Rising to the innovation challenge
How the insurance industry can rise to the innovation challenge
According to PwC’s 21th CEO Survey, Insurance CEOs are feeling far more optimistic than last year. Of course, challenges like over-regulation, cyber threats and changing customer behaviour still exist. But the driving force of change - the promised threat of competition from new market entrants has not materialized.
But while optimistic, respondents were far more concerned about the speed of technological change than those from other industries. I suspect, like me, that they recognise that the insurance industry is simply in the calm of the eye of the storm and they know they are still failing to keep up with a world that’s swirling ever-faster about them.
Insurers are very good at innovating within the boundaries of the current business model, but less comfortable with the uncertainty of disruptive innovation. To be fair, that’s not uncommon for large, established businesses. Like some of the biggest and most familiar names, they fall into the trap of allocating the lion’s share of funds to the areas that are currently making them money, and underinvesting in new areas that should be their main revenue sources in the future. Think Borders, and Kodak, and Blockbusters, and Nokia, and so many others.
But there is also hope. With the right corrective action, I believe insurance companies are supremely capable of rising to the innovation challenge.
Invest beyond the core
The reason that insurance companies are feeling more at risk is because they know they are more at risk. Their focus has been on driving short term profit by selling more existing products through existing channels, rather than investing in both the internal admin teams and IT systems.
Businesses that take this approach may often try to expand beyond their core, but will do so in a conservative manner allocating their major investment to the areas that are generating the most revenue.
As a result, start-up teams within large businesses are starved of the talented staff and capital they need to achieve and are quickly closed down.
And while insurance companies have a duty to its policyholders to remain prudent so that capital is preserved and claims can be paid when expected, shouldn’t this duty extend to being innovative enough in their thinking so that they still exist in 20 years time?
The healthy medium is a balance of stable investments, and higher risk, higher return experiments, which in combination will provide long-term value to your end customers and shareholders.
Accepting the risk of innovation
Concerns about risk can often be a barrier to innovation, when the fear of making a costly decision limits people’s thinking. Gartner estimates that by 2021, more than 50% of organisations will be running experiments to increase the pace and success of business transformation.
While that sounds inherently risky, running smaller, more regular experiments is actually a way to mitigate risk by preventing heavy investment in any one assumption. Experimentation allows you to gather timely and more relevant feedback around emerging needs and market opportunities, which supports your innovation efforts.
This means accepting a less than perfect solution may come before the more polished final version. In some cases the solution may not even exist; Dropbox was launched Kickstarter-style as a potential concept supported only by a video, allowing its founders to gauge the market appeal before investing any time or money in developing the idea.
Build IT platforms that allow for exploration
If we accept that experimentation is necessary, it follows that your teams need the freedom to make changes quickly. And yet in the insurance industry digital teams are often hampered by legacy systems which are expensive and slow to change. Your new innovation will want to proceed at internet speed, but they will be always waiting for the legacy system team to catch up.
85% of insurance CEOs report they’re at least somewhat concerned about the speed of technological change, no doubt aware of the limitations older, less functional legacy systems and the continued reliance of some intermediaries and internal teams on paper-based processes.
With technology continuing to change at a rapid pace your teams need to be supported by systems that are simple to configure and can be adapted as your vision gains clarity.
Expanding your digital capabilities needs to happen cohesively across the business, so that a seamless and automated thread can be pulled from new business right through to claims management, so that data can be shared across the business to provide for better customer experiences to be created, and predictive action made to keep your customer base happy and healthy.
Find the right place to innovate
There is evidence that large Insurers should consider setting up an independent, well-funded off-shoots to enter new markets or bring out new products. For example, when Macquarie Bank wanted to enter the life insurance market they created a new entity, provided $30M of funding and left them alone. The group exceeded all their targets and eventually led to Macquarie selling them off for $200M.
Key to this model is the need to have direct access to the CEO to push the big decisions through, but otherwise be left to develop their own products and systems without having to conform to all the rules of the main corporation.
What needs to be in place to support innovation?
Innovation will not require everyone in the business running at top pace. Different functions and business units will have their own cadence but they do need to be supported with a culture that supports innovation, and processes that allow them to adapt as the market demands:
- Automation of common tasks to free your people to provide genuine, personal service.
- A focus on the speed of delivery to improve the business’s ability to implement small and frequent changes, such as through investment in cloud enablement architecture, and through use of agile methodologies.
- A process for identifying, removing or reducing the business rules and sign offs that will be a roadblock to delivery.
- Cross-functional teams to encourage collaboration.
With the right processes in place we look forward to seeing more in the insurance industry gain the competitive advantage of speed, agility, and the ability to take products to market which will see the industry thrive.