Insurance and Innovation

Why Insurance Needs to Innovate

Late last year AM Best released their new methodology and criteria on scoring and assessing innovation.

“Innovation is becoming increasingly critical to the long-term success of all insurers. With innovation, companies can develop sustainable competitive advantages and better respond to external challenges such as evolving consumer preferences, growing business complexity, shifting market dynamics, and ever-expanding technological advancements. Companies need innovation to outpace competitors, fend off potential external disruptors, and promote organizational longevity.”

We couldn’t agree more. However, AM Best only developed a methodology for scoring innovation. They can’t tell you how to do it.

Why We Think Innovation Is Crucial to the Insurance Industry.

1. Risks are evolving faster than insurance solutions. Climate change, Coronavirus, Cyber are all examples of an evolving global risk environment. A tremendous amount of uncertainty but also opportunity for those able to meet the challenge.
2. Capacities are being tested by new exposures encouraging insurers to cooperate to mitigate their own maximum potential loss. How easy is it for you to work with other insurers? The usual hurdle of administration and associated costs often make subscription policies subject to premium minimums. In our opinion anything that prevents innovation is a barrier that must come down.
3. New and existing segments of opportunity. Society is changing; the new “gig” economy, an aging population, emerging affluence in segments of the population around the world. Insurance must evolve to meet the demand and opportunities that these segments represent.
4. New products for new market opportunities. We imagine that if you remove the typical barriers to innovation (oddly enough if we haven’t hinted at this already, we’ll just come out and say it – TECHNOLOGY), there are many innovations that haven’t yet been dreamed of.

Barriers to Insurance Innovation

Innovation and technology are intertwined. Great when your technology is responsive and supports innovative thoughts and ideas. Bad when it becomes a barrier to innovation that business likely can’t access when necessary. Effectively stifling all innovation. Is your technology an enabler or a barrier?

Here are our thoughts on what may be stifling your innovation spirit.

1. Cost of Implementation. How many opportunities have you had to pass on because you couldn’t meet the hurdles associated with the cost of implementation? When you innovate you assume some risk. The high cost and time of successful technology implementations leads to many projects being rejected.
2. Failure of business case. The dreaded business case intended to set the bar for whether a project meets the financial criteria to pursue. Unfortunately, most opportunities are not that easy to quantify. Does it really save that much money? Will it really meet the premium targets?
3. Time to implement. Can you effectively implement when the opportunities present themselves? Is your organization that nimble or agile to implement in days, not months or years?
4. Ability to Effectively Reach Customers.
5. Risk. Unfortunately, technology investments often never reach the success promised or worse completely fail. I don’t think that anyone who has worked within the insurance industry hasn’t seen technology failure. It certainly reduces one’s innovative spirit to look bleakly into the graveyard of failed implementations and still really want to go ahead.
6. Corporate Fit. This is often overlooked but the culture of a company is really important to whether you can innovate or just watch on the sidelines. Culture is a really hard thing to change and can be an extremely long journey.
7. Scarce Resources. Said before but worth mentioning again, there are very few that can dedicate resources to be available when innovation is required.

Conclusion

The opportunities available to those that can truly innovate will be extremely rewarding. Industry statistics show that aggregate acquisition expense ratios have not really budged in 30 years! We think that the rewards will come from consumers who would dearly appreciate getting more for their insurance dollar.