical trends mentioned in the article.

The emergence of fintech has also been key. Learn more about fintech in "IBM Z and LinuxONE Underpin Fintech Efforts."

Next Week  

Next week, I’ll continue with this series on innovation and IT by exploring manufacturing and agriculture.
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