Innovation: Why Carriers Shouldn’t Try to Keep Up With the Joneses

Innovation has been generating much attention lately due to the explosive growth of AI, even though the concept of innovation has existed ever since cavemen learned how to rub two sticks together to make fire. There is no shortage of resources out there extolling the benefits of AI, not to mention pressure coming from all sides to get on the train or get left behind.

Executive Summary

Every insurance company is unique in its own right—with its own culture, market, customer demographics and sitting at a different spot in its tech journey. That means the innovative AI tool adopted by another company may not be right for yours, advises Carol Williams, a risk management and strategy consultant for P/C insurers.

Here, she outlines the problems of trying to keep up and advocates a mindset shift that starts with evaluating where your company is today.

As I discussed in a prior article for Carrier Management, there is a fear of missing out (FOMO) that drives people to adopt something reactively without taking time to understand impacts, dependencies and more. (Related article: ERM and Strategic Scenario Analysis: A New Way to Think About Innovation)

Taking this reactive approach can be more dangerous than doing nothing at all.

The previous article linked above outlines tactics you and your team can use to approach innovations like AI responsibly. But today’s article is not so much about tactics, or some kind of process, but something a bit more fundamental: mindset.

When it comes to mindset regarding innovation, the best comparison is how we approach the idea of success. At the end of the day, both innovation and success are very subjective concepts.

We each have our definition of what success looks like, but there is tremendous social pressure to fit in a certain mold. Whether from movies, TV shows, or even friends and family, we are all groomed from an early age to view success as achieving a certain level of material abundance.

However, following this logic comes at a cost, or as author and mindset coach Pamela Christian explains: “Trying to achieve society’s expectations about success makes people miserable, depressed and unhealthy. We are all unique souls, and we need to have our own blueprint and path.” (Source: Rejecting Society’s Definition Of Success Is The First Step To Finding A Meaningful And Fulfilling Life by Bonnie Marcus, Forbes, June 10, 2024)

Think about it: Is someone who is always trying to “keep up with the Joneses” going to be content with where they are in life?

The parallel is striking. We could easily substitute “innovation” for “success” in Christian’s statement, and it would still be true.

Just as much as society’s definition of success, innovation alone does not lead to positive or prosperous outcomes.

If an innovation like a specific AI tool is hastily adopted without proper research and vetting, the consequences can be very damaging and lasting. Upset policyholders and agents could cause your company’s reputation to suffer. And if complaints are being filed with regulators and market conduct issues start to crop up (or worse, lawsuits), your company could be in real danger.

This situation can be more dangerous than doing nothing at all regarding innovation.

Innovation is problematic. Why? It goes back to Christian’s statement. Similar to how individuals are all “unique souls,” every company is unique in its own right. Your company has its own culture, its own market or customer demographics, your employees are different than others, you name it.

Every carrier is also in a different spot in their tech journey.

One carrier may be ready to go all in on AI for underwriting, while another doesn’t have employees with fundamental technology skills to implement and use it successfully. This is why benchmarking is such a terrible practice, in my opinion. There is simply no way a company writing $50 million (or even $500 million!) in premium is going to be able to keep up with what $10+ billion carriers are doing.

I say all this to drive home this point: Don’t let the currents of opinion, culture or society define what innovation looks like for your company.

To be absolutely clear, this is NOT to say your company should forego innovation.

As I discussed in last year’s article on harnessing ERM tools for innovation, all iconic brands were innovative for their time. Innovation is also a necessity to ensure your company’s survival and prosperity in the years ahead—but it must be done with the right mindset.

More specifically, innovation needs to meet you where you are at today.

“There is simply no way a company writing $50 million (or even $500 million!) in premium is going to be able to keep up with what $10+ billion carriers are doing.”

Good, bad or indifferent, you have to take a step back and evaluate where your company currently is. Recognize that innovation represents a desired future state.

The gap between this desired future state and your current state is where your risks lie, with risk being defined as the effect of uncertainty on the achievement of a specific objective. The bigger the gap, the greater the risk—or the greater number of things you must address to cover the gap (e.g., change management for those impacted, upstream dependencies, downstream consequences).

It is not just a matter of whether a specific innovative idea is a good fit. You should also figure out what’s needed to enable and empower your people to successfully adopt the technology.

In addition, if you haven’t updated your products in five years or more, a gap related to products or rating may be as wide as the Grand Canyon if you want to pursue innovations that put you ahead of the market.

This is why incremental steps are so important.

We all have this tendency to want to close a monumental gap because we see the fantastic outcome at the end. However, if you succeed in closing that huge gap without experiencing the consequences mentioned earlier, the chances are that the particular innovation you had in mind will be out of date.

Think about the Florida Keys. There isn’t one long bridge connecting the mainland to Key West but instead dozens of smaller bridges. Applying this concept to innovation, you don’t travel one long bridge that will result in you still being behind the curve, even if you reach the end of it.

Instead, smaller “bridges” with checkpoints along the way mean you will be able to stop, evaluate where you are and where you are going, and determine the most appropriate next steps. This is a much more preferable option than doing nothing, which is the other extreme course many carriers choose to take.

In the Harvard Business Review article, “Why Success Doesn’t Lead to Satisfaction” (subscription required) co-founder and managing partner of Navalent Ron Carucci states: “Our fixation on someone else’s last step prevents us taking our own next step.”

It can be intimidating to see a large carrier taking sweeping actions. While this same type of move may be impractical for your company, try to think about it in increments instead of just closing the door on the opportunity altogether.

Remember, too, that innovation doesn’t always mean “technology,” which can be tough to keep in mind when it seems all of the chatter about innovation focuses on AI. Depending on your market or agent demographic, for example, more personalized communication in the form of handwritten notes can be considered innovative, even though it is classic old school. It is possible to adopt tech tools (or a third-party vendor) to help you manage this behind the scenes, but the policyholder or agent will really appreciate the personal touch and remain loyal.

Prior “non-tech” innovations that property carriers have implemented include depreciation schedules for roof coverage instead of replacement cost value, putting sublimits on specific policy coverages, or managed repair programs, just to name a few.

One addition word of advice—saving money or gaining operational efficiencies should not always be the reason for pursuing a certain innovation.

“‘Non-tech’ innovations that property carriers have implemented include depreciation schedules for roof coverage instead of replacement cost value, putting sublimits on specific policy coverages, and managed repair programs.”

While those are laudable goals, and often serve as good motivators, innovation should really rest on how the company can be better. Even if it’s not the most efficient thing for the company, will it create a better outcome or experience for policyholders?

In the end, policyholders, along with agents, are who really matter.

If pursuing an innovation solely for the sake of efficiency ends up creating friction for either one of these groups (or your employees, vendors, etc.), your company could suffer tremendous consequences.

(Editor’s Note: Carucci referenced Psychology Today’s discussion of hedonic treadmill)

Instead of running the endless hamster wheel or “hedonic treadmill,” it’s almost as if you as a leader have to move forward without caring about what others have been doing. That’s a luxury most leaders don’t get to enjoy and, to be honest, rarely get to actually do.

But what you can do is manage the expectations of your board, investors, employees and others to ensure your company is pursuing innovations that will truly be fruitful in the long run.

Are you ready to shift your mindset and begin pursuing innovations with confidence instead of just ‘keeping up with the Joneses’?