Manjit Rana, managing director at Ingenin looks at innovation and why it is becoming more important to the insurance industry.
Look at most job descriptions or company profiles and the word ‘innovation’ pops up pretty frequently these days. A number of insurers now have innovation managers but what does innovation mean to the insurance industry and why is it now becoming more important?
We’ve only got to look at the direct-writer model, aggregators, telematics and voice-stress analysis systems to see how the industry has embraced new ideas over the years. So why is there an increased focus to demonstrate to our employees, shareholders and customers that we are taking innovation seriously?
A glance towards other ‘traditional’ industries such as music, entertainment, banking and photography shows how modern technology has disrupted their worlds. The realisation that it’s now easier than ever for young start-ups to create services to compete with established players on a global scale. Groupon, for example, started in Chicago only 5 years ago now and has over 70m customers. Once the fastest growing company in history even its business is being disrupted by newer competitors with more innovative technology and business models.
The rewards for creating a service that disrupts a traditional industry are potentially very high – and our smart youngsters are no longer interested in just looking for a job. They want the fame and fortune that comes from creating a new product or service. My own son gave up the idea of doing medicine to study Innovation and Entrepreneurship because he felt he could make a bigger difference with those skills
A recent SMA research report in the USA has shown that a remarkable 87% of insurers say that innovation is occurring at some level, and 20% have already established a strong innovation culture in their organisations. The vast majority of insurers view innovation positively and regard it not only as a way to develop big, game-changing ideas, but also to make small incremental changes.
In the UK the telematics market is rapidly approaching tipping point – with everyone from motor manufacturers, to mobile networks, to technology suppliers, start-ups and the likes of Google investing and exploring the potential opportunities. It is inevitable that telematics-based motor, home, travel and assistance products will be common place in the next few years.
One of the driving factors are the rapidly evolving mobile technologies – nearly two thirds of all adults now walk around with a device that is more powerful than the average laptop computer they have sat at home, and worth nearly twice as much. A smartphone is possibly the most engaging and addictive piece of technology that has been placed into the hands of consumers – the competition to get their attention is intense. It’s not about whether your insurance app is better than the other insurers – it’s about whether your app provides the same kind of experience as the latest social media app, language translation app or game – don’t get this right and your days on your customer’s device are seriously limited.
Mobile-device based services are now becoming utilities – I can just talk to Siri and ask it to remind me to pick up the milk when I leave home and it automatically schedules the entry into my task list because my smartphone knows where I am.
How can the insurance industry capitalise on this type of technology and create insurance products and services that are more interesting to our customers – using the same technology why aren’t we warning our customers when they are close to accident black spot or when they are entering an area with high mobile theft rates?
Disruptive innovation is best instigated and managed by entrepreneurs and unfortunately we don’t attract too many into our industry – promoting someone from marketing or IT to head up the innovation function is not likely to achieve the desired results.
Often people who are very good in the core business can struggle to adapt to the new behaviours and mind-sets required for leading an innovation function.
Ideas will often come from people closest to the issue. The claims handlers on the front desk taking the same calls again and again may have a view on how to improve the process. The underwriters thinking ‘if only we could get this additional bit of information’ or the customer themselves frustrated with the service. You need an effective method of capturing these base ideas and then analysing, managing, sharing and developing them. Good ideas need to be nurtured and supported to grow into great ideas worth doing something with. They need input from various areas of the business and the people suggesting the ideas need to be appropriately rewarded – which often does not have to be a monetary reward.
Innovation comes in many guises from small incremental changes such as just asking an additional question at the point of sale to coming up with a completely new type of insurance service.
Find better ways to market and promote existing products and services. Aggregators are a good example of this – they didn’t set out to change the product, they just found a more effective and less painful way for consumers to obtain quotes from across the market. A ‘Grouponesqe’ insurance example is a company called Brought By Many. They take specific segments of prospects such as diabetics looking for travel cover or Pug owners looking for pet insurance and negotiate discounts as long as a certain number of policies are secured.
Incrementally improve existing products or services – do something cheaper, better, faster. Telematics is a good example of this. We have taken the current motor policy with its ‘fixed’ risk factors and applied a new set of rating factors that helps us measure someone’s driving behaviour. The tipping point for this was the availability of technology at an affordable price. The fact that consumers are walking (and driving) around with suitable technology in their hands creates an opportunity for us to use that channel to create and deliver behavioural-based motor insurance.
