McKinsey – Digital disruption in insurance

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McKinsey has just published a report entitled “Digital Disruption in insurance”, packed with interesting information! The starting point is simple: fewer bonuses, more competition. More specifically, the authors argue that the insurance industry has long been protected by barriers to entry (strong regulation, product complexity or large financial balance sheets), but this time is now over and many digital actors are taking a close interest in the huge opportunities of the sector.

Here are some points to remember from reading this report.

Content of “Digital disruption in insurance”

The report is structured into 12 chapters:

  1. Facing digital reality
  2. A strategy for a digital age
  3. The age of innovation
  4. Capturing value from the core
  5. Partnerships, scale, and speed: The hallmarks of a successful IoT strategy
  6. Modernizing IT for a strategic role
  7. The promise of blockchain
  8. The advance of analytics
  9. The value of robotic process automation: An interview with Professor Leslie Willcocks
  10. Building momentum for cultural change
  11. A roadmap for a digital transformation
  12. Digital Quotient: Where does your company stand?

1. Facing digital reality

In a context where customers demand one-click shopping, availability of information 24/7, or a one-day home delivery for everyday products, there is no reason why the requirements should not be met. The same for insurance products.


It is then necessary to satisfy three objectives:

  • Costs reduction: automation can reduce workload and optimize cost structures with, for example, a reduction of up to 30% on claims management
  • Increase growth: Digitization offers new growth drivers through services (customer knowledge) / products (pay-as-you-drive) / offers (cyber security) that did not yet exist.
  • Customer satisfaction

Investments in insurtechs have exploded over the past 2 years to reach 2.6 billion investment in 2015 and then 1.7 billion in 2016.

Landscape of insurtechs

McKinsey established a database of relevant startups and categorized them. The firm then shows us that the value proposition now affects all segments of the value chain and all trades.

Two-steps perspectives

In this context, McKinsey does not conclude the decline the traditional companies. On the contrary, they insist on the opportunity of doubling the revenues for an actor who would use digitization wisely. This is possible thanks to technological advance and attractiveness in relation to competition and the new possibilities that this opens up. However, this short-term explosion (2025) is nuanced in the longer term (2035) when a decline is expected. So there would be a kind of momentum to exploit right now.

Mre concretely, value is determined by:

  • Leadership and technological innovation: the winners will be the companies that will be able to get ahead and master the technologies;
  • “Ownership” of customers: The control of the contact with the customer (avoiding intermediaries to whom this information is given) is a key to development because it allows to keep control of the data;
  • Effectiveness and efficiency: digital solutions must be used primarily to improve the operational efficiency of processes.
  • Scale and network effects: technological investments are often expensive. However, once in place, the marginal cost of ramp-up is low. This justifies the importance of a choice of size. Moreover, access to data networking reinforces the position of the players and avoids the risks associated with new entrants.
  • Speed and agility: this means ensuring adaptability because a dominant position can be questionned more and more quickly.

2. A strategy for a digital age


Very few actors have now defined a real strategy with regard to new players and how to oppose their growth. The first step is to correctly identify the risks of disruption.

Indeed, if the control of this digital transformation seems to be the specificity of the actors who succeed better than their peers, the way to achieve it is not so clear. Many are satisfied with little changes, distilling here and there some evolutions or innovations. For the best of them, hesitation is not an option! It is not just about changing to fit or survive, but change to win! This means a holistic reflection, guided by top management.

However, the definition of such a strategy is not that spectacular:

  • First, a diagnosis of the strengths of the company: where and how does it earn money?
  • Then, a forecast of how this might change in the future
  • Identification of elements that could maintain success
  • A portfolio of initiatives
  • Une volonté sans faille et un engagement à conduire le changement.

Visually, it’s pretty simple! If a simple adaptation is sufficient at first, it is absolutely necessary, to pass the tipping point, to carry out a transformation more in depth. Otherwise, the sanction for latecomers will be the disappearance..

Which lines of analysis?

