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.
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. Also, they 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 it all” environment.
How to move swiftly — and decisively
The strength of an insurer’s in-force book (that is, currently active policies) 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.
- 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.
- 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.
- Do your homework (often)
What’s the fun in all the data if you’re not using it to make your organization better? The frequent analysis will allow companies to make bigger, better acquisitions and capital-expenditure decisions, scaling up what is working more rapidly and effectively.
- Be ambitious — but smarter
You can’t do everything at once — and you won’t succeed in isolation. Insurers should be ambitious in their goals but must also be smart in determining which cross-industry and functional partnerships can be advantageous. This is particularly important as the role of insurance changes and the industry interacts with customers in new ways. Our research highlights the five digital ecosystems that are most lucrative for insurers — including the housing and mobility ecosystems. Further research shows that nearly two-thirds of insurtechs focus on specific parts of the insurance value chain, aiming to meaningfully integrate with established players. Harnessing mutual advantages, investing smart, and bringing together expertise can help insurers accelerate and scale their digital transformation.
- Make culture a priority
Digital transformations will have almost zero chance of success without a cultural change. At a time when digitalization is rewriting business rules daily, companies need the right culture to enable the flexibility and speed needed for success. Leaders must embrace new ways of working and model the right behavior to make an agile culture a reality. The frequent sharing of insights, successes, and failures can help instill a culture that supports rapid change.
The speed must meet decisiveness, investment power, and vision. It needs to be complemented with self-reflection, focus, and teamwork. And it requires endurance. It’s not about piecemeal solutions or simply being “the first.” It’s about being the first to decisively transform or develop a new business model for the digital age — and having the frameworks in place to achieve scale.