The word innovation is everywhere. It is included in vision and strategy statements, plastered all over annual reports and there are now over a dozen UK universities offering innovation-based degrees. Manjit Rana is passionate about innovation in insurance and with 25 years’ experience of proposition development; he shares his insight and research around the changing insurance landscape.
Innovation, although nothing new, is becoming increasingly important to the insurance
industry. New technologies and business models are disrupting traditional industries such as retail, banking, music and transportation. It is inevitable that insurance is going to be impacted and it struggles with innovation and lags considerably behind the banking sector when it comes to technology-based innovation.
Although, it is evident that by watching how the Fintech community and in particular the banking sector collaborate and work closely with tech start-ups, the insurance sector is now beginning to value innovation. It now has the same level of importance within companies as HR, Finance, Claims or Underwriting functions. Several insurers have already appointed
heads of innovation or chief innovation officers in a bid to ensure it gets dedicated focus.
Innovation impacts everything; from business culture through to creation of new products and services. Even relationships with clients are impacted because of the engagement with other industries. Consumers are no longer comparing products and services between different insurance companies but with providers of other unrelated services such as
Amazon, Apple and Uber. In short, creating differentials and ensuring the risk of disruption is minimal is the number one focus area for some insurance businesses.
In order to better understand exactly how innovation is impacting the insurance industry, Ingenin conducted the first of its annual insurance innovation surveys. This article will provide a summary of the results.
The survey showed that more than 30% of insurance companies now claim they have a head of innovation. A similar number stated they have a dedicated innovation facility within
the business, yet only a quarter of insurance companies have a dedicated innovation team. How can a head of innovation do anything to impact a large corporation without a team providing the necessary support?
As expected, only the very largest insurance broker business had someone dedicated to innovation. With intermediaries often being the primary link with the client, innovation needs to be higher on their agenda if they want to create compelling propositions to the market that differentiates them from competitors.
Despite nearly 70% of insurers having a formal process for generating and managing ideas,
very few new products or services are released by insurers themselves – the smart propositions are typically coming from the start-up space. It was interesting to see that there were a number of entries from the same insurers quoting they had innovation leaders, with contradictory responses. They had no knowledge of an innovation leader, suggesting that
insurers need to improve internal communication across their management teams.
What’s driving the innovation agenda for most insurers?
The survey highlighted the importance of making products and services more relevant for clients. It also showed building better relationships with clients as the two biggest driving factors for insurers to innovate. While the broker community saw making products/services more relevant for customers and the need to expand into new markets as the primary
Expanding into new markets and reducing operating costs were only seen by 32% of respondents to be the driving force of an innovation agenda in their business.
Which open innovation activities are used by the insurance industry to promote innovation within their organisations?
As the broker community had negligible innovation related activity, it was difficult to gather any meaningful data but nearly 70% of insurers appear to have some form of internal ideation program. The diagram below shows the different methods used by insurance
companies to promote innovation within the business.
The majority of respondents do not appear to work with tech startups, even though when asked what was most likely to disrupt the industry over the next five years, new technologies and changing consumer behaviour came top of the list.
What is most likely to disrupt the
insurance industry over the next
Other factors likely to disrupt included:
- The availability of new types and large amounts of data
- Regulatory decisions
- Driverless or semi-automated vehicles
- The Internet of Things and the ability of new start-ups to quickly create solutions that could easily disrupt the insurance eco-system
- The sharing economy
It is clear that the insurance industry is ripe for disruption. Factors such as new constantly connected digital consumers, and the changing consumer behaviours as a result, is going to create a vacuum for
more relevant and compelling consumer solutions. These include incorporating connected homes,
connected cars and the sharing economy. Insurers need to look at filling those opportunities before other more innovative companies jump in and fill the vacuum.
What factors are holding the insurance industry back from being more innovative?
Other reasons cited by the industry as holding insurers back from being more innovative include:
- Risk adversity
- Legacy technology platforms/culture
- Old school management
The 10 most innovative industries:
- Retail and Online Shopping
- Mobile Apps
- Pharma / Health
- Social Media
- Advertising & Marketing
There are various new emerging technologies appearing every few months and this combined with changing consumer behaviour is creating a turbulent environment. The insurance industry needs to start taking advantage of these opportunities to create more
relevant and compelling products or services before other non-traditional insurance businesses do.
Top 10 most innovative companies
When it comes to identifying then companies that the industry felt were most innovative, the following were rated in the top 10:
It is clear that 3 of the top 4 companies would have been unheard of 20 years ago; yet today they are household names globally. The highest placed insurer in the list, Admiral group, only appeared at 17th place followed by AXA at 20th place.
Uber, a 6-year-old ‘infant’ business currently disrupting the personal transportation industry, owns none of the taxis in its fleet, employs roughly 2,000 staff, which is considerably smaller than most major insurers, yet is estimated to be worth around $50 billion. Uber is already looking at how it can expand its reach to other locations as well as other industries. Could it get to the point where they are able to provide the right vehicle to meet your needs so you no longer need your own vehicle? That along with the drive from motor manufacturers to create driverless cars should be sounding alarm bells in most insurer strategy departments.
Incidentally, BMW are already able to automatically recommend its drivers to catch a train if the satnav system believes it will be quicker, book the train ticket and transfer it automatically as an eTicket to the cars NFC enabled key. How long before the in-car technology is making decisions on where to place the risk for each journey?
Most innovative insurance companies
Whilst most insurers are still trying to get to grips with what and how to innovate, some of the more forward thinking ones are working hard to promote their vision and desire to be seen as forward-thinking players in the market.
Feedback from the survey ranked the following organisations as the top 10 most innovative insurers in the UK market:
- Direct Line
While the insurance industry may have been slow to accept the need to provide more innovative and relevant products/services for the new digital and constantly connected consumer, the pace is quickening. It will be interesting to observe how the industry continues to evolve over the next 12 months.
This article is an extract from SSP eye issue 6
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