The survey of 280 global insurance executives found that the vast majority are already struggling to keep up with day-to-day requirements and lack the skills needed to innovate.
Rapid innovation has brought about significant challenges for insurers, with half (48%) already seeing their business disrupted by newer, more nimble competitors. Two fifths are also expecting to face increasing competition from current rivals over the next two years.
In response, two thirds are looking to other industries like automotive, retail, healthcare and technology to find inspiration on models for customer focus.
Mary Trussell, global lead at KPMG International's insurance innovation and high growth markets, said: “The reality is that insurance customers, shareholders and employees demand innovation.
“Indeed, they expect it, not only from technology providers and device manufacturers, but also from their insurance providers. Insurance organisations can no longer do 'more of the same' and expect to grow.”
The report also finds that while insurers recognise the importance of innovation, three quarters (74%) admit lacking the internal core skills needed.
Gary Reader, head of global insurance at KPMG International, said: “Insurers will need to navigate their own path through this new world of opportunity, developing new business and operating models and new partnerships in order to out-compete and out-innovate their peers and bold new entrants.”