The insurance industry is at a critical inflection point. Key trends are reshaping the industry, including the rise of competition from an array of insurance and noninsurance digital players, rapidly changing customer expectations, the increasing importance of growth in valuations, and—in many markets—financial and interest-rate pressures.
Given the potential for improvement and the prospect of attractive returns in insurance, private-equity and principal investors have been targeting attractive talent pools and deploying capital with the goal of rapidly driving and scaling the creation of new businesses. We’re already seeing an accelerating inflow of capital through private equity and other channels, with more than $7 billion of funding flowing into insurtechs alone in 2020.
In this context, business-model reinvention for incumbent carriers is essential to fulfilling the imperative to grow, which ultimately delivers stakeholder value. Crucially, the industry has an opportunity to shift from a “repair-and-replace” approach to one of “predict and prevent” across all segments: life, commercial P&C, reinsurance, personal lines, and brokers. The evolution toward new business models—for example, financial wellness based around analytics-as-a-service (AaaS) and platform- and ecosystem-based partnerships with entities such as travel agencies—is already under way.
New-business building is emerging as a crucial strategic priority to drive reinvention and innovation for the industry. Part of the reason is speed: what used to take years must now be done in months or weeks to meet changing demands of the market. Insurance executives must shift how they lead their institutions—from a methodical pace of change to the decisive reinvention their businesses.
Many established companies have tried and failed to build new businesses from scratch. The ones that succeed combine the speed of a start-up with the scale and resources of the core business. Our experience across sectors shows that six elements define—and are essential to—organizations that repeatedly build successful new businesses.
Strong commitment from senior management. Luck may contribute to the successful launch of a new business, but developing a business-building capability requires clear, visible, and sustained sponsorship from the CEO and other senior management. In fact, the CEO should plan to contribute significant time and strategic support to efforts to build new business because such businesses often require expertise and capabilities that the parent company may not have. Leadership can also demonstrate their commitment by incorporating business building into corporate strategy and allocating people and capital to the effort.
Obsession with value over ideas. Top business builders do not chase after appealing ideas but rather focus on how new businesses can build on their incumbent advantages—for instance, data, talent, distribution, and brand equity—to create value for the new business. Success stories include digital attackers in both P&C and life insurance that leverage AI to enable state-of-the-art underwriting and claims processing; platform-based offerings such as AaaS; businesses that focus on an area in the value chain; and innovative risk-sharing propositions such as peer-to-peer insurance.
An agile, test-and-learn culture. Advances in technology, data, and platforms allow businesses to test their hypotheses cheaply and quickly. Taking advantage of this requires an operating model in which teams can quickly experiment, learn, and pivot to ensure the best product–market fit and executives who develop and nurture these mindsets. Organizations will not do everything right at first, but if they commit to systematically incorporating what they learn, they will develop the right capabilities in time.
