Despite 88% of Hong Kong insurers claiming to be ahead of the competition when it comes to the adoption of digital systems, 96% admit legacy technology is holding back their business growth – a combination that suggests an industry aware of its constraints, but potentially underestimating its long-term competitive consequences, according to recent study.

Around 76% of Hong Kong insurers say their company’s operating model is too focused on short-term challenges and goals rather than long-term issues facing their organization, finds the study by investment management technology platform Clearwater Analytics, which surveyed insurance asset management executives at Hong Kong firms with total assets under management of US$1.31 trillion.

Hiring people to manage legacy systems is one area that has become increasingly problematic, according to more than half ( 58% ) of those surveyed, with 32% saying it is a serious problem. Just 4% express a view that there is no problem with recruitment in the sector, although a further 22% consider the problem to be relatively minor.

The technology challenges, the study notes, are also cultural and appear to be rooted in deep organizational resistance. All respondents say people working in the insurance industry are resistant to change and the adoption of new operating models and systems, with 76% saying it is a serious challenge.

Around a quarter ( 28% ) questioned say problems in the insurance sector are caused by a lack of diversity – not just of people from different backgrounds, but also with different ways of thinking.

Despite concerns about technology and culture, most respondents ( 88% ) consider their organization to be ahead of their competitors in terms of their digital transformation journey ( 40% say they are significantly ahead ). Just 2% think they are trailing behind their competitors, and 10% believe they are in line with them.

There is confidence in the flexibility and scalability of operating models being able to meet new challenges. More than three quarters ( 76% ) say their organization’s models are flexible ( 28% say very flexible ).

Insurers in the Hong Kong region are braced for a surge in merger and acquisition ( M&A ) activity in their domestic markets. All predict a rise in domestic M&As over the next three years, and about 34% predict a dramatic increase.

A focus on synergies from M&As is the main driver of M&A activity in the region, ahead of a push to grow their businesses and a desire to diversify their holdings.

Economies of scale from M&As was ranked fourth as a factor fuelling M&As, with a desire to eliminate competition ranked fifth, and improved financial capability ranked last.

“While Hong Kong insurers show confidence in their digital progress, [there is] a concerning gap between perception and operational reality that could impact competitive positioning as the sector consolidates,” shares Shane Akeroyd, Clearwater’s chief strategy officer and Asia-Pacific president. “Our research highlights a critical misalignment between the strategies of Hong Kong insurers and the operational effectiveness of their current technology stacks that rely on older systems that are increasingly difficult to manage.”