This strategy should focus on 4 axes:

  • To what extent will digital transformation have an impact on the cost structure? According to McKinsey, 40% of the costs are covered by some 20 business processes, which can in many cases be automated. This means a drastic reduction of these expenses.
  • To what extent will digital transformation disrupt demand or distribution? Will we strive towards the destruction of the warranty packages and therefore the unit sales, guarantee by guarantee, or risk by risk, according to the real needs of customers? It is an extreme individualization, but it is a track made possible by digital. Another example, rather than traditionally indicating the price of a set of guarantees offered, an insurer like “Progressive” reverses the deal: what price do you want to pay, we will see what we can integrate and / or exclude!
  • To what extent will digital transformation open up new markets or create new opportunities? Among lots of examples are the behavioral offers. For example, you get a premium reduction if you adopt risk-reducing behavior (sports & activity, careful driving, etc.). We can also talk about insurance related to the collaborative consumption, or even the tariff online upon analysis of the data.
  • Will digital transformation create giant service platforms? We have said the marginal cost of processing in a mass of data is insignificant. Some actors might then be interested in offering high-performance mass processing services.

A fine analysis of these “digital disruption” catalysts could then give birth to a mapping of the hot spots to follow. It is then sufficient to indicate both the benefits to be done (with the related costs) and the risks not to be done.

3. The age of innovation

New risks

  • Cybercrime: the coverage of attacks on computer systems, both on data and on the image of the company
  • Global supply chain: digitization has made possible a stronger structuring of supply-chains, which represents new risks. However, this digitization also brings most solutions with a set of sensors that can be installed in warehouses for example.
  • Peer-to-peer economy: This includes online platforms such as Uber or Airbnb. Indeed, new insurance products have emerged to cover usages (UBI – Usage-Based Insurance) and not the property.

New underwriting methods

  • Micro-insurance: coverage is now possible on very small segments, which can be totally automated, from underwriting to settlement of the claim;
  • On-demande insurance: Coverage can be provided for a smaller, more punctual, more limited risk in time, space or severity. Accelerated underwriting capacity is essential here.
  • Peer-to-peer insurance: This concerns the redistribution of contract’s benefits to humanitarian causes, the shared purchase of a contract submitted to an insurer for the best price, or the pooling of the deductible.
  • Customized pricing: : it is now possible to perform the risk assessment individually.

New value propositions

The most illustrative example provided by the report is the development of ADAS technologies in vehicles. More generally, it is the advent of connected vehicles that should profoundly question the nature of the risk, the frequency (about 70% reduction) and the severity of the claims.

In the case of auto insurance, mobile applications could bring all the players in the ecosystem directly into contact.

What opportunities for the development of ideas and innovations

3 options are possible:

  • Strategic partnerships: Allianz (with Baidu) or AIG (with IBM)
  • Investments in start-ups: a subsidiary of Munich Re uses drones and Swiss Re has created a start-up accelerator in Bangalore
  • Internal innovation labs: AXA, Metlife or Aviva have chosen this option by creating labs in Singapore, among others.

4. Capturing value from the core

Existing customers, brand, data or technical skills are all assets that can be valued. This can only work if they can be exploited in the digital world!

Redefining the customer journey

The arrival of digital technologies is causing a real change in the way companies act with their insured parties. In terms of methods, we have gone from a time when we knew exactly everything and how to do it, at a time when we know nothing and where we test and learn!

More concretely, three means put forward for this redefinition

  • Design thinking: put the customer at the heart of the reflection, and consider at each moment how to meet his needs
  • Automation & measure: these techniques are used to better anticipate or process requests, and especially to measure their effectiveness
  • Agile working methods: These are essential to be able to quickly adjust the target according to the concrete findings in the field.

The 3 results are: an improvement of the customer satisfaction, a better efficiency and an optimal effectiveness. The authors of the report “digital disruption” give a concrete example, on the auto claims.

Note: This analysis confirms ours. However, we add value by explaining how to do this, in particular with our observatory of innovations.

The approach

The report explains three steps:

  • Define: understanding what the client wants and why
  • Design: independent of technical constraints, including existing systems, which solutions are most relevant
  • Deliver: the principle of the Minimum Viable Product, specific to start-ups, must be retained

Ramp up

Once the solution has been validated (proof of concept), it is then necessary to deploy on a large scale. It is thus necessary to guarantee both the capacity of the solution to absorb the shock, but also to bear the successive evolutions of technologies that would improve or supplement the solution.

