While this multiplicity provides a supportive backdrop, how should insurance CEOs address the challenges it also brings? The key is highly disciplined strategic reviews. Understanding the many potential deal options is essential too, since these are harder to manage than when fewer options are in play.
CEOs should also evaluate those deal options by assessing the shareholder returns of a potential deal. Keep in mind that strategic or financial buyers will likely require different deal arrangements from trade buyers.
Connecting to a supportive ecosystem
A productive repositioning route that insurers are considering is the ecosystems approach. This involves engaging with InsurTechs and other collaborators to innovate and raise margins while reducing costs.
Early adopting insurers are already using these kinds of collaborative arrangements to drive new growth and deepen customer relationships.
They achieve these benefits by pooling complementary capabilities — technology and distribution, most obviously. This has the potential to create greater value than any one alliance could achieve.
Ecosystems approaches require CEOs to have strategic clarity over the portfolio and what’s core versus non-core. Besides divestments, this can involve shifting non-core tasks outside the company through outsourcing, offshoring and/or strategic alliance delivery.
Creating ecosystem solutions may also require management to be open to collaborating with the competition.
Despite the insurance sector’s reputation as slow moving and reactive, this kind of imaginative response is gaining traction. Over 70% of insurers cite a joint venture or industry utility as the rationale for their last divestment.
An even higher proportion say that they are open to the once unthinkable step of working with competitors — though many also see themselves controlling the venture, an old-fashioned stance that misreads the leadership or orchestration role that ecosystems approaches require.
- Review the portfolio rigorously and with strategic clarity to determine where divestments could support step changes in key areas — digital capability and effective customer engagement
- Aim for the future business to be a refocused company repositioned to drive higher growth
- Consider how collaborating ecosystems could spark additional sources of growth and deepen customer relationships
As the insurance sector responds to the challenge of a host of secular shifts, divestments and ecosystem collaboration provide crucial avenues for change. Each requires CEOs to bring strategic clarity to the portfolio review process. Both offer the potential of repositioning the company for future growth.