Innovation in insurance: The end of insurance as we know it

2019 marked a number of personal milestones for me beginning with the publication of my first book ‘the end of insurance as we know it’ last february. The focus was to help bridge the divide I observed between career insurance professionals and the growing world of technologists, entrepreneurs, investors and others known collectively as ‘insurtech’. In my role as a director of underwriting research for many years at a large carrier in the united states, I was keenly aware of the competitive pressures that drove the desire for innovation. In close collaboration with our newly minted innovation team, corporate venture capital arm, it group, and other business leaders in traditional disciplines such as actuarial, claims, and product management, we looked for new opportunities and ways of thinking. Over the years, I have seen hundreds of sales presentations from all manner of firms, from the smallest startups to the largest technology providers – even before the terms ‘pitch’ and ‘deal flow’ entered my vocabulary.

Over the past decade, the trickle of new ideas and emerging technologies focused on the insurance industry has become a torrent. Insurtech funding has grown exponentially, riding the waves of fintech funding and innovation spurred as a result of the great financial crisis of 2008. The excitement and enthusiasm for change has never been greater in the insurance industry, as evidenced by the blizzard of new startups forming around the globe and the rise of insurtech conferences, incubators, accelerators, innovation labs, and pitch competitions. Some events became more than simply learning opportunities – they were celebrations of the power of innovation in a sector long known for conservatism and resistance to change (including the Efma-Accenture Innovation in Insurance Awards over the past five years). Optimism abounded around the world and i was privileged to see the energy first-hand as I spoke at conferences in Europe, Asia, South America, Australia, Africa and my home base in North America.

Then 2020 arrived and the Covid-19 global pandemic hit. Some countries were hit early, others later on. The impact to each country has varied in intensity and reach, but all have been affected in some way. Travel was restricted and many people remain limited to working from their homes. Thankfully technology allowed for more productivity and connection than was possible even a few years ago. Navigating the current crisis without the benefit of the internet seems almost unfathomable. Everyone has been touched in some way – a minor inconvenience and change in routine for many, a deeper impact and sacrifice for some. Parts of our life that were previously consider perks – working from home, the ability to summon delivery for practically anything from your mobile phone – became essential overnight.

Where does this leave innovation in the insurance industry as we move from a period of stability to stress? Paradoxically, the pandemic and resulting economic downturn has killed off some startups while fueling exponential growth for others. I’ve consoled founders whose companies have gone belly up and celebrated with founders whose firms can barely keep up with the stream of new business. The insurance industry has proven once again to be resilient in the face of challenges. Innovation budgets have been slashed at many firms, yet innovation itself has never been valued more. Often with crisis comes clarity. Moonshots have been put on hold in favor of must-haves: automation, digital distribution, new products and tools that enable close collaboration over distance.

While we all wish that the virus is eradicated after we find a vaccine, the reality is that we are never returning to the old ways of working. What will our ‘new normal’ look like? It’s easy to speculate but hard to see clearly today. What is certain is that the insurance industry must continue to innovate – it is an imperative. How to accomplish this over the next two years while we wait for our post-pandemic world to materialize is a key question that this series from Efma hopes to provide some answers for. In the following interviews, you will hear from several insurers on the way they innovate and are preparing their organizations for the future in spite of present risks and uncertainty. This is, in fact, the very defining characteristic of the insurance industry – managing risk in the face of large and uncertain outcomes.

Strong leaders always blend optimism and vision for the future with reality and understanding of the world as it is today. This involves developing a coherent macro view defined by broad trends, anticipating the future while constantly revisiting your assumptions, and becoming a storyteller while weaving new facts into the long-term narrative. Failure to do each of these three things will result in innovation that is unfocused, uncoordinated and unsuccessful. Now more than ever, it is important to develop or revisit the strategic narrative for your company. Why do you exist? Who are your customers? What are their needs now and how will they change over time? Innovation must tie back to your firm’s strategic objectives, which should flow from your mission and purpose – it cannot be ‘innovation theater’ that gives the appearance of innovation for its own sake.

Secondly, it is not enough to have a strategy – you must have a plan to achieve it while continually revisiting your assumptions. While it is true that strategic plans are often outdated by the time the ink is dry on the documents, this does not mean that your firm should not engage in planning at all. A failure to formulate a strategic vision and a plan for execution leads to the land of ‘bright shiny objects’, an expensive collection of mismatched pieces that end up known more for their irrelevance than innovation. This is where the power of Agile methodology comes in – the ability to iterate quickly while still following a clear path forward.

Lastly, innovation must become a core competency at your firm and be considered its own discipline. Most carriers have similar organizational structures with departments for actuaries, claims, and underwriters along with finance, HR, and it. Regardless of how you structure your innovation function internally, it must be considered an equal to these well-established areas within your firm. CEOs and top executives must provide a clear narrative to their employees about where their organization is headed – and innovation must be at the center of that story. I contend that the insurance industry will see more change over the next decade than the past three decades combined – since the advent of the personal computer. Business as usual is no longer a winning formula. change is imperative, but it cannot be for the sake of change, it must be both purposeful and adaptable. We barely have line of sight to what our world will look like in 10 weeks, much less 10 months or 10 years from now. Yet each of these timelines is important to focus on. too often, however, short-term realities trump long- term imperatives. Immediacy often trumps importance. Leaders must be disciplined in balancing the two timelines.

