Digital technology destroys value.
For the insurance industry, that means that the companies that move “swiftly and decisively are likely to be those that flourish. Those that do not will find it increasingly challenging to generate attractive returns.”
That’s the startling words of analysts from McKinsey who published their thoughts under the headline “Time for insurance companies to face digital reality.”
In the end, they conclude, digital is good for consumers, and it leads to lower costs and higher growth for those understand how to use it. But, it is also opening firms to competitors who have never existed before. McKinsey points out the factors the incumbents have in their favor: large capital reserves, high barrier to entry and regulations that can be daunting.
“But the situation is changing,” the story says. “Money now pouring into the industry suggests it is no longer regarded as impregnable.”
The new value drivers for the industry McKinsey cites are right out of the insurtech playbook:
- Technological leadership and innovation
- Customer ownership
- Efficiency and effectiveness
- Scale and network effects
- Speed and agility
“Insurers should not underestimate the changes that digital will bring to their industry and the challenges they will pose,” the analysts write. “Neither should they overlook the significant short-term profit improvements that are within their grasp if they digitize their core business, nor shy away from innovating to be part of an exciting future that is unfolding for the industry. If they act decisively, they will be among its leaders.”