Bringing change to an industry built on stability

The insurance industry is confronted with a tectonic shift in its environment. The drivers are well known: very low interest rates over a prolonged period, spiraling regulation, fast-changing customer behavior, and rapid technology development.  Yet, insurers are finding it hard to adjust to these changes and are facing shrinking margins and diminishing economic value added.

For more than a century, insurers’ success has been built on stability. This is indeed part of their value proposition – policyholders need to be able to trust that their insurers will still be around when they need them, which could be decades later. But the stability bias can become a challenge in times of rapid change.

Over the last 10-15 years, the industry has already experienced the tectonic shift of growth to Asia.

Many tried but only a few insurers succeeded in capturing this opportunity. The next tectonic shift is now happening at home, and missing out is not an option.

So, what should insurers do? How should they think about architecting the required change journey to overcome the stability bias? Almost every insurer has begun some form of transformation and many are investing huge amounts in technology and innovation. But for most, the return on these investments still remains elusive.

Driving change across many different business units and countries is complex and slow.


But focusing only on developing new businesses risks leaving the core behind. Insurers need to find the right balance, identifying “islands of change” that can make a difference quickly and at a sufficient scale.

We see three major change dimensions that insurers need to address. First, unlike most other industries, costs in insurance have not really decreased. Given the lower investment returns and the pressure that increased transparency and low-cost digital competitors create, this must change. It is time to drive down complexity: too many products, channels, and exceptions are creating costs that fewer customers are willing to pay.

Second, reducing cost and growth are no longer contradictory. New technologies allow for a much better customer experience, more customer engagement, better personalization offerings – and ultimately higher growth rates.

Most insurers have a highly functional and siloed set-up and are still very product driven.

Major organizational changes and new talent are required to become truly customer focused.

Third, in the future many insurance products are likely to be embedded in broader value propositions, be part of different ecosystems – from mobility to health. Insurers will have to re-think where they want to focus, in which part of the value chain they have or can build a competitive advantage, and how to build effective partnerships.

Underlying these change journeys is a massive cultural change to address the bias for stability and preserving the status-quo. McKinsey predicts that 40% of the current jobs in many insurance companies will disappear over the next decade, while 10-20% of the future jobs will be newly created roles.

Insurers need to build new skills, often meaning bringing in new people.

And as insurance is not a natural home to many of the new talents, e.g. from the digital or consumer industries, they need to change the way they work. This means more agile operating models and faster decision making, truly embracing new technologies, and attractive propositions for a new generation of talents.

Other industries have shown how that is possible. The biggest threat to an insurer today is not from technology companies and digital attackers, but that a competitor moves faster and more decisively. Achieving the change journeys described above takes years – and time is running out. There is no upside from waiting it out…

Discover more at McKinsey & Company:

The interview was filmed with Angela Corpe, Business Correspondent of The Business Debate and Stephan Binder, Head of Insurance Practice, McKinsey & Company.

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