Working as an innovator focused on the insurance sector can seem glamorous compared with more traditional roles. It certainly can be motivating to be actively working to shape the future of our industry. However, it can also be challenging and demoralizing. A big part of innovation comes down to the art of persuasion. No matter how game-changing the technology, if both leaders and end users are not convinced of the value of whatever solution is being pitched, it will not succeed. Likewise, the same is true for your customers: just because you offer a new product, service, or feature does not mean it will resonate with them. As powerful as technology is in today’s world, insurance remains at its core about human connections and relationships.

It is critical, therefore, to understand that successful innovation ultimately requires support throughout your organization. Seen in this light, it is clear that firms must introduce, develop, and nurture a culture of innovation. Doing so must be a lasting commitment within your company, not the ‘flavor of the month’ that is not expected to last beyond the next CEO. The reality is that for a company to truly be innovative, it requires both the expertise of the tenured insurance professional and the insights of the technologist who understands which emerging tools can be brought to bear on existing challenges in new ways. Each set of ingredients needed to spur innovation is unique to a particular organization; there is no one-size-fits-all solution. What is fundamental is buy-in: a commitment to innovation at all levels of the firm. More than anything, having the right mindset and being open to new possibilities is the secret to achieving meaningful change and lasting success in the coming decade.

Building a culture of innovation takes a profound and lasting commitment. Beyond buzzwords such as ‘celebrating failure’ and the pursuit of patents, it is instilling innovation as both a process and core value that is key. People must see an unwavering support for continuous improvement, a transparent process and prioritization of key initiatives, and a willingness to pursue the best opportunities no matter the source of the ideas. In my time leading innovative teams, I often share that we are not the ‘pet projects’ department. This means that your organization does not pursue every half-baked idea that comes your way – even if it comes straight from the CEO. There must be a method to the madness and your people must see that that method is consistently applied. consistency does not imply consensus, however. Organizations grow stale when they allow one naysayer to reject a great idea supported by many others. It does mean that your organization develops a portfolio of ideas rated on a number of criteria and that you approach innovation from a business perspective, evaluating each concept on its merits rather than its emotional appeal.

As with a good investment portfolio, your approach to innovation should include a diversity of both ideas and people. Ideas should be categorized across a range of quantitative and qualitative metrics to include customer value, areas impacted, market opportunities, financial returns, resources needed, and ability to execute. Innovation should range from straightforward process improvements to outrageous inventions. Your portfolio should include ideas that enable ‘defensive innovation’ to protect your competitive advantages as well as fuel ‘offensive innovation’ that takes your organization to new heights never before dreamed of. Finally, an ideal mix includes concepts that span the innovation pipeline from ideation to proof of concept to pilot to production.

Over the course of the past few years, there has been an increasing consensus from both within and outside the insurance industry that it is ripe for change: the end of insurance as we know it is rapidly approaching. Make no mistake: exposure to risk is not going away – if anything, it is growing beyond what traditional product lines were designed to mitigate. What is changing rapidly are both customer needs and expectations, fueled by leading companies that have become household names around the globe, as well as the accelerating pace of technological advancement itself. Insurance professionals must dispense with outdated assumptions about what the art of the possible is.

A lot of debate has centered around whether insurtech is truly disruptive or simply evolutionary. Those that argue about this distinction miss the greater truth: the future of insurance is being shaped today in the present. The questions around who changes the industry in what ways and how quickly are the key to settling the debate. Will you be one of the leaders who brings about the future of insurance? Will your organization set the new standard by which others measure themselves against? Will you successfully transition to what’s next – or risk being a relic of a bygone era? The future does not wait for the ‘right time’ to come; the future is as inevitable as the passage of time. While you cannot change the arrival of the future, what is within your control is how you prepare for it.

According to Efma’s new chairman, Jean-Marc Pailhol, Head of Global Strategic Partnerships at Allianz, there are two megatrends shaping the insurance industry at the moment. “On the one side, we have the emergence of these new digitally-focused customer segments, with completely different behaviors and needs. And the other side is the necessary transformation of our current business model with improvements and digital transformations. Managing and adapting to both of these trends simultaneously is a major challenge but also a big opportunity for insurers.”

Transforming one’s business model is no easy task. insurers have relied on their tried-and-true methods for decades. But it is clear going forward that given the rapid shift in customer behaviors, it is incumbent upon insurers to adapt their models to the modern-day consumer. Innovation in insurance will be pulled by the change in behaviors and value propositions in the market. With the types of digital tools now available, on top of the massive troves of data available to insurers, companies can create personalized offerings tailored to how people live and consume.

In order to create the next generation of insurance product that capitalizes on these trends, insurers must put in place a process and culture of innovation. There are varying approaches to innovation from across the industry. Some insurers opt for internally developed solutions, with others seeking new ideas from external players. Some insurers have specifically dedicated innovation teams or labs, while others have imbued a transformative culture company-wide, without a specially dedicated team.

To look at some of these approaches, we spoke with a number of leaders at some of the most innovative insurance companies in the industry. All of these companies are recent winners and finalists in the Efma-Accenture Innovation in Insurance Awards. We asked them what has been key to their innovation efforts and more importantly, how they have cultivated a workforce that is geared towards transformative ways of thinking. In the interviews that follow, you will see their thoughts on what it takes to manage a truly innovative insurance company.