Insurance CEOs think the next three years will be more critical to the industry than the past 50 years combined. Not surprisingly, most are deeply concerned about disruption.
Yet while almost everyone seems to be investing into disruptive technologies, we believe the ultimate winners will be those that fundamentally rethink the very core of their business.
There is certainly nothing boring about today’s insurance sector. Disruption is all around and unavoidable. On the one hand, change is being driven by nimble InsureTech startups and bold new ventures that leverage entirely new business models and technologies to disrupt the traditional insurance value chain.
At the same time, changing customer preferences and the introduction of cutting-edge technologies are disrupting the way insurers interact with consumers and sell products. Across the sector, we are seeing incumbents competing to introduce new technologies, from slick apps and automated advisors at the front end (of the value chain) through to robotic process automation and cognitive computing at the back.
The value chain is being disrupted, not only by new players entering the market, but also by traditional players trying to capture a greater share of the market. We are also seeing reinsurers taking steps to move further up the value chain and “play direct”. And as they seek out new partners and routes to market, traditional insurers are starting to feel the pressure.
Insurance CEOs are justifiably concerned about all this disruption. In a recent survey of more than 100 insurance CEOs conducted by KPMG International, two-thirds admitted they were concerned or very concerned about the threat from new entrants. Seven-in-ten said that the next three years would be more critical to the industry than the past 50 years.
The risk is also clear to insurance execs. Almost 80 percent of our respondents said they are concerned they might not be staying competitive when it comes to new technologies. A similar number said they were worried their products may not be relevant in the next three years.
Recognizing that the best defense is often a strong offense, most insurers are now investing into new and disruptive technologies. In fact, all but one CEO in our survey boasted they were already using disruptive technology in some way. The majority – two-thirds – said they were using these new investments to improve their product offerings and enhance customer interactions.
While Insurance executives should be applauded for encouraging experimentation and innovation, our experience suggests that few have been able to convert these discrete projects into tangible value for the organization. With so much change underway across the sector, most are struggling to make any decisions at all about how to adapt to, or adopt, disruptive technologies and business models.
Our experience suggests that the underlying problem is one of clarity. Insurance CEOs are struggling to articulate a clear future vision for their organizations. Those that have some clarity are unsure what steps to take to remain relevant to their customers and their value chain.
The problem is that – without clarity of purpose – insurance organizations risk repeating mistakes of the past. Too much money has been poured into ‘transformation’ initiatives that deliver no real transformation; too much time has been spent experimenting with disruptive technologies without anything being disrupted; too much effort has been put into incubating technologies without a clear view of how these investments will help drive future growth.
We believe that insurance CEOs need to start by understanding the trends now disrupting the market and assessing where their organization will ‘play’ in the next 5 to 15 years. What role do they want to play in the lives of their clients? Which markets and segments should they focus on? And what will it take to ‘win’ in the future environment?
With a clear vision for the future and a sharp focus on their target client segments, insurers will then need to fundamentally deconstruct their current client journey to truly understand how clients are being served all the way through the value chain and the business. This will require the C-Suite to look across the traditional silos and functions to take a much more client-centric view of their current processes, technologies and business models. We are entering the era of enterprise wide thinking with greater significance on getting it right than ever before.
Only then should the focus shift towards technology – disruptive or otherwise – and how it can be harnessed to enable the organization to achieve its future vision. The winner will not be the one with the newest tools – it will be the one who knows how to bring the right capabilities together to execute on their business and customer outcomes.
5 steps to success
Understanding where you want to go is one thing – and often takes longer and requires organizations to look deeper than they have before. Clarity of direction, of starting point and of design are fundamental. Taking the right steps to achieve that vision has a greater chance of success in this context.
Based on our experience, here are five tips that should help insurance CEOs make the most of disruption in the market.
This article series provides insights into the exceptions of insurance CEO’s for business growth and the challenges they face.