Digital business building with Pia Schlüter

With rapidly changing customer expectations, the acceleration of digital technologies, and the increasing importance of growth in valuations, digital-business building has emerged as a strategic priority for insurers in spurring innovation and creating value. McKinsey spoke with Pia Schlüter, a partner in the Düsseldorf office, to understand more about the types of digital businesses insurers are building and how leaders can spur success.

McKinsey: What’s the latest you’re seeing with digital-business building in insurance? Why has this become such a strategic priority for insurers?

Pia Schlüter: The insurance industry is at a critical inflection point. Customer behavior and expectations are changing, driven by customer experience in other industries and now further accelerated by COVID-19. Data and technology are increasingly available and allow players to reinvent how they sell insurance and handle claims—for example, by leveraging sensors. New digital players are emerging and attracting record-high investments, with more than $7 billion of funding flowing into insurtechs alone in 2020. Also, profitable growth is gaining importance for valuations.

Established companies that succeed at building new businesses combine the speed of a start-up with the scale and resources of their core business.

These market changes are some of the key reasons why incumbent insurers are building new digital businesses. These businesses allow insurers to protect their core business from disruptions and meet shifting customer expectations. Most importantly, they generate completely new revenue streams; our research shows that this is a key reason in more than 60 percent of all business builds.

McKinsey: What types of digital-business builds are you seeing?

Pia Schlüter: We see four archetypes of digital-business builds in insurance:

First, there are end-to-end insurers, which are full-fledged, digital insurers that design and sell insurance via direct-to-consumer, aggregators, or channels such as brokers, bancassurance, or tied agents. Second, there are specialized service businesses—digital businesses that focus on specific steps and disintegrate the insurance value chain. Our research finds that approximately 66 percent of insurtechs specialize in select parts of the value chain, such as data collection, while less than 10 percent aim to disrupt the full business model.

Approach digital businesses with the mindset of a venture capitalist. That is, be more obsessed with value than with ideas.

Third are ecosystem plays that integrate different insurance or service offerings, sometimes focused on just one element of the insurance value chain. And fourth are insurance businesses built by non-insurers—for instance, carmakers offering auto insurance.

McKinsey: What are some of the challenges incumbents face when building a digital business? What can insurers learn from their peers who are doing it right?

Pia Schlüter: Established companies that succeed at building new businesses combine the speed of a start-up with the scale and resources of their core business. There are several steps that leaders can take to successfully approach a new digital business.

  • Secure commitment from senior management: Developing a business-building capability requires clear, sustained sponsorship from the CEO and other senior management. Leaders should plan to contribute significant time and support to these efforts and should allocate people and capital so they’re embedded into the corporate strategy.
  • Have an investor’s mindset: Approach digital businesses with the mindset of a venture capitalist. That is, be more obsessed with value than with ideas: have a clear idea of the value proposition and logic around value creation of the intended business. Insurers can build on the advantages of being an incumbent—their data, talent, distribution, and brand equity—to create this value. As milestones are met, they should release funding and adjust goals so these new businesses are not bound to financial measures of performance from the start.
  • Establish a make/buy/partner strategy: Leaders should assess which elements of the business they should build in-house and which parts they can acquire or build in partnership with another firm. This not only speeds up their business build but also helps them avoid failures if they lack the required capabilities or scale.
  • Embrace an agile, test-and-learn culture: Of course, companies cannot do everything right at first. But through trial and error, insurers can incorporate learnings and ultimately develop the right capabilities. Fortunately, advancements in technology allow businesses to test their hypotheses cheaply and quickly. An operating model in which teams experiment, learn, and pivot quickly can ensure the best product–market outcome.
  • Commit to an open architecture: An open architecture allows teams to swap out tech components easily—an important capability when technology is central to many of the innovations driving the insurance industry. An open architecture will also enable a variety of partnerships, ecosystems, acquisitions, and homegrown assets, all of which can deliver value.
  • Tap into data and analytics: Our research shows that harnessing data and analytics to make decisions nearly doubles the likelihood that a business build will perform above expectations. As such, data and analytics capabilities should be considered an essential element of the business model that can help lower customer acquisition costs, increase retention, automate data collection or claims, and optimize pricing.
  • Balance organizational freedom and corporate support: The new business should have enough distance from the parent company to have its own processes and bring in new hires, but it shouldn’t be too isolated. Business leaders should establish a governance structure that provides resources and connections without stifling innovation.


Pia Schlüter is a partner in McKinsey’s Düsseldorf office.

For more on digital business building in insurance, see:

  1. Building new digital businesses in insurance
  2. CEO brief: The future of business building in insurance
  3. Future of insurance: Unleashing growth through new business building
  4. Global perspectives on insurtechs