There is a lot of noise out there. Insurance CEOs constantly hear about digital marketing, digital distribution, digital IT architecture, and digital attackers, as well as digital technologies such as telematics, automation, and machine learning, to name but a few hot topics. What is harder for them to discern is the bigger picture. What does success look like for an insurer in a digital world, and how is it achieved?

This compendium—“Digital disruption in insurance: Cutting through the noise”—helps paint that picture by drawing on McKinsey’s experience in the industry and that of some 30 executives whom we interviewed. Importantly, we spoke not just to incumbents but those who are helping to force change in the industry, including for example giant technology companies, companies that promote the use of data-collecting sensors in our homes and cars, and newcomers to insurance. All shared their insights on what is happening in insurance and why, and where success lies.

The compendium’s underlying premise is stark—but some executives are beginning to face up to it. They know that staying competitive in a digital word will require far more than the addition of a direct sales channel or a few automated processes. Even the term “digital transformation” can underplay the response required, suggesting as it does that the change needed is purely technological. What is actually required is a fundamental rethink of the corporation, for which digital technology is but the catalyst. It forces companies to rethink the sources of revenue and efficiency. It forces them to rethink the organizational and talent model. And ultimately it forces them to rethink the business model and the role they will play in an ecosystem that cuts across traditional industry boundaries. They will have to reinvent themselves.

Resistance to what lies ahead is futile. Insurance has been relatively slow to feel the digital effect owing to regulation, large in-force books, and the fact that newcomers seldom have the capital needed to take insurance risk on to their balance sheets. But the industry is not impregnable. Companies that fail to adapt will weaken under the pressure exerted by those that use digital technology to slash costs and get better returns on their investments. And they will be left floundering once digital’s relentless force ultimately breaches both the industry’s business model and boundaries. Already, in personal auto insurance, we see how sensors fitted in vehicles will be likely to put premiums under pressure as driving becomes safer. And we have only to glance at other industries to understand how, in a world in which data and analytics are king, powerful new digital competitors with large customer bases in their core businesses can rapidly invade new ones. Chinese e-commerce giant Alibaba now also owns one of the world’s largest technology finance company, with financial services and products that include insurance.

Acknowledging the urgency to undertake a digital transformation—both to reap its rewards and fend off threats—is one thing. Knowing how to manage one is quite another. Ask any executive who is the midst of the task, and they will attest that it is a formidable effort that touches every part of the organization, and that there is no rule book that will guarantee an easy ride. This remains virgin territory because no one in insurance has yet completed a transformation—it could take as long as a decade. Nevertheless, lessons are emerging that will answer the burning questions posed by those about to embark on the challenge, questions such as:

  • Where should I start, with cost-cutting or growth initiatives? And should I let a thousand flowers boom, or pick selectively?
  • Do I need to rip out my IT systems and start again?
  • Do I need to set up a new, digital unit, and if so, will it cannibalize my other business?
  • How do I attract all that new, whizzy talent I will be needing—and will these newcomers really understand what makes my company successful?
  • Do I need a chief digital officer?
  • Our heritage makes us risk averse. But now I am being told we need to experiment and innovate. How do we change—safely?

This compendium explores the answers to those questions. We hope it will help executives to understand where value lies in a digital world, at the same time as offering a clear, practical approach for capturing it.


Tanguy Catlin
Senior Partner
McKinsey & Company

Johannes-Tobias Lorenz
Senior Partner
McKinsey & Company