The insurance industry is facing a sustained period of transformative disruption that’s largely based on new competitors and technological advancement. Consider that 86 percent of insurance CEOs believe technology will completely reshape competition in the industry or have a significant impact over the next five years, according to a PwC survey. Change this rapid will leave casualties, but insurers that innovate and embrace the new have a real opportunity to shine.
Insurance may have a reputation for conservatism, but it actually has a proud tradition of innovation. The insurance industry has driven important developments in health care, crime prevention, firefighting, road safety and many other areas over the years. Now, it stands poised to deliver fresh innovations that will improve safety for all through new technologies like the Internet of Things, big data and artificial intelligence. But realizing this potential requires an innovative culture, and carriers need to be proactive in order to create one.
Failure to Innovate
Digital transformation has lowered the barriers to entry, and customer expectations are shifting. If insurers don’t innovate, there’s a very real risk they’ll be left behind, but progress is slow. Only 23 percent of insurance leaders provide a clear impetus for innovation, just 19 percent have a specialized innovation department, and only 18 percent measure innovation outcomes, according to IBM research.
What’s holding them back? The top barriers cited include insufficient skilled resources (44 percent), inadequate funding (39 percent) and fear of failure (28 percent). Building an innovative culture clearly requires some fresh thinking, and there are lessons to be learned from some of the most innovative companies out there.
Google, Microsoft and Apple all adopted policies or programs that allowed their workers to focus on their own projects at least some of the time, affording them the freedom to experiment and get creative. At Google, this reportedly led to the development of Gmail and AdSense. Back in 1974, the 3M scientist who invented the Post-It Note did it as part of the 15 percent program, which allows 3M employees to use 15 percent of their paid time to develop and realize new ideas.
It’s easy for innovation to take a back seat in the face of quotas and other short-term goals, so setting aside some formal room for the creativity and experimentation required to innovate can be a good idea. Inviting and listening to suggestions is an important first step here. Employees must be encouraged and rewarded for forward-thinking ideas.
Establishing a dedicated innovation department, free of baggage and restrictions, can be an effective way to leverage innovative talent. They can serve as the vanguard to identify new trends, find potential partners, develop new services and exploit areas of the business that can support new directions. But they shouldn’t operate in isolation. They should communicate with and educate the rest of your employees.
Innovation must not be rudderless. You need to set expectations and metrics. There are two elements to this:
- Set aims for your innovation program and measure how effective your initiatives are in fostering new ideas.
- Pilot and trial innovative ideas and find out if they strike a chord with your customers.
To maintain an innovative culture, your policy should evolve. Look for processes, programs and partners that generate a good volume of useful ideas. Embrace smart suggestions about how to improve operationally wherever they come from, and make sure to continually hone your innovation policies.
When assessing innovative ideas, don’t just focus on the short-term financial bottom line but also factor in customer satisfaction and loyalty in the longer term. True vision goes beyond reactive changes to meet shifting expectations. To get out ahead and create trends instead of just following them, you must also accept a certain level of failure. Not every idea will be worth pursuing, and the quicker you can identify that, the better.
New technologies can open new lines of business and present fresh evolutionary paths for existing lines. The global IoT insurance market, for example, will be worth more than $42 billion by 2022, according to MarketsandMarkets. But advancements will also enable us to extract more value from existing stores of big data. Consider that 79 percent of insurance executives agree AI will revolutionize the way they gain information from and interact with customers, according to Accenture.
Carriers should find inspiration wherever they can and take steps to build a creative engine for innovation to realize a competitive advantage.