Transforming life insurance with design thinking
First published at McKinsey & Company
Authors: Markus Berger-de Leon, Jochen Kühn, Ildiko Ring, and Maximilian Straub
Better addressing the evolving needs of consumers can help incumbents win their loyalty—and protect against new competitors.
Complex products, limited services, rigid processes, and cumbersome consumer interactions did not necessarily hamper business success.
In the past decade, however, the rules of the game have changed.
Today’s consumers reward transparency, speed, and flexibility, new competitors are looming on the horizon, and the low-interest-rate environment makes the traditional business model a thing of the past.
This challenge is reflected in the sector’s financial performance: the life industry has grown only 3.1% p.a. globally in the past decade (and only 2% p.a. in Europe), significantly lagging behind other mature industries such as banking or manufacturing, which have achieved a 5 to 6% p.a. growth rate.
European life insurance delivered an after-tax ROE of around 8.6% between 2010 and 2015 —in line with the performance of banks (8.6%) and slightly above that of asset management (7.6%)—however still below other mature industries such as retailing (13.1%).
To some fintechs, noninsurance incumbents, and venture capitalists, the industry’s challenges suggest opportunity.The life insurance value chain is increasingly losing share to these players, who are chipping away at the profit pool of incumbents
How can incumbent life insurers keep pace in today’s fast-moving competitive environment and meet customers’ changing needs?
There are three major ingredients of the “winning recipe”: simplified, compelling product design, a streamlined cost base, and delightful customer journeys.
This article focuses on the third ingredient, and describes a new approach called “design thinking (and doing)” that connects every aspect of the business, from marketing to distribution, underwriting, and claims.
It is a method that goes beyond the traditional mantra of customer centricity and aims to change not only a company’s processes but also its people.Incumbent life insurers that don’t keep pace will falter; some might disappear. As Klaus Schwab, chairman of the World Economic Forum, famously put it: “In the new world, it is not the big fish which eats the small fish, it’s the fast fish which eats the slow fish.”
Size or complexity cannot be an excuse for sluggishness: the top global insurers typically have a market cap of around USD 60 to 80 billion, while Alphabet’s (Google) is well over USD 500 billion.
My point of view: Recently I spoke with a director who had worked at a large Dutch insurer and at a health insurance company. Being members of the same management team during the Dutch Health Insurance Reform of 2005, he asked me how design thinking would have altered our (successful) approach. Much is about legislation was – and still is – my opinion; being more empathic for leads, customers who had to adhere to the massive changes could be a consequence of design thinking. But in the end of the day that is just sound business in a true stakeholders business modell.