Please click "Accept" to help us improve its usefulness with additional cookies. commerce (McKinsey) The global payments pie will have grown its revenues 6% p.a. When launching their digital businesses, insurers might hire specially trained data scientists and specialized developers in addition to actuaries. Consumers are embracing digital channels, and their experiences with leading tech companies have also raised their expectations when buying insurance both online and offline. tab. These collaborations can also boost earnings before interest, taxes, depreciation, and amortization (EBITDA) and increase customer retention. With no in-person option to accomplish these tasks, insurers should prioritize comprehensive digital onboarding now. cookies, McKinsey_Website_Accessibility@mckinsey.com. We use cookies essential for this site to function well. 3. This trend has also reached the United States, as evidenced by the $100 million round of investment led by private equity in the aggregator Policygenius in early 2020. Other examples of ecosystems include travel insurers partnering with online travel agencies, Apple Care acting as electronics and warranty insurance, and Tesla bundling motor insurance with its car sales. Finally, leading insurers use talent-to-value diagnostics to ensure that they match the right talent to high-value processes, all while building the most important capabilities when reskilling the workforce. But every insurer is different and digital transformation is a process—not an event. McKinsey Digital wants you to know they've discovered the Achilles' heel of analytics. Digital capabilities for the service organization, particularly the call center, will be critical to offering empathetic service. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Learn about The insurance industry is in the midst of a radical, digitally infused shake-up. While aggregators can be sales channels for insurers, they can also pose threats by squeezing margins and competing for access to digital customers. Whether viewed in combination or individually, the advances of these digital players reinforce the need for insurers to compete beyond their core businesses. For example, a European insurer improved the combined ratio of its small- to medium-enterprise business by more than five percentage points over three years with enhanced loss-prediction modeling and automated underwriting decisions. While some insurers are already promoting retention with auto-premium refunds and up-front commission payouts to brokers, maintaining a clear view of economic viability and customer value will be key to long-term recovery. Learn more about cookies, Opens in new A black swan event is a negative economic event that is very difficult or impossible to predict. As of 2019, for instance, aggregators in the United Kingdom captured 55 percent of direct GWPs in the market. And since most attackers operate via direct online channels, a significant portion of their acquisition expenses go toward digital channels, such as paid search marketing, display ads, or social media, rather than into sales commissions. McKinsey white paper, January 2019. The four trends that define insurance in 2020. Our flagship business publication has been defining and informing the senior-management agenda since 1964. Insurance Commissioners, and state agencies, we studied the performance of 120 MCOs in 34 states between 2010 and 2016. Learn more about cookies, Opens in new Digital insurance in 2018: Driving real impact with digital and analytics. For instance, field agents will adapt to remote selling with prioritized leads for the “next-best conversation.” 5 Flip the odds. ), technology giants (Apple, Samsung, etc. ... Best Life Insurance Companies. ), global card brands, big banks, independent service-providers, social media giants (Facebook, Select topics and stay current with our latest insights, Restore and reimagine: Digital and analytics imperatives for insurers. 2 PwC Insurance 2020: Turning change into opportunity, January 2012 We have explored the five STEEP drivers to identify 32 factors that we believe will have an impact on the insurance industry (see Figure 2). This approach has significant implications for the sales and marketing team’s direction and capabilities. Mehrotra A et al., Insurance company executives talk about the benefits and needs of protection and life insurance but when it comes to making money, they have always relied on the hard sell. Digital attackers also have flatter hierarchies, which provide greater transparency into work outcomes, foster open discussions among colleagues, and encourage a willingness to challenge the status quo and embrace new ideas, much like in a Silicon Valley start-up. Attackers can also use data to calculate an updated customer lifetime value for the marketing team and dynamically adjust pricing to optimize conversions or profitability in real time. Indeed, our research shows that across sectors, revenue growth (as measured by the five-year compound annual growth rate) for digital leaders is on average four times that of companies that only dabble in disjointed digital initiatives. Demanding customers, new competitors and a changing set of