CEO Viewpoint: Challenge of Disruption Awakens a Sleeping Giant

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This is a fascinating time to be working in the insurance industry. The technological and social changes that are taking place are transforming the world around us and changing how we do business. Insurers and reinsurers that get ahead of the wave and bring their companies into the digital era will elevate their business to a new level, providing ever greater value to their customers. 

Executive Summary

Will the insurance industry rise to the challenge of digital disrupters? Increased insurer investments in InsurTech startups reveal that talk of disruption has awoken the sleeping giant, observes Munich Re U.S. CEO Tony Kuczinski. He also describes the ultimate payoff for leaders who change their corporate culture to be agile and future-focused—deeper partnerships with clients and other stakeholders.

For the last several years, among other initiatives, Munich Re has placed teams of professionals in Silicon Valley and other innovation hubs such as Tel Aviv and Berlin. These teams were deployed to meet with startups, venture capitalists, large tech firms and others who are part of that ecosystem. Their primary mission is to learn about trends in innovation, to form new partnerships and to invest in companies that have strategic value for Munich Re and our clients. In the short time we have been there, we have seen an incredible surge in InsurTech activity. For example, since 2014, InsurTech startups have raised equity capital of $4.5 billion compared to just $746 million in the three years prior. (Source: CB Insights Insurance Tech blog: “Funding to Insurance Tech Startups Tops $1B in First Half of 2016,” July 5, 2016)

Why target insurance?

Most of these outsiders view our industry as being slow, technologically outdated and inefficient. In addition, they believe we are only minimally meeting the needs of customers. Many see an opportunity to partner with insurers and provide tech solutions for various parts of the value chain. Some, however, are looking to provide competing models and disrupt the industry completely.

Digital disruption is one of the great challenges for all leaders today. Companies that are able to transform themselves and are out front in terms of digital adaptation will thrive. Gartner predicted last year that by the end of 2016, insurers leading in digitalization will financially outperform slower digital adopters by 100 percent. (Gartner Inc. “Predicts 2015: Insurance CIOs Need to Balance Opportunities and Risks of Digitalization,” Nov. 19, 2014)

What else could deliver that kind of competitive edge?

Digital technology is the engine of change today, just like the steam engine powered the industrial revolution. To move our industry forward, we must understand and be prepared to respond to the many drivers of digital transformation that cut across all industries.


One driver is interconnectivity. It’s been eight years since the launch of smartphones and, already, we can’t live without them. These powerful, pocket-size computers have, among other features, sensors that can provide health-relevant data, GPS that tracks our movements and location, and cameras enabling each of us to be news reporters.

Sensors are being placed everywhere—in drones, industrial machinery, home products—all connected to the Internet and delivering unprecedented amounts of data. Data is fueling the digital economy. The Internet of Things will be its infrastructure.

What does this mean for insurers?

With interconnectivity, the volume of data that insurers are gathering, managing and analyzing is growing at an exponential pace, allowing for improved risk assessment. The increased availability of risk-related data, especially types of data not currently considered in risk assessment, can expand the boundaries of insurability, improve the accuracy of risk modeling and pricing, and allow companies to assess risk and price products with greater precision and personalization. 

“As frequency declines and severity increases, the value we provide will become more about providing knowledge and services to prevent large losses from happening in the first place. This will be a game-changer.”

It can also significantly improve claims handling. The ultimate cost of claims incurred by insurance companies often depends on how fast losses can be detected and evaluated. Interconnectivity accelerates decision-making processes, improves the accuracy of loss estimation and detects fraud. But it goes further. This technology could vastly improve loss prevention. Modern sensor technology, in combination with data communication and storage capabilities, makes it possible to monitor the environment much better and more quickly than ever before. If insurance companies can tap into this opportunity, we will achieve significant progress in the area of monitoring insured assets and actively preventing losses.

As frequency declines and severity increases, the value we provide will become more about providing knowledge and services to prevent large losses from happening in the first place. This will be a game-changer.

Empowered Customers

Another defining characteristic of digital transformation is empowered customers, who are now more front and center than ever before. This is true whether the client is an individual buying an auto policy or an insurance company purchasing a complex reinsurance treaty.

Their bargaining power is enhanced with greater access to information and increased competition. Customers today want far more than just ease of use. They expect more customization, regular engagement and proactive experiences. With the sharing economy, or peer-to-peer markets, they are not only the consumers of goods and services, they are increasingly the suppliers.

Insurance on demand is another manifestation of customer empowerment. More industries are looking to meet the needs of today’s connected consumers, who want what they want, when they want it, and only as much as they want. In our industry, companies are developing smartphone apps that allow consumers to buy insurance coverage for only what they need and for only as long as they need it.

Acceleration of innovation 

Technology companies are continually innovating, and this is flowing over to other industries as they in turn become more digitalized. Increased speed to market leads to many benefits, including the first-mover advantage and time to build market share before a product is commoditized. Agility and speed also enable companies to react more quickly to competitors’ moves or to shifting markets.

For the insurance industry, which has historically been slow and conservative, this is one of the greatest challenges: changing our corporate culture. Leaders need to foster a dynamic culture—one of continuous innovation—where employees are constantly creating new solutions, driving change and disrupting the status quo. Embracing and driving disruption starts with our people by creating an environment where employees are willing to take risks and management accepts mistakes, allowing us to be iterative in our development approach and not expecting perfection right out of the gate.

To accelerate innovation, it is important to encourage collaboration among employees, as well as with business partners, clients, InsurTech startups, associations, academic organizations and government entities.

Ripe for Disruption?

Based on an extensive study, IBM warns business leaders about key indicators of an industry being ripe for disruption. (“Global C-Suite Study: Is Your Company About to Be ‘Ubered’?”) These include:

  • Interest from venture capitalists in your sector.
  • Technology being introduced within companies for the purpose of cutting costs rather than improving and innovating customer experience.
  • An aging customer base.
  • Poor customer satisfaction.

Accenture reports that 84 percent of insurers feel there is increasing pressure to reinvent and evolve their businesses before they are disrupted. (Accenture Technology Vision for Insurance 2016, “People First: The Primacy of People in the Age of Digital Insurance”)

Increased availability of risk-related data, especially types of data not currently considered in risk assessment, can expand the boundaries of insurability.

Will the insurance industry rise to the challenge? Has all of the talk of disruption awoken the sleeping giant?

We are starting to see a greater share of investment in InsurTech startups coming from traditional insurers looking to enhance their value chain. While some just want to cut costs, many have the goal of significantly improving customer experience and even changing their business models.

Every challenge also presents an opportunity. Although it is likely that some companies that do not transform will be disrupted, many others will thrive as disrupters challenge our industry to be better. If we truly adapt to the digital economy, there is enormous opportunity for us to drive our industry forward in a way that will enable us to provide ever greater value to our shareholders, clients, employees and society.

To get there, industry leaders need a digital strategy that includes how to deal with new entrants—whether to partner with them or compete by strengthening our core. We must bring in talent with the technical skills needed to build our companies for the future and to become agile—continually focused on what’s next. Whether an insurer, reinsurer or intermediary, we must become valued partners to our clients, providing continuous risk service.

By owning and driving our own disruption, I am confident we will emerge as a stronger, more vibrant industry in the future.