Transforming for the future, still a struggle for insurance CEOs?

Transforming for the future: Insurance CEOs

Insurance CEOs know they need to transform their organizations in order to achieve sustainable growth in the future. Yet few seem to be getting the traction they had hoped from their investments.

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Flower growing on ice

Today’s insurance CEOs are under massive pressure to transform their organizations. Indeed, according to our survey of more than 100 sector CEOs, few seem to think their organization can grow ahead of the market. Those that do anticipate growth expect to eke out meager returns: 85 percent of our respondents said they expect to achieve less than 5 percent growth over the next 3 years.

At the same time, insurance CEOs are concerned about disruption in their markets and customer segments. Almost 8-in-10 insurance CEOs told us they were concerned about the relevance of their products and services 3 years from now. Eighty-three percent said they were worried about their competitors’ ability to take business away from their organization.

Combined with new disruptive technologies, growing regulatory complexity, shifting customer demands and the ongoing low-interest rate environment, it seems clear that simply maintaining the status quo is not a receipe for success. 

Low expectations and investment

Unfortunately, our data also suggests that insurance CEOs are not terribly confident in their ability to transform. And few seem to be giving their transformation agenda the attention it deserves. In fact, when we asked CEOs what they thought their company would look like 3 years from now, 71 percent admitted it would probably look pretty much the same as it does today.

At the same time, however, just 17 percent said that they intended to invest ‘significantly’ into business model transformation over the next 3 years. Less than 3-in-10 said they were highly capable of creating a ‘safe to fail’ environment to encourage transformation. And only 14 percent said that innovation was at the very top of their personal agenda.

The problem is, for those insurers who are putting significant time and effort towards transforming their organizations, they seem to struggle to get the returns they expect. In a recent report by KPMG International on transformation in the insurance sector, we noted that 70 percent of insurers were currently undertaking at least one major transformation initiative. We also found that many insurers were not confident in their ability to extract and maintain value from their business transformation initiatives.

Heavy lifting ahead

The reality is that transformation in the insurance sector is hard work. And it requires executives to take a proactive, holistic and deliberate approach to driving change. 

All too often, however, we find that transformation initiatives are driven by specific pain points: responding to a new regulatory requirement such as Solvency II, integrating a new acquisition, or meeting efficiency / cost reduction objectives, for example. Yet while those outcomes could be viewed as ‘transformational’, we believe it will take a much broader and more strategic view in order to drive real and lasting transformation.

It starts with insurance executives taking a hard look at their markets, their propositions and brands, their customer base and channels to truly understand where they make money and what customers they want to attract in order to drive profitability. Knowing how these will evolve over the next 5 years will allow insurance executives to start to formulate their long-term business (‘where to play’) and operating models (‘how to win’).

Next, executives will need to think about their capabilities and core competencies and drill down into what these changes would mean for their people, their processes and their technology. Gaps will need to be identified and assessed. New talent will need to be hired or retained. And corporate cultures may need to change.

Finding the balance

The challenge, however, is managing all of this change in a holistic and integrated manner. On the one hand, insurers will need to think about their business models and where they want to play in the future. But at the same time, they will also need to focus clearly on their operating models to sharpen their competitive advantage in their current and future markets. They will need to make the best use of their internal resources while also working with external partners to fill their gaps and drive speed to market.

People and technology will similarly need to be balanced. Executives will want to address the ‘two speed’ dilemma: high-speed front end omni-channel implementations/innovations while rationalizing legacy systems and introducing new technology usually at slower speed in the back end of the value chain. They may have to change their culture to attract new talent (e.g. with regard to data analytics, innovation, partnering) and encourage new ideas, but they will also need to balance that against the need to maintain their legacy/closed books of business and their overarching focus on risk.

Taking a strategic view

Ultimately, we recognize that there is no single path to successful transformation in the insurance sector. Much will depend on each company’s unique vision, objectives and capabilities. What is clear, however, is that successful transformation does not happen in silos: it needs to be enterprise-wide, it needs to be holistic and it needs to be driven from the top.

Those insurance executives able to achieve this from the start should have no problem meeting shareholder and customer expectations for the future. Those that put this off will likely continue to struggle for some time to come.

Further reading

  

Set the pace or risk falling behind: Insurance CEOs Speak

This article series provides insights into the exceptions of insurance CEO's for business growth and the challenges they face.

 
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Empowered for the future: Insurance reinvented

Survey data reveals an urgent need for insurers to reinvent their business and operating models.

 
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