Insurers across countries and lines of business are exploring new growth opportunities. Konstanze Reinecke, a partner in the Cologne office, shares her insights to growth opportunities in insurance.
McKinsey: What’s the current state of growth in insurance, can you describe possible challenges, and how to address them?
Konstanze Reinecke: Insurance players, especially in mature markets, have reached a saturated growth potential and are looking for further opportunities for growth. At the same time, strong market-shaping dynamics create exactly the new opportunities insurers are seeking—for example through ecosystems, or verticalization. Playing in these fields requires new capabilities, especially digital skills—new capabilities and skills beyond the operational excellence, which has been historically a core enabler of growth allowing for attractive price positions.
McKinsey: Why is this happening? And how will growth dynamics influence the future of the insurance industry?
Konstanze Reinecke: We increasingly see a “winner-takes-all” dynamic in the insurance industry. Let me describe this for health insurance, as an example. Three business model types are currently winning:
- Global incumbents: The top quintile captures almost all of the economic profit with persistent performance.
- Local leaders: Rise to top performance and increase polarization.
- Digital “attackers” (insurtechs and established tech players): Despite low scale, the market has high expectations.
Given the increase in digitization, required capabilities and respective investments, insurers need to invest their resources in a smart way. Winning platform players invest up to 20 percent of revenues in digitization. This is a bigger challenge for smaller and mid-sized players—and many health insurers fall into that category. These insurers face vital strategic questions: How can they benefit from a cross-line of business scale? What are the pros and cons of buying versus building (and also versus partner decisions)? How can they shape a specific value proposition?
McKinsey: So how are leading carriers doing it, how do they grow sustainably?
Konstanze Reinecke: Leading players with a strong growth path follow four frames of growth:
- Define success: Determining the appropriate baseline measure for the organization’s growth (including rationale for growth, growth metrics and baseline, ambition, and risk definition)
- Decide “where to play”: Identifying the growth opportunities across customers, products, channels, and geographies (including adjacency expansion, product innovation, risk appetite reallocation, and customer segmentation)
- Explore how to pursue the growth “playing field”: Developing the portfolio of bold moves to capture the opportunity (including customer journey transformation, digital service operations, sales and commercial excellence, footprint and agency model optimization, digital marketing, and digital business building)
- Decide how to execute the opportunities: Launching execution to achieve transformative growth (top-team alignment and effectiveness, digital, data and analytics capabilities, agile operating model, and change management)
Konstanze Reinecke is a partner in McKinsey’s Cologne office.