Insurance innovation is a great sound-bite, but it appears to be easier to talk about than deliver. This recent headline summed up the current state of play for me, The whole system is rigged against innovation. The article from Innovation Excellence was a general observation, however much of the sentiment runs true for the insurance industry. This article explores risk aversion and a reluctance to spend money on untried ideas. These are certainly themes that can be applied to explain the lack of true insurance innovation.
Insurance is about reducing risk
Insurance is the very definition of risk averse. The industry employs armies of actuaries to assess risk probabilities. It therefore seems logical that this market steers away from activities with ill defined consequences. It is only possible to build probability models for processes and outcomes that have been measured adequately in the past.
Back in this 2015 we attended a fascinating industry event and summed up the main themes of the day in this blog: The Insurance Innovation Summit, . The event had opened with a great quote
“The best way to predict the future is to invent it”
Easier said than done, but what an aspiration! Innovation must become part of the company culture. Unless there is an appetite to challenge the status quo, the market will never change. We examined this debate in: The challenge to be different, it’s all about the people and concluded “Delivering extraordinary moments starts with extraordinary leaders” Staying the same does not necessarily equate with reducing risk, but you don’t know until you make the change OR have been left behind and it becomes too late.
It is too expensive to change
Today’s explosion of data provides unprecedented knowledge of both our customers and the insurance market. Using this mountain of information companies often turn to consultants to analyse the market, define the strategy and build the business case – But then what?
Many companies then become constrained by commercial realities of cost and risk even when they can articulate a vision of how to radically improve customer service. The decision makers will point to the cost, the lack of resource and the pressures of ‘business as usual’. Many then resort to the fall-back position. If the current business model works commercially, there is no real imperative for change. So, nothing happens, even if there is compelling evidence that change will benefit customers.
But there are solutions. Most recently we quoted one approach in our blog innovative insurance ideas transformed into reality. One of the case studies quoted was from Direct Line who have developed a working approach to reducing the cost of innovation. Basically, they have introduced the ‘Duel Engine’ model outlined in the article from Innovation Excellence. They have invested in insurtech that will allow them to ‘test and learn’ alongside BAU. This enables them to innovate without risking their core business. Collaboration is another option for reducing cost. Insurance distributors are increasingly turning to technology specialists to help them improve services without the cost and risk of developing solutions internally.
See beyond the excuses
This is not the time for excuses. Beneficial change for the insurance market is certainly possible. In reality, innovation is an overused word. Often new ideas are simply an evolution and improvement on what has gone before. However, we should not be arguing about semantics. We should instead be agreeing on how to move the insurance market forward for the benefit of customers.
Let’s end on a positive note. A headline from Insurance Age reads Pace of change in insurance to speed up. The CEO of Applied Systems admits “…some of the reasons behind inertia is ‘if it’s not broken don’t fix it’”. However, he predicted that advances in the InsurTech sector, along with consolidation in the broker market and lack of growth in personal lines business will drive pressure to innovate. I look forward to seeing the evidence.