challenges are transforming the insurance industry. Absolute Insurance in Russia, for instance, developed and launched Mafin, Russia’s first direct P&C insurer with a cutting-edge, mobile-first user journey and a claims process powered by artificial intelligence. More-granular pricing (based on better data capture) is a key way to finance these investments. Detailed information on the use of cookies on this Site, and how you can decline them, is provided in our cookie policy. Insurance companies that can successfully emulate attackers and innovate can leapfrog competitors. In life insurance, AI engines can enable fluid-free underwriting informed by public and private data—accessed with customers’ consent. Something went wrong. Digital transformation may finally, finally, be creating a meaningful change, says Bernhard Kotanko, senior partner in Hong Kong at McKinsey & Co. Press enter to select and open the results on a new page. The winning talent combination, however, is a mix of outside noninsurance digital experts and people with deep insurance knowledge, the latter often coming from the incumbent sponsoring the attacker. During the pandemic-fueled crisis, insurers should therefore find ways to be relevant to their customers and engage them. People create and sustain change. The core insurance system, however, could come from an established vendor and use other elements, such as chat or custom-care software, from a software-as-a-service (SaaS) provider. Such investments can be the difference between slowly declining and flourishing. ... SEPTEMBER 28, 2020: A … Gilbert, G. et al., Digital is reshaping US health insurance—winners are moving fast. Subscribed to {PRACTICE_NAME} email alerts. A combined ratio is the ratio of the sum of incurred losses and expenses divided by earned premiums. Hiring the digital talent needed to drive the necessary digital and analytics transformation can be expensive and time consuming. tab. Having data scientists on the marketing team makes it easier to mine for these kinds of data. A black swan event is a negative economic event that is very difficult or impossible to predict. Now could be a good time to innovate and scale up work on new products and ecosystems that reflect new customer needs—for instance, in health and prevention. When the world paused (and reorganized) its usual activities to contain the spread of COVID-19, many insurers demonstrated great resolve. A 2020 McKinsey analysis of the top 20 European insurers by measure of gross written premiums (GWPs) showed that the share of insurers with a digital business increased from 1 percent to 70 percent in just five years; the same analysis for the United States showed 20 percent of insurers have a digital business, up from zero. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. In such an environment, digitally enabled intermediaries and digital-only sales models are proving to be effective and may be accelerating the winner-take-all trend. Claims are a promising area for mining additional value. Insurers should aspire to become more relevant to their customers—to position themselves not just as claims payers but as partners that help prevent losses and support customers through challenges. View Kathleen Schmidt’s profile on LinkedIn, the world's largest professional community. Traditional insurers are often tempted to reuse existing legacy software in their new digital businesses. Ensure a Connected Digital Ecosystem. This approach gives attackers the freedom to sustain an unhealthy combined ratio These approaches enable efficient collaboration to support complex product development amid uncertainty. beyond 100 percent for a longer period while focusing on fast-paced exponential growth. Some of these shifts will be irreversible. May 29, 2020, McKinsey.com. Hyperpersonalization—providing highly personalized content, products, and services—is another way attackers get creative with customer acquisition. 1. Munich Re, for instance, set up Digital Partners, which acts as a specialist provider for insurtechs and is frequently a co-investor in insurers, MGAs, and brokers during financing rounds. Deborah Ponciano, “Três anos de seguro tipo vc,” Youse, April 4, 2019, start.youse.com.br. Insurers that want to launch their own digital business should observe how digital attackers operate in four areas—customer acquisition, data and analytics, state-of-the-art technology, and talent—to draw comparisons and see how to support their new business. They can conduct more effective return-to-work monitoring, for example, and create better guidelines for workers’ compensation and disability. Please use UP and DOWN arrow keys to review autocomplete results. Such digital and data-driven interactions are already in use. As competition continues to increase, many larger insurers … Brian Deagon, “Lemonade IPO more than doubles as trading begins, raising $319 million,” Investor’s Business Daily, July 2, 2020, investors.com; “Lemonade,” “Root Insurance,” and “wefox Group,” Crunchbase, accessed November 4, 2020, crunchbase.com. Life insurance premiums may decline 6% globally through the end of 2020 and by 8% in advanced economies, while a recovery of 3% growth is projected overall for 2021.