5. Partnerships, scale, and speed: The hallmarks of a successful IoT strategy

The stakes of the connected objects and to be able to take advantage of the growing number of them and the amount of data that they can make available without jeopardizing the traditional models.


4 domains exist for now: connected vehicles, connected health, connected house, and connected objects of commercial business lines.

It is now possible to refine pricing based on the real risk criteria (driving behavior) rather than approximations (age, vehicle, etc.).

However, the more connected objects develop, the more they attract actors, and this connects an entire ecosystem of actors that revolve around the vehicle: manufacturer, object designer, telecom agencies, digital platforms (such as Uber) Repairers, insurers …

At the same time, the reduction of the risk and therefore of the intrinsic business of the insurer thanks to these objects rebuff cards. On the one hand, insurers are no longer secured with their dominant position because of a very strong historical and human importance. On the other hand, other players have access to almost the same level of extremely detailed information as insurers.


The management of this ecosystem, and above all its control, becomes an important stake to guarantee its place for the future.

It also involves good partners in well-negotiated partnerships that generate value. For example, while customers are concerned about the use that insurers can make of their data, why not present themselves in an ecosystem of trusted interlocutors / collaborators?


The relative lack of maturity associated with connected objects (in terms of technology and connectivity for example) makes it imperative to be agile. You have to be agile yourself and choose partners who can evolve quickly, deal with a lot (and increasingly) of data and absorb an inevitable ramp up.

6. Modernizing IT for a strategic role

A paradigm shift

From a cost center, the IT must find a determining and strategic role in the insurance company which has experienced a “digital disruption”.

In particular, data analysis has always been at the heart of the insurer’s business, as it is the source of pricing and therefore of underwriting. From this point of view, IT was only a support function, a tool to support this process.

The insured today expect simplicity, transparency, and personalization. This sets the bar high enough, but nevertheless always with a constraint of cost control. In addition, it is the real-time analysis of an ever-increasing amount of data that will allow the insurer to maintain its market positions and remain competitive. In this case, the IT returns to the center of the game and the business model of the insurer.

This means two crucial elements:

  • First, heavy investment in tools. For the more late, McKinsey estimates nearly 10% of the premiums for 5 years, which is huge. However, these investments are also intended to reduce recurring costs.
  • Then, a radical change in working methods, both in the way IT works, but also in the way this work is perceived by users.

New deliverables

The targets for these new IT services are:

  • A digital portfolio of products and services in an ecosystem of partners: real-time, prediction, personalization, dynamic parameterization, etc.
  • Advanced data control: Ability to analyze on the fly large amounts of data to make the right decision at the right time in the right place.
  • Omni-channel customer experience: regardless of the interface, customer relations must be at the same level of quality.
  • Automated processes / procedures and selfcare: This has two advantages: to improve customer satisfaction by being able to process demand quickly and reduce management costs.

What design strategy ?

First, what should determine the work must be a catch-up of missing functionalities. There is indeed a large gap between needs and features covered.

Next, Strategic lock-in (of Guidewire’s CEO) must be avoided. Start-ups can quickly develop functionality freely while historical insurers are blocked by limited systems. However, the latters have access to a wealth of historical data that they must be able to exploit. It is then necessary to find agility and adaptability in this rigidity.

Modernizing core business platforms

Several solutions are available at this stage, and the choice is often complicate to stop old systems COBOL:

  • reconstruct a new system from scratch,
  • choose a software package
  • evolving the legacy system where possible

Arbitration can then involve a lot of criteria.

Collaborative work

One of the essential changes that has appeared on the market is the arrival of collaborative, or iterative, work through agile methods. Historically, IT was working in its corner on requirements definition and the result always generated disappointments with a long tunnel effect. The current short cycles make it possible to break down the requirements to quickly deliver small functionalities.

7. The promise of blockchain

In the spirit of the “digital disruption” put forward by McKinsey, the blockchain is a great promise for the future. It concerns both insurers and start-ups. Investors have invested more than € 800m in start-ups on this topic since 2014. By the end of 2016, 4 major European insurers have created a pilot project (B3i) to explore the capabilities of this technology. If doubts persist on the final interest, many agree that it is necessary at least to study the question in detail.


