In its recently released “2022 Global Insurance Report“, McKinsey outlines an updated overview of the challenges that the P&C industry is currently facing – as well as a set of recommendations for how to address these challenges.
The good news is that premium growth rebounded across all regions in 2021. However, the industry still faces significant challenges, including limited productivity improvement and what McKinsey terms the ongoing “fight for the customer,” fueled in large part by the billions of dollars that are being funneled into insurtechs worldwide. The end result is that economic growth for the insurance industry is “practically at a standstill.”
So, what is an insurer to do if it wants to remain relevant in 2022? McKinsey provides nine value levers that insurers can use to restart value creation. These recommendations are diverse, ranging from ESG (environmental, social, and governance) considerations to scaling the impact from data and analytics. What I found to be particularly interesting was its recommendation to engage with ecosystems and insurtechs.
This simple, logical recommendation is a good representation of how complicated the insurance industry is right now. Friend or foe? That is the question that many insurers are grappling with when thinking about insurtech. Just five years ago, McKinsey published an article titled “Insurtech – the threat that inspires.” And now, in 2022, its advice is to engage with those very insurtechs that were a very real threat to your market share. Has the market evolved so that insurtechs are no longer a threat? While that may be a comforting thought for some, the answer to the question is a resounding “no.” Insurtech innovation isn’t going anywhere anytime soon, so you can’t let your guard down. So, how should you be thinking about insurtech?
Of course, “insurtech” isn’t a single entity, so the answer to that question is “it depends.” It’s true that all insurtech companies want to disrupt the industry in some capacity. Some insurtechs will be coming directly for your market share, some will seek to complement you by making you more efficient or more effective, and many will fall somewhere in the middle. Your role as an insurer will be to figure out how to best take advantage of the $14.6 billion being invested in insurtech. “Do nothing” is not a viable strategy.
The insurers that will be the most successful in the coming years are those that are willing and able to incorporate insurtech into their core processes. The technical ability to integrate in a timely and cost-effective manner is crucial, but it’s only half of the equation. You also have to embrace a culture of continuous improvement and experimentation. While there is always a certain degree of discomfort associated with change, trying new capabilities based on the latest technology should also energize you; the possibilities are nearly endless. Some things you try will not work, but some will. If you can build an ecosystem of partners that supports your company’s unique business strategy, you will be well positioned to compete.