Another example comes from It’s Mine Technology that uses tiny rice-size 8mm x 1.4mm chips. They ship them with an applicator that allows them to be fitted into clothing, bags, briefcases, laptops, phones and tablets, just about anything in fact. The chips have a unique ID which customers register on Immobilise.com (the national mobile property register used by the police and various insurance companies) and each chip has a 20-year lifespan. £20m worth of instruments at the Royal College of Music have already been ‘chipped’ and premium discounts secured for chipped items. A deal has even been agreed to pre-chip all Jobeeny designer handbags.
Breakthrough propositions or blue sky ideas
These tend to be things like the iPad, the smartphone, and iTunes – ideas that completely revolutionise ‘traditional thinking’. It’s harder to find examples in this category for the insurance sector. In the future these could be policies that are based on data being collated from wearable technologies such as wristbands. This would mean an insurer has a much more detailed knowledge of my whereabouts, my activities and my physical condition. There could also be policies designed to protect the next generation of risks which could be relating to loss or corruption of my personal data or on-line reputation.
One technique for idea generation is to start with scenarios – put yourself in the shoes of say an international business traveller – what kind of things could go wrong that he may need support for? As our reliance on smartphones increases, where our boarding passes are digitised, all our meetings are recorded in outlook,our hotel confirmations in emails and our contacts details all stored on the phone too. What happens if I lose my smartphone on the way to the airport? Is the typical mobile phone policy that guarantees to replace my phone in 48 hours of any use to me at all? In that scenario what do I need from my insurer and how do I need that service delivered?
Creating new categories
Often changes in societal behaviour or the emergence of new technologies will give rise to the need for different types of insurance products;
If my house gets burgled and they take my games console, my iPad and my laptop, what is going to cause me the most stress? Replacing the physical items or the data on them? If we follow the principle of getting the policy holder back to where he was prior to the incident should the insurer not also take responsibility for restoring the data / content onto the replacement devices? With the amount of data and content that consumers are now storing on their devices the issue is only going to get bigger. What if the burglar takes a couple of my utility bills – would the policy holder even notice? More importantly what further damage can he do with those items once in his possession? What kind of protection can we as an industry provide?
There are other ways to innovate too – take existing products and services and look for new ways to distribute them. An example in developing countries may be to give away free crop insurance with every bag of seeds bought – clearly the more seeds that the farmer buys the bigger the likely crop and the bigger the likely pay out if the crop fails. This type of innovation tends to come more readily when someone new to the company or the product is looking at it with a fresh set of eyes and questioning the ‘norm’. To facilitate that we need to encourage smarter, technically savvy graduates to want to come into our industry.
Other industries have tried to address the issue by funding market wide technology incubators where young start-ups are supported and encouraged to help solve industry issues. Clearly some insurers may feel uncomfortable at sharing solutions with their competitors but the alternative is that these start-ups are funded by external sources and they potentially disrupt the whole market.
The government funded the setup of seven NHS Innovations Hubs between 2002 and 2005. These were designed to provide a number of services to NHS organisations including expert advice, funding and support to NHS innovators to translate their ideas into practice. A recent economic impact study by the York Health Economics Consortium assessed the potential value of the hub innovations to date at a minimum of £150m per annum.
Level39 is one of Europe’s largest start-up accelerator spaces for the finance sector, occupying the entire 39th floor of the iconic One Canada Square building. Level39 was opened in March 2013 and has quickly become an important part of London’s booming Tech City.
At Level39, high potential entrepreneurs are put in the same space as some of the world’s most influential technology buyers and investors, accelerating their traction and access to markets. Level39 also creates and hosts accelerator programmes and has a busy events calendar. The aim of the incubator is to fuse London’s finance and technology sectors, enhancing London’s position as the digital capital of Europe and helping the positive transformation of the finance sector. Maybe the insurance industry needs to look at how it could create a similar model. Encouraging smart tech start-ups to look at how they can help to improve the way that smart technologies and thinking can help solve some of our industry-wide issues such as fraud, retention or value-based pricing.
For start-ups, their biggest barrier is often lack of resource whereas established players generally have plenty.
Insurance companies are unlikely to come up with clever technology to innovate their businesses. They are more likely to find innovative ways to utilise technology. So why not look at pooling some of our resources to fund and encourage external innovation from the people that are most effective at disrupting markets – the start ups. At the same time we could build a real interest for the next generation in our industry.
About the Author
As the leading global supplier of technology systems and software for the insurance industry, our role is to help insurers and brokers operate more efficient businesses. So whether you’re a global insurer or an MGA, a high street broker or a start-up with a smart new idea, we can be trusted to support you on your journey, whatever the destination.Follow on Twitter More content by SSP Limited