4 basic elements explain the operation of the blockchain:

  • Decentralized validation
  • Redundancy
  • Immutable storage
  • Encryption

What opportunities for insurers?

  • Meeting client needs: To date, the lack of interaction with clients has made it difficult to understand their needs. Blockchain, through improved and more frequent customer knowledge, enables insurers to better understand them and meet their expectations.
  • Limitation of fraud: one of the most frequent use cases concerns the ability to better identify cases of fraud. This applies, for example, to double reporting to several insurers. It is estimated that between 5 and 10% the rate of fraudulent claims could be avoided.(Note: this rate is somewhat overvalued: the usual figure is between 2% and 7%, which does not change the analysis otherwise)
  • Efficiency: Automating identity checks could simplify claims processing and validation. These checks could also be extended to data from third parties (doctors, experts) or even through smart contracts in which all these unit bricks are connected.

Next steps

Despite potentially great promises, important obstacles are known:

  • Scalability: the capacity of this technology to increase in power is by no means proven to date.
  • Security: despite a native security, this does not prevent the realization of threats and diversion of this technology. Recent examples around the bitcoin prove it.
  • Standardization: No standard exists today, and the market is more in research and development mode than harmonization of practices.

8. The advance of analytics

The power of data analysis should enable automation of up to 80% of subscriptions, automatically arbitrating 80% of claims. Furthermore, we could reduce the cost of acquiring a new customer by 70% by segmenting the market as best as possible.

In a context where the volume of data explodes (x2 every 3 years), the technologies to exploit them are increasingly powerful and less and less expensive. Data scientists and developers are increasingly equipped to develop powerful & efficient algorithms.

However, it is not always easy to derive value from these analyzes. Practical cases are often required, and the report gives some examples.

The report “Digital disruption” is based on several steps:

  • Identify objectives: select a few key themes and study them as proof of concept
  • Extracting value: moving from the testing phase to industrialization to exploit the full value
  • Upscaling
  • Move to a data-driven organization

Note: These steps seem a bit too blurry and I’m not sure this is the right strategy around data. For my part, I have several convictions:

  • What is in big data, is also found in small data, so starting small is by no means unreasonable.
  • The data must be used to steer the company (this is the meaning of my course at Sciences Po Lille): You have to put the right information at the right place at the right time.
  • The analysis of the data must be used to better understand the existing: this is only common sense and nothing new.
  • Data must be used to anticipate and predict the future and thus have the possibility of influencing it.

9. The value of robotic process automation: An interview with Professor Leslie Willcocks

This chapter is built around an interview with Leslie Willcocks, a teacher at the London School of Economics..

L. Willcocks begins by explaining the fundamental difference between RPA and cognitive intelligence:

  • The RPA focuses on all simple, unitary, standardized tasks that can be very repetitive. It is about automating them
  • Cognitive intelligence has a vocation to learn and understand natural language in an advanced way. It is then a question of seeking to reflect in the same way as a human.

Following the study of 16 cases of use of RPA, this teacher showed several interesting points:

  • On the one hand, the return on investment ranges from 30% to 200% from the first year. However this thinking should not focus in the short term,
  • On the other hand, employees generally appreciate this automation because it allows them to perform unrewarding tasks that they did not like to do. This is a very relevant point in the context of serious concerns about employment. Obviously, this does not correspond to the human aspect, because of course it is necessary to accompany these steps with a reflection on a rise in competence.

In conclusion, Leslie Willcocks dwells on a rather percussive idea. Over the past 130 years, the focus has been on creating uninteresting and disqualified jobs. The aim was to simplify as much as possible, to improve the procedures and then the processes while having an irreproachable level of quality. We now come to a potential long-term impact of these RPP technologies on a skill shift in jobs. Let’s do the machines for what is simple and let human be treated what is their added value: the human! This means that functions will disappear, but not necessarily jobs, if companies manage to absorb the induced change.

10. Building momentum for cultural change

Change can not be decided, it is acquired, but certain actions can already be carried out to initiate a movement towards a digital transformation.

