McKinsey: Agility and scale key to insurance development
The unprecedented advent of COVID-19 has caused global reverberations. One industry that has felt this keenly, is the insurance world. Suddenly faced with a range of brand-new requirements, speedy product development has never been so essential. We examine the latest McKinsey report on agility, scale and how teams are making it happen.
What is agility?
The usual process for creating new insurance products is a complicated one that requires a number of processes to take place, each relying on information provided, to complete the next task in the chain. The term ‘agility’, defines a different management style, which though in use in the tech industry, is only recently being applied to insurance.
An ’agile’ team is one that’s comprised of a number of industry experts who work together – marketing, data, software, production and so on, to develop an-to-end product. If several products are required that are of similar ilk (like insurance) instead of developing one product at a time, several could be in production. After discussion, two might be launched, and the data collected on those products will be used to improve and adapt the other products, so that they can be launched on the basis of that market information and ‘test run.’
The concept of agility in companies results in the faster development of products and a streamlined launch and delivery.
COVID-19 and agile insurers
Insurers are adopting agile practices because traditional models have been beset with challenges since the pandemic struck. Demand for services and new products have increased, and customers expect faster, more efficient results. Not only that, but new financial constraints has meant businesses need to streamline their operations. An agile company is often one that works with less hierarchical layers. For example, the stages from entry-level employee to CEO, might be seven or more in a traditional structure. But a company with an agile structure typically has only three levels. This streamlines operating costs, creates better efficiency and results in greater company resilience.
How to achieve agility
According to McKinsey’s whitepaper, to change the structure of a business and create agility, executives must address a set of questions to their management teams. These are:
- Are there problems with responsibility and ownership when it comes to delivering a product – and is the hierarchical structure of managers contributing to this issue?
- Are critical solutions being delayed because of multiple handovers – which result in long lead times?
- Is the company over staffed at the middle management level?
- Are collaborations across the organisation held up by the leadership approach?
- Does the company attract new talent?
- Does the technology support growth and flexibility?
Businesses that answer affirmatively to several of these questions, would benefit from a restructure that accommodates agility.
The agile tribes
There are two types of tribes that operate within the agile business model. The first is the self-managing tribe. This is a group of experts who, led by a team leader, manage the day to day operations of the company.
The second type of team is a cross-functional one. This team is also led by a team leader, and is responsible for creating change and streamlining processes as efficiently as possible. Each cross section team works on a particular element of the company process. For example, after-sales care, or underwriting, production, servicing and so on. Their job is to ensure that all avenues are being explored so that improvements can be constantly implemented.
Creating efficient tribes is a science in its own right. Once again, McKinsey pinpoints a series of questions executives can ask to streamline and bring focus to the process of tribe-building.
- What form will the tribes take? Should they be used on production, customer experience or sales?
- How could tribes best manage a digital transformation?
- What kind of link can be made between self-management tribes and cross section tribes?
- How will the self-managing teams be organised?
Two big factors should influence the decision of tribe creation. Those are that the company structure should minimise handovers to ensure faster delivery times, and all changes must allow for growth.
Ultimately, companies must change structure and adapt products to accommodate the new ‘normal’ and recognise the opportunities it brings. Flexibility, a willingness to embrace new technology, and the breaking down of old model silos, is increasingly becoming the essential strategy to create a brighter future.
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.