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“Innovative” is not the word I’d use to describe the personal lines insurance space. Industry veterans even affectionately refer to insurance carriers as “slow first movers and fast followers.”

Think back to a time when our industry experienced a monumental change; one such time was the introduction of credit back in the 90s. Credit made significant improvements in predicting risk and to this day is considered by many carriers to be the single rating factor that is most predictive of both loss frequency and loss severity. Many consumers actually saw a reduction on the price of their premiums from credit-based insurance scores, and since then, it has been a valuable tool to price insurance risk. (Source: Triple I Handbook Chapter on Insurance Scores, citing a 2017 report from the Arkansas insurance department showing that for 54.5 percent of 3.4 million 2016 personal lines policies, the use of credit scores resulted in reduced premiums, while premiums increased for 19.8 percent)

Unfortunately, the current market landscape is necessitating a change.

Our industry was invigorated when credit was introduced. In fact, the NAIC (referencing FICO data) reported in 2019 that 95 percent of auto insurers and 85 percent of home insurers were using credit to determine rates. Yet, even back then, there were holdouts who just weren’t sure about using credit. Those who used it first saw great financial results, while those who continued holding out experienced worsening problems with risks that were not accurately priced. Those with poor credit-based insurance scores saw their rates going up and left to get a policy with an insurance company that did not use credit. Unfortunately for those credit-use holdouts, their decision to not innovate led these carriers to experience adverse selection.

The lesson today then is that you cannot be the last one to hop on board the innovation train when everyone else is moving toward it. History is going to repeat for the insurers who hold out on making the necessary shift toward innovation.

Break the Proof-of-Concept Cycle

The problem for our industry is carriers too often get caught in the proof-of-concept trap. They introduce innovation teams to vet innovative concepts and vendors but take the learnings and simply shelf them. They may introduce innovative solutions but fall prey to getting caught up in an eternal loop of proof-of-concept testing, never truly executing because it is easier to say “no” to putting another initiative on an IT priority list already full of rate changes and policy admin maintenance.

If your IT priority list is full of tasks to keep the lights on, this is a warning sign that you are missing opportunities for innovation.

Worse still is a company culture that fears failure, which is a problem that plagues companies in every industry. When people are penalized for failure, they are too afraid to test new concepts, and the most impactful innovation solutions sit untouched on a shelf.

Allow Fail-Fast

Regulation weighs on every insurance professional. No one wants to sacrifice their career over a failed project, but in this challenging market the insurance industry cannot afford to not innovate.

The questions for insurers are: Do you welcome innovation? Do you have a company culture that allows people to try new things? Or are they fearful of failing, getting marginalized, punished or even losing their jobs because they tried to innovate and it wasn’t successful?

Not trying to innovate carries worse implications than trying and failing. The most successful companies are those adopting a fail-fast mentality, where people are encouraged to try ideas with compelling business results. In this company culture people are not afraid to test and learn. And if it is not working, shut it down quickly.

In order for the next great solution to resolve the problems facing the insurance industry, carriers must welcome a shift in mentality toward allowing failures to happen. As an inventor, Edison had 1,000 unsuccessful attempts at inventing the light bulb. When a reporter asked, “How did it feel to fail 1,000 times?” Edison replied, “I didn’t fail 1,000 times. The light bulb was an invention with 1,000 steps.” (Editor’s Note: Sources differ on whether this was 1,000 or 10,000 failures and on whether Edison was referring to the light bulb, but many do conclude that he pointed to value of failures in finding out what will not work.)

It’s the law of large numbers. There is going to be a certain amount of failures and successes, but you’re never going to find success unless you incentivize people to try new things and fail fast. If a proof of concept demonstrates impact, absolutely encourage teams to try it, and promote a culture where innovation is welcomed within the organization. And if it’s not working, don’t punish people for trying.

Get Comfortable With Innovation

Data insights are more plentiful than ever before in the insurance industry. Even with credit or other methods used for assessing risk, the variables have been a short list of factors based on the way we’ve always done it. Yet, the old ways have been limited in painting a complete picture on the individual insured. With data innovation available to our industry now, our ability to get a more accurate picture of risk is within reach.

Forward-Thinking as the New Norm

The advice here is to be the insurance carrier who leverages the best data insights available. Leverage the technology of reputable and responsible vendors who are innovation-driven, who adhere to the highest ethical standards for the greater good of the industry. Leverage the improvements that are finally available to the insurance industry thanks to the innovations developed by InsurTechs. Get out of the proof-of-concept trap and allow your people to try even if it means the project may fail. It’s time to move beyond the status quo so you can better serve and protect the dreams of your customers.

Use data innovation to take the guesswork out of the many things humans are trying to make decisions on and take projects out of the proof-of-concept cycle and implement when results are clearly showing it can have significant impact. When you have clarity across the many variables impacting our industry, you are able to have intelligence that has far-reaching implications to help insurers become profitable and maintain it.

We work in one of the most regulated industries, but that should not deter our obligation to innovate. Both regulatory guidelines and innovation share a common goal: to benefit customers. If we use innovation to get laser-precise in our ability to assess and manage risk, we will be better prepared to pass along better rates to move into a more profitable and equitable future.