Several factors explain the reluctance to change:

  • Strong regulation that focuses minds on the perpetuation of solutions that work rather than evolution;
  • A shift to meeting customer needs, rather than focusing solely on actuarial expertise and product development;
  • A historical orientation to the insurance policy rather than the customer, and hollow to the distributor rather than the subscriber. On this point, an amendment could jeopardize the entire chain when it is known that 84% of P&C contracts or 90% of life contracts in the United States are subscribed through networks of intermediaries.
  • A lack of agility in organizations and systems, especially for experiments, in test & learn mode.

In short, where insurance traditionally lives in mastery, it must, and this is an astonishing paradox, take risks!

Where to start?

Business, always business!

Insurers know how to insure, and they can simply continue to do their job and get in touch with their customers. Insurers with a direct distribution share have traditionally had a more advantageous combined ratio than others.

The colors of the diagram are not very readable, but it shows that the higher the direct proportion, the more positive the effect on growth and combined ratio

By going back to direct distribution, you can simplify products, raise rules and adjust offers more easily. We can also speed up the underwriting process!

This operating model already exists well for individual products, and the next step will be to deploy it for commercial lines. This is still quite rare, but a McKinsey study on 1500 customers shows that 60% would be interested.(Note: no link is provided for this study).


The functions that face the customer are already open to change and experimentation, for example marketing campaigns rely heavily on testing to see what works. In the same way, tests are conducted on web page formats to see what attracts / retains the most attention and the customer.

On the other hand, the change could be more complicated to deploy on more internal, back-office functions. This is where improvements in competitiveness are to be expected, notably thanks to the various new technologies already mentioned.

How to start?

Customer-centricity or how to refocus on the customer

Many actors make decisions only on a business case or profitability study. They should also systematically ask a fundamental question: How does this create value for my client? At Amazon for example, thoughts always start by identifying what could improve a customer service or experience. It is only afterwards that the support documents are constructed, going up the usual decision chain.

It is therefore necessary to understand correctly the needs of the customers, and for that, nothing better than to ask! The feedback collected is widely available to Aviva, including access to comments on social networks or verbatim from conversations on telephone platforms.

The most effective method is still to link the premiums of the employees on metrics of customer satisfaction …!


More than 70% of insurers need 6 to 12 months to move from a digital initiative to its implementation: it’s too long!

So I’d say that the companies that will stand out are the ones that are going to find ways to move a bit faster, at the pace of the people they’re insuring (Scott Simony – Head of Industry Google)

It is a question of breaking silos, and of building small teams, multi-functional (cross functional), each of which will bring some of their expertise to meet the full customer need. These teams, which must work together, must be located in the same place and operate with agility. The objective to be targeted is, as in many start-ups, the Minimum Viable Product (MVP) intended to satisfy some of the customers, and which will be improved and completed later.
It is also about giving these teams decision-making power. This will reduce the delivery time to 3 or 4 months!

Risk taking

On the subject of experimentation, Edison always said: “I have not failed, I have just found 10,000 ways by which this does not work!”.

It is this state of mind that must be kept in mind that the constraint of the cost of failure, which is essential, can be minimized by the MVP method. Indeed, as soon as the user returns are bad, it is possible to stop everything without the costs have gone too far! For example, United Service Automobile Association, a US insurer, tests nearly 8,000 ideas a year, resulting in about 250 patents.
For this, it is a matter of accepting risks (measured) and of failing, and above all of drawing the consequences and lessons learned.

The role of the CEO

While it is clear that the organization and organizational chart are important in supporting this type of process, the role of the CeO is essential.
It is indeed possible to instill the change by means of a management either dedicated or directly integrated within the teams. Many options exist at this stage and depend on the history of the companies concerned. Nevertheless, the full commitment of the CEO is imperative to send a strong signal to the teams. Everything starts from there!

11. A roadmap for a digital transformation

No incumbent has yet completed its digital transformation, however, significant progress is likely to show the way for anyone who does not know where to start.
The McKinsey “digital disruption” report therefore submits some of these steps.

Step 1: Set the value

Get top management commitment

This is a vision of the future. For example, Allianz, which in 2015 gave as a watchword for any initiative: “Digital by default”.

