Accelerate—it’s time for insurers to move swiftly and decisively

McKinsey & Company | Johannes-Tobias Lorenz | Sep 30, 2019

running digital fast - Accelerate—it’s time for insurers to move swiftly and decisivelyIn the past, speed was not critical for an insurer's success. The reality today is totally different. To flourish in the digital age, insurers must move swiftly—and decisively.

For a long time, the traditional insurance business model proved remarkably resilient. A robust regulatory environment, limited consumer interest, and large balance sheets safeguarded the competitive advantage against early digital attackers. But the picture today is different. Digital technologies are putting pressure on profit pools, and competition is intensifying as traditional industry borders blur and players from adjacent markets shake up the traditional insurance value chain to claim their stake. On top, the negative-interest-rate environment threatens the economic foundations of the industry.

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The good news: Traditional insurers remain in a strong position to flourish in the digital age. Most have customer access through their proprietary channels, strong and trusted brands, and actuarial expertise. These features make traditional insurers valuable partners in budding digital ecosystems that are evolving to offer both risk prevention and risk mitigation services. In addition, they also have large balance sheets that enable them to underwrite large risk pools. Today, most insurance companies have started applying new technologies within their organizations and are making strides in implementing digital solutions. However, the metabolic rate needs to increase to stay competitive in a polarizing “winners take all” environment.

How to move swiftly—and decisively

The strength of an insurer’s in-force book will not protect it indefinitely. Incumbents need to move quickly to compete with digital competitors that have the agility to keep pace with evolving technology and customer needs. Five key observations on speed can help guide insurers on the right track.

1. Know your strategy

Big moves that drive digital effectiveness need a strategy that is clear and adaptable. Indeed, these characteristics go hand in hand, as a clear vision of the future is more powerful when combined with learning through experimentation and realignment. Agile ways of working can lower risks at each step and create opportunities to mold strategic aims to new realities. Companies that achieve this flexibility while maintaining a clear vision can be quicker and more decisive in implementing their digital agenda.

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2. Make speed manageable

Frequency matters. A powerful strategy to digitally transform an existing business model must be met by a manageable set of practices that support change week to week and quarter to quarter. Our research finds that top performers perform crucial tasks—such as learning about digital technologies, assessing the business model for digital-productivity opportunities, or sharing lessons learned from failed or successful tests—more frequently than other companies.

3. Do your homework (often)

What’s the fun in all the data if you’re not using it to make your organization better? A recent McKinsey study found that that 44 percent of top-performing companies collect and analyze customer data weekly or more frequently to identify new opportunities, compared with 16 percent of laggards, which tend to analyze customer data only monthly. Frequent analysis will allow companies to make bigger, better acquisitions and capital-expenditure decisions, scaling up what is working more rapidly and effectively.

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