The rapid advancement of AI has the potential to revolutionize the insurance industry, offering substantial operational gains and a competitive advantage to players who seize the opportunity sooner rather than later. McKinsey & Company’s Asia insurance Practice brought together industry experts at the 2023 Asia Insurance eXecutive Officer Roundtable (AIXOR) to explore the challenges that are slowing AI adoption in Asian insurance and to discuss the benefits of AI on the bottom line.
Four pragmatic steps for Asian insurers to overcome key AI-adoption challenges
McKinsey research revealed three significant pain points present in the Asia-Pacific (APAC) insurers’ AI journey:
- Limited value capture: Although APAC insurers invest in analytics throughout the value chain, 87 percent of surveyed companies either capture less than 5 percent uplift in operating profit from AI or do not track value capture at all.
- Data management strengths and challenges: APAC insurers excel in data management but face challenges in other key areas such as new use case development, strategy formulation, and value capture.
- Untapped potential: Asian insurance significantly lag with an average maturity score of 2.9, on a scale of one to five, compared to the top performers’ score of 4.2. However, there are significant variations in maturity levels across different Asian markets.
To expedite AI adoption, organizations could consider four steps
- Top-down approach: A value-backed approach to data and analytics can ensure alignment with strategic objectives and obtaining C-level sponsorship.
- Domain-focused perspective: Deep understanding of specific business domains and prioritizing high-value use cases for implementation is necessary for scaling analytics.
- Business alignment and execution: Close alignment with the business, effective prioritization, and efficient execution of AI initiatives are critical.
- Value-oriented investment: A sharp focus on areas that offer the most investment value can help organizations maximize their AI-driven business impact.
Success stories: Maximizing business impact with AI
Several success stories and insights highlight the potential of AI adoption in the insurance industry. For instance, by prioritizing customer needs, investing in the right tools and talent, and developing a comprehensive Analytics and Transformative Framework, a Southeast Asian insurer transformed from a descriptive approach to an advanced and prescriptive analytics one. This evolution enabled it to become a powerful business enabler, generating significant impact on businesses and consumers.
Similarly, through a systematic approach focused on data mastering and integrated analytics throughout the value chain, an Italian financial services company expects a €150 million operational result impact by 2024. Its leaders are meticulously raising awareness, envisioning a long-term plan, and optimizing and scaling their efforts to realize this outcome.
AI also offers cost-reductive potential by providing accurate predictions at a lower cost than traditional methods. Early adopters, who gain access to data sooner than their competitors, can reap significant benefits. As system-level solutions replace point solutions, insurance enterprises need to reimagine their business models and refocus on risk as the core aspect. The adoption of the latest technologies becomes crucial for insurers aiming to stay competitive.
Finally, a high-potential business model in Asia, closely linked to the use cases we see today, can be seamlessly integrated into the existing ecosystem. To succeed, insurers must focus on elements such as digital customer journeys, innovative insurance products, analytics-driven underwriting, data exchange and consolidation, and an agile operating model. New core technologies play a vital role in enabling embedded insurance by addressing digitalization, automation, and product complexity challenges.
The Asian insurance industry has the opportunity to unlock AI’s immense potential and gain a competitive advantage in the global market. By adopting a strategic approach, aligning with business objectives, and investing in the right tools, talent, and infrastructure, insurers can accelerate their AI journey. AI’s transformative power of AI could reshape the insurance landscape, providing enhanced customer experiences, optimized operations, and improved profitability. To fully harness the benefits, insurers should embrace the disruptive economics of AI and journey toward embedded insurance analytics and tech-enabled solutions across the value chain.