Set clear and ambitious targets

They must indicate the extent of the desired movement while being acceptable. Market elements can help in sizing. For example, if the goal is to reduce a process from 90 to 20 minutes, this does not make sense, if a competitor has reached 4 …!

Moreover, the clear objectives avoid backsliding when things get complicated.

Finally, this imposes a discipline in the selection of priorities!

Secure investment

Investment must be up to ambitions, especially on IT. For example, an insurer with a somewhat aging system will require approximately doubling its IT budget for 5 years to return to the state of the art! This is the price to pay for securing the future.

New skills must be acquired, either through partnerships or through investments in lab innovations, for example.

Step 2: Launch and Acceleration

Start with “flagship” projects

The first objective is to give visibility to the ambition given, to acquire the commitment of the collaborators, and to give substance to the change to come.
It is therefore important to start with promising projects in terms of gains and improvements, and which respond to real big customer problems.

Mandate a team of quality

The choice of the team that will lead to this transformation should not be overlooked. This will often be done under the responsibility of a CDO (Chief Digital Officer), who has only a temporary role as transition manager.

The report estimates that for an insurer who receives 5 bn premiums, it will be necessary to recruit between 20 and 100 specialists (note: the range is wide!) during the first 18 months of transformation. It can also be to secure the services or skills that are missing: acquisition of start-ups, or recruitment of experts. This can also involve the recruitment of strong personalities capable of attracting support and enthusiasm.

Organize to highlight more agile working methods

The implementation of small multi-disciplinary teams, discussed above, may require adjustments to the organization.

Two options are possible:

  • Incorporate new resources into existing teams with the risk of frustrating these resources if they do not have strong mandates and peer recognition for their ability to make a difference.
  • Creating digital teams separated from the existing organization, with the risk of being misunderstood, especially if the projects they carry endanger the perimeters of teams in place, which will surely happen!

An important reflection is therefore to be carried out in order to respond as best as possible to the most appropriate organization.

Train to Digital

One can only embark on the path of digital transformation if the broader teams take ownership of the contours, the stakes. More specifically, it is a question of opening the horizons of the possibilities.

The elements mentioned in the previous chapter are quite applicable here.

Step 3: Ramp up

The 18-month mark is often a first step in the process of assessing progress.

Sequencing initiatives

Is it better to let 1,000 flowers bloom at the same time for 3 days, or have 5 flowers that bloom every 3 days for 2 years …

With a view to increasing power, the 2nd option is more efficient and ensures the maximum commitment of the teams. However, this is not always possible when resources (especially human resources) are limited and under constraints.

You should focus on quick wins, strategically important, or with quick profits.

It is also a matter of having means to measure correctly the effects obtained to communicate effectively.

Building features

In a phase of enlargement, it is necessary to consolidate structural changes on the systems in particular. A master plan that sets up a number of bricks or high performance unit components will be welcome.
The same spirit can present itself on the rise of competence of the teams. Beyond the recruitment of experts or acquisition of expertise, as seen above, it is a matter of ensuring the training of all to allow the proper adaptation and acceptance of this change. They must also be given the keys to question their way of working and how to reinvent it. This is one of the cornerstones of success.

Adopting a new operational model

Regardless of the options chosen by companies at all levels of the digital transformation, a thorough reflection on the operational model will be necessary.

Indeed, it is a matter of questioning the value creation of the company in the future and the means of obtaining it.

The teams will no longer be permanent, the principle of networks and transversality will be imposed, agility must be at the heart of all processes and teams, etc. All these elements will make it possible to finalize the transformation and will allow the insurers who play with the technology to fight effectively against the technology companies that invest the space of the insurance.

12. Digital Quotient: Where does your company stand?

To conclude “Digital Disruption”, McKinsey created an indicator capable of measuring the digital maturity of a company: the Digital Quotient. It evaluates 18 managerial practices in 4 sectors: digital strategy, digital capabilities, digital culture and organization.
With 31points out of 100, insurance comes in 7th sector of activity, mainly due to a weak digital culture.

The best players in the panel, those at 50 points and beyond, are growing at a rate of 1.5x higher than the rest of the industry, and have a combined average ratio of 8pts lower, demonstrating a correlation between digitization and economic performance.

McKinsey – Digital disruption in insurance

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