Insurance companies need collaboration to thrive says McKinsey
INSURANCE companies almost always lag behind banking institutions when it comes to digital transformation. Mired by legacy infrastructure and archaic regulations, the industry is struggling to meet expectations and delight customers in the digital age.
According to McKinsey, insurance companies should look to collaborate with insurtech companies as the partnership can help accelerate their journey to digitalization.
Currently, the company’s analysis suggests that less than 10 percent of insurtech companies are seeking to disrupt the insurance business model, while nearly two-thirds focus on specific parts of the value chain, aiming to meaningfully integrate with established insurers.
“The challenge is no longer insurtech versus traditional insurer—but rather how the two can work together to create tangible value for the customer.”
“As such, partnerships increase globally and specifically in Asia,” McKinsey & Company Hong Kong Senior Partner Bernhard Kotanko told Tech Wire Asia.
Allianz, for example, invested US$96 million in a digital insurer and created a EUR 1 billion (US$1.14 billion) investment fund focused on insurtech companies. Other insurers such as Tune Protect, AIA, AXA, and others too have made similar investments in recent times.
Allianz Malaysia, for example, recently partnered with Policy Street, an insurtech company offering multi-brand insurance policies via an online platform, to rapidly expand its reach in the digital marketplace.
“PolicyStreet complements the puzzle, presenting yet another platform in which, Allianz will be able to further expand our reach in the digital space apart from our own platform Allianz Online,” said Allianz Malaysia Berhad CEO Zakri Khir.
Insurtechs are looking to partner with insurance companies
“Among insurtech, we observe a massive shift in focus from trying to disrupt insurance as a whole to actually developing specific value-add solutions that can be plugged into insurance value chains,” explained Kotanko.
McKinsey’s insurance expert observes that collaborations between insurers and insurtechs have greatly increased over the past 2-3 years — which reflects the company’s latest research as well.
“What the winning model of collaboration will look like remains to be seen, but it’s clear it will require a combination of traditional strengths from established insurers and new skill sets brought by insurtechs.”
Traditional strengths such as customer loyalty, brand equity, as well as customer data are all incredibly important for the insurance industry, especially because of the nature of work involved.
When combined with new skills such as artificial intelligence, machine learning, and analytics capabilities from insurtech companies, traditional strengths of existing insurance leaders can reach new highs.
“The most important success factor is being clear about objectives for the collaboration and then committed to push it and bring it into the core business,” cautions Kotanko.
“Partnerships that are at the fringes of the business and/or based on mutually unclear expectations likely fail.”
According to McKinsey’s consultants, the future industry model will be shaped extensively by partnerships where incumbents retain ownership of the end customer while insurtechs act as digital enablers that drive the adoption of digital technologies along the value chain to help advance the digital transformation journey.
Players that realize the potential of digitization early are likely to further benefit from the strengths that both sides bring to the table.
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