5 imperatives for operationalizing analytics in insurance
We are leaving the valley of digital uncertainty. We’re seeing leading organizations today harness digital and analytics to drive real impact. According to McKinsey’s Digital Quotient, which measures an organization’s performance across four key dimensions of digital maturity (strategy, culture, organization, and capabilities), the insurance industry is well on its way toward effecting tangible change with digital technologies. Indeed, the insurance industry outpaces the global average in terms of digital maturity and outranks several other industries, such as automotive and banking, in the race to create real impact (exhibit).
There are five imperatives that will play a central role in rethinking existing business models. Here are some insights into each of these moves.
1. Invest: Make big bets The biggest question on the journey to seeing results is typically around how bold companies should be in their transformation. Based on extensive research across different industries, we have observed that “real hockey sticks”—sharp growth after a short-term sag—do occur. While most companies we observed did not change their relative position over time, about 20 percent of companies significantly outperformed the rest, achieving four times more absolute growth than competitors—earning them a reputation as “value creators.” What distinguishes these companies is their level of investment. Value creators tend to overinvest significantly in big bets during the early phases, often accepting negative economic profit for one to five years, while the rest of the pack optimizes for short-term profitability.
2. Track: Watch digital key performance indicators Value creators don’t just invest significantly in big bets; they also maintain a tight grip on a relevant set of key performance indicators (KPIs). Players such as DBS Bank (formerly Development Bank of Singapore) identified the importance of doubling down on digital processes early on and adapted its KPI tracking accordingly to measure and guide continuous impact. Measuring the right KPIs and linking them back to their operational influencers is crucial.
3. Focus: Implement a stop agenda Many paths lead toward a digital transformation, but not all will be successful—and pursuing them all at the same time will be even less likely to succeed. An important component of a structured transformation approach is deciding not only where to invest but also where not to invest further. Executives must have a "stop agenda" that reassigns resources and attention away from poor performers to key aspects of the digital transformation. This typically includes cleaning up project portfolios, reducing business complexity (such as the number of sales partnerships), and streamlining governance.
4. Integrate: Go beyond digital Transformation approaches must be integrated to achieve an at-scale business-model change. A common narrative should support all digital efforts to drive integration across customer experience, journey digitization, cultural change, use cases, and lean management. To rethink the business model, one principal approach needs to combine the (complementary) elements and adapt them to the overall strategy and operational processes.
5. Lead: Move from chief digital officer to chief transformation officer Around 2012, many companies created the role of chief digital officer (CDO). Now we see a maturing of governance along with digital transformations, and companies are moving from a CDO toward a chief transformation officer — a digital transformer who embodies and translates technological change into the broader strategy to prepare an organization for the digital age. A good CTO will focus on key value drivers in advancing a company’s digital strategy and should have the full support of the board.
There is no shortcut to digital. A digital transformation won’t progress in a giant leap or through an abrupt change. It takes time and commitment. But for those who act decisively and implement these five imperatives, digital transformation can become a profitable reality.
This blog entry has been reprinted with permission from McKinsey.