inspiring threats (part 4) ~ Insurance Academy

Insurtech path to improve performance

For old players, all the news is not that bad or that far. Insurtechs is not intentionally trying to replace traditional insurance companies. Insights generated from the McKinsey Panorama Insurtech database show that 61 percent of all insurtechs currently focus on providing services to insurers, simplifying and digitizing parts of the insurance value chain (see Figure 4). Only a small percentage, 9 percent, aims to replace incumbents, while 30 percent focus on customer disintermediation. Many insurtechs rely on incumbents to take the risk. And incumbents are starting to draw inspiration from insurtechs, learning how they work and use new technologies and services as they develop their own digital innovations and initiatives. Leading digitizers among insurance companies—those who have taken a page from the insurtech playbook—are not only more profitable than their less digital counterparts, but are also growing faster.

Insurtech learns how they work and use new technologies and services as they develop their own digital innovations and initiatives. Leading digitizers among insurance companies—those who have taken a page from the insurtech playbook—are not only more profitable than their less digital counterparts, but are also growing faster.

In developing strategies to address the challenges of insurtech, traditional insurance companies benefit from lessons from the experience of fintech in banking. That experience helps define the dimensions of the threat and opportunity it poses. Insurers can begin to act by focusing on three broad topics: the innovation landscape, their own priority areas for action, and possible operating models. In particular, the Insurer’s innovation strategy needs to be more externally oriented to continuously monitor and analyze the innovation ecosystem that is being built by insurtech. On the other hand, incumbent insurers need to assess their business pain points and strategies to have a clear view of which areas of the value chain and which business lines can be efficiently scaled up with innovations coming from insurtech. Engaging with and being inspired by insurtech can enable incumbents to digitize faster and better and increase their chances in the new digital world.

There are several different approaches that incumbents can use to tackle insurtech, they can internally develop a technology-based business model they draw on inspiration or acquire a company outright. There are many options in between, from developing a digital lab to setting up a venture capital company, from collaborating with insurtech to partnering with a venture capital fund. However, there is no universal solution, and each strategy depends on the specific context, company ambitions, and targeted pain points.

This article is excerpted from the Journal of Financial Services, McKinsey&Company, March 2017

By: Afrianto Budi