The emergence of AI and generative AI (gen AI) has brought new energy to the age-old conversation about productivity. In this episode of the McKinsey on Insurance podcast, McKinsey senior partner Jörg Mußhoff sits down with partners Elena Pizzocaro and Selim Sulos to discuss why revisiting insurance productivity is at the top of CEOs’ agendas, how the most successful transformations use an end-to-end redesign approach, and why CEOs shouldn’t get distracted by the novelty of AI when traditional tools could encourage growth. The following transcript has been edited for clarity.
Jörg Mußhoff: Many companies across industries are looking into not only how to unleash the power of AI and automation but also how to enhance new forms of productivity. Selim, why is revisiting insurance productivity important?
Selim Sulos: Productivity is not new to insurance. Most companies have explored productivity at different points over the past ten years, but after the height of COVID-19, the insurance world was introduced to a new paradigm, with inflation increasing the cost of claims and rising interest rates stagnating growth, which doubly impacted some insurance carriers. [To make up for these interferences], productivity has become the number one or number two topic on a CEO’s desk.
Elena Pizzocaro: Technology offers plenty of opportunities [to improve productivity]. Think about automation and AI, which are constantly reaching new frontiers. The expectation is that nearly 50 percent of manual activities could potentially disappear thanks to gen AI alone.1 That creates the perfect storm of need and opportunity.
Selim Sulos: There’s one more thing that I should add: top-level tech natives are also contributing to [the importance of productivity]. Everyone, especially those in North America, reads about what’s happening in the big tech companies of the world. Productivity in the tech paradigm is super relevant. I often hear questions like, “What can we learn from big companies that have large tech talent?” That’s another consideration that is impacting CEOs’ agendas.
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Jörg Mußhoff: Can both of you give us a peek into the machine? How are insurance companies across the globe addressing the topic of driving productivity? What do you consider to be the best approaches?
Elena Pizzocaro: The most successful transformations adopt an approach that moves productivity forward while taking advantage of the best technology. Companies are rethinking these end-to-end journeys using what we call “the unconstrained reimagination of core processes.” At the same time, they combine this approach with the most classical techniques, such as performance management, that are the backbone of sustaining impact over time. They create a view of future journeys while setting the trajectory for the unit costs necessary to achieve it and—in the best circumstances—are disciplined in monitoring the progress toward this curve.
Selim Sulos: There is a fine balance between the new productivity paradigm related to the end-to-end path versus the traditional approaches to performance management. Case in point: some midsize insurance carriers that have capital constraints, especially in this environment, need to use some of these traditional methods to capture the necessary resources for investing in the end-to-end journey. Otherwise, it can be costly, depending on how they tackle it in the early investment stage. Therefore, it is critical to keep new and traditional approaches top of mind and sequence them based on where you are in your journey.
Jörg Mußhoff: Many insurance carriers ask about how these approaches are different now than in the past. What would you emphasize there?
Selim Sulos: Redesigning some of the end-to-end components is just the beginning. You also have to think about the entire technology pipeline that serves those components and potentially your data pipeline. If you do that right, you won’t need the amount of reporting or data cleaning that you do today, and people will be working much more effectively. At the same time, your cost paradigm will improve, and you’ll get a much cleaner stack to work on while improving your customer experience. If you create that seamless flow, you can be more intentional about how and where you are using AI and gen AI to unlock productivity. We often see people trying to use gen AI components to drive savings first, but if your processes are not good enough, then it’s just going to create a rule check.
Jörg Mußhoff: That’s a good link. There’s a lot of hype about AI, and especially gen AI, but clients want to know what’s underneath it. Could you describe how we see AI as an enabler and what we see as the most relevant developments?
Elena Pizzocaro: Gen AI is considered one of the key enablers for a true step change in productivity. In the past 18 months, we’ve had a number of conversations focused on the potential of gen AI. We’ve observed that AI in general and gen AI more specifically might have an impact of 40 to 50 percent on the productivity of a single process. This could look like automating single tasks or, probably the most common application, assisting the user in the completion of an activity. This is beneficial not only in terms of increasing the outputs but also in improving the experience of the worker. This can be applied to the entire value chain, both for core processes and support functions.
Selim Sulos: To build on that, there are a couple of things in the call center space that excite me, especially in the servicing space and insurance. The application of gen AI for smart routing and suggesting the next-best action to reps is something that was recently tested and is being used across multiple insurance carriers. What excites me is the next layer: some folks are using gen AI to create content, curate content, and educate people. Take life insurance, for example: an article about why customers should buy life insurance that used to take two months can now happen in a week with gen AI.
I would also highlight the modernization of legacy tech. Gen AI can convert legacy code into new code, which provides companies with a more modern, nimble stack for a fraction of the cost. These are all practical ideas that, especially in the context of financial services and insurance, excite us tremendously.
The potential for reducing the technology debt is something that can enable further growth and even produce a quantum leap in productivity itself.
Elena Pizzocaro: The potential for reducing the technology debt is also something that can enable further growth and even produce a quantum leap in productivity itself. Other promising areas alongside the core processes are, for example, underwriting or claims. Take commercial underwriting, an area that is considered an ivory tower of human knowledge: gen AI can assist people with these special capabilities so they can perform them better, faster, and more accurately. Ultimately, it will improve the experience for the end customer.
Jörg Mußhoff: What you’ve described are companies that are really changing the game, which is also something we’ve observed across industries. And while it will take time to improve the process of an entire institution, the potential is huge. What have you learned? What are your dos and don’ts?
Elena Pizzocaro: Pay attention to change management. Transforming core processes is not just a matter of transforming the process per se; it’s also about changing the way people work with the new technology you apply—the new gen AI use case or process redesign you might implement. You need to put effort into change management as your organization transforms.
Selim Sulos: In the context of productivity, don’t focus on the shiny object in front of you. I have seen people devise many use cases for improving productivity by applying gen AI. The reality is that although these use cases are brilliant, if you don’t have the right processes to support them, you just create more hurdles and complexity in the system. Then people start questioning whether the technology is right, whether the solution is right, or whether folks are headed in the right direction. This kind of doubt undercuts the whole notion of productivity, and you lose it from the get-go. So be thoughtful when you consider where the organization needs to go and what building blocks you need to put in place first. Then you can leverage some of these shiny objects to bolster your productivity.
