On the brink: Realizing the value of analytics in insurance (Guest blog by McKinsey’s Insurance Practice)
Insurers in Europe, the Middle East, and Africa invest significantly in advanced analytics but have unlocked a fraction of the potential value. How do top performers tip the balance in their favor?
Advanced analytics (AA)—including artificial intelligence and machine-learning methods— continues to be a top-of-mind topic among executives in the insurance sector. However, despite significant value at stake—an estimated €1.2 trillion in value globally 1—and increased competition from tech-native entrants, the uptake and impact of AA in insurance across Europe, the Middle East, and Africa (EMEA) is varied.
A new study from QuantumBlack, AI by McKinsey has found that while EMEA’s insurers are investing in analytics use cases across the value chain, most fail to capture significant value from AA: 86 percent of surveyed EMEA companies either realize less than 5 percent of their operating profit from AA or are not tracking value capture from AA at all. (For more on the methodology, see sidebar, “About the research.”)
About the research
The relatively low value realization is driven by a number of factors, including a relative lack of C-level sponsorship for analytics, insufficient alignment with business for execution, and a relatively slow pace of use case development that is both siloed (thus lacking synergy) and relatively slow (typically taking nine to 12 months per use case). Furthermore, data assets and technical infrastructure are often built without a clear vision or a link to value, and many insurers’ foundations in terms of data, talent, and technology are frail: in our survey, most insurers listed both data and talent among their top five roadblocks to scaling AA. On average, the surveyed insurers aim to nearly double their analytics talent over the coming two years, but most lack a clear hiring, retention, and capability-building strategy.2
Given the current macroeconomic context, the spread in performance among insurers is set to increase, and insurers that accelerate their AA efforts have a significantly greater chance of being among the winners. In this report we further unpack the findings of our research, exploring what sets insurance leaders in AA apart and what other insurers in the region can learn from them.
What the best look like: EMEA’s top performers
Just four companies surveyed qualified as top performers and realize substantial impact from analytics, according to our analysis of company performance across six dimensions indicative of AA maturity (Exhibit 1). The application of AA resulted in a 10 to 25 percent uplift in the four top performers’ operating profit last year, and they expect this impact to increase over the next two years—with some companies expecting to achieve more than a 25 percent uplift in their operating profit as a result of AA.3 Additionally, AA creates value for customers through fairer pricing and more tailored distribution; AA creates value for employees through increased productivity and offloading of repetitive tasks.
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