The insurance industry is notoriously behind the curve when it comes to innovation. But what explains the gap between insurance and other industries?

In my experience, innovation in insurance isn’t hard because teams can’t build, the opportunities aren’t clear or customers won’t accept those innovations. It is hard because organizations won’t change or are inflexible to new ideas, processes and methodologies.

The most stubborn obstacles are cultural norms—habits, incentives, risk aversion and unwritten rules—that were optimized for risk transfer and balance-sheet stewardship, not for rapid learning and product creation. In a sector where “first, do no harm” is the guiding principle (and a healthy one), experimentation and innovation often look like threat vectors rather than growth drivers.

This cultural drag, when combined with the homogenous and somewhat incestuous nature of the insurance industry, can and often does halt innovation in its tracks.

This article unpacks the cultural barriers that consistently block innovation in insurance from carriers to brokers and MGAs, while presenting strategies and tactics that have been proven to actually move the business forward and deliver results in other categories and fast-moving InsurTechs. If you’re a leader trying to tilt a centuries-old industry toward a more adaptive future, the first, most important step is moving the culture forward. Consider this article an anthropological study on the cultural limits holding back innovation in insurance and as a field guide on how to get started.

Why Culture Beats Strategy (and Tech) in Insurance

Insurance is a trust business. Capital providers, regulators, distribution partners and especially policyholders must believe you will be there when it matters. That creates two powerful cultural forces that can often be contrary to building a culture of innovation:

• “Zero-Defect” Tolerance. Catastrophe risk, tail exposure and solvency constraints reward caution and risk aversion—and with good reason. In the core business of insurance, “getting it right” the first time is critical, especially as it pertains to actuarial and underwriting sciences. Insurance organizations tend to train themselves to avoid mistakes, which is exactly the opposite attitude one needs to effectively innovate.

• The “Success Persistence” Fallacy. Legacy carriers using legacy processes still throw off tons of cash. Yesterday’s winners—pricing engines, distribution agreements and underwriting playbooks—quickly become today’s dogma and get stuck in the mud. This is the classic paradigm of “if it ain’t broke, don’t fix it.” However, successful businesses in the modern world are required to constantly challenge convention and push their business models forward. This is the corporate context for “if you always do what you’ve done, you’ll only ever get what you’ve got.” As the competitive frame rapidly evolves and consumers demand more from insurers, standing on your laurels is no longer acceptable.

Innovation introduces ambiguity—new risks, new processes, new partners—into a system evolved to minimize it. Unless you rewrite the cultural norms, the organizational “antibodies” will quickly kill anything new before it threatens the old.

The Cultural Anti-Patterns That Sink Good Ideas

Below are the patterns I see most often across carriers, syndicates, brokers or MGAs. If three or more of these feel familiar, you’ve got a cultural problem…and it is likely holding your business back in ways you might not even realize.

1 – “Prove it works, then we’ll try it.” The demand for business-case certainty before exploration produces spreadsheets full of heroic assumptions and zero actual learning. In high-uncertainty domains such as innovation and new product development, confidence should lag evidence, not precede it.

2 – Pilot purgatory. Endless proofs-of-concept get created and iterated, never graduating to scaled adoption. Why? In my experience, “what gets measured gets managed.” With no pre-defined success criteria, no change management plan, and no committed business owner with an accountable measurement plan or P&L reason to care, it is no wonder these programs never get out of pilot and into production. There is little to no motivation to do so.

Side Note: Points 1 and 2 are linked to what I like to call the “We don’t believe it” fallacy. This is when a pilot has promise on paper, succeeds in pilot, but the “business” (whoever that may be) doesn’t believe the results or that the results will scale.

3 – Project thinking beats product thinking. Funding and governance are geared to finite projects with start/stop dates, not to living products with owners, road maps and run-time accountability. Sometimes, the static nature of these models results in the fuse running out before the innovation can be proven or optimized.

4 – Silo supremacy. Underwriting, claims, actuarial, distribution, IT, risk and compliance each optimize for their local turf. Handoffs multiply; ownership dilutes; commitment wanes; and Innovation starves in the gaps. Added to this dynamic is the ego of some of these functions, which further limits ideation.

Innovators, by culture and experience, walk into problems with a humble understanding of what they don’t know. Innovators work a process of experimentation and discovery; they do not seek to validate a series of previously held assumptions.

Other functions tend toward a form of arrogance bordering on hubris. They’ve “done this for 30 years and have always done it this way, and it has worked so far.”

That is a fundamental misalignment of incentives that can limit success in driving innovation throughout the business.

5 – Veto power-related obligations. Risk, compliance, legal and numerous other teams are set up as “gates,” not as co-design partners with response SLAs (service level agreements). It’s safer to say “No” than to do the work necessary to make a guarded “Yes” possible.

6 – Legacy metrics drive today’s behavior. Teams are measured on combined ratio, expense ratio, policy count or near-term brokerage commission—none of which reward learning velocity, option value or customer satisfaction for new propositions. Furthermore, there is a noticeable gap in the industry in “portfolio thinking,” which I’ll define here as the concept that business metrics, in the aggregate, go beyond classical insurance measures. CLV (customer lifetime value), retention, NPS and numerous other measures don’t directly implicate the insurance waterfall, but they drive overall value at a rate disproportionate to merely “matching price to risk.”

Product thinking and innovation efforts consider the whole scorecard, whereas legacy thinking focuses on only one component of the business: the insurance component.

7 – “Not-invented-here” fetishism. Teams resist external solutions. They forego quick learning with a third-party provider in lieu of trying to build a solution in which the legacy team likely has little experience, especially compared to a specialist, outside provider with a proven product.

“Owning” the solution is a valuable goal…once you know whether the solution works. But starting from a position of ownership or “rebuilding the wheel” slows the ability to identify success, which stifles velocity.

8 – Annual budgeting as a weapon. Once a year, all bets are made. If your proof point arrives a month late, you wait 11 more months, and the momentum is gone. Similarly, as an expense-focused business, when budget constraints hit, innovation teams get their budgets trimmed just like other departments, even though the innovation budget is usually a small fraction of the whole and is specifically designed to advance longer-term, more aggressive cost-saving or growth-driving initiatives.

Cutting innovation budgets in a tough cycle is the practical equivalent of mortgaging your future to pay for your present. I understand the impulse. If you are lacking the right kind of P&L or KPI connection, it can be difficult to justify one team being preserved from budget cutting, especially during a hardening underwriting cycle. Savvy innovators make sure they have the right reporting and analytics methodologies in place first, then defend their budgets as profit drivers, not cost centers.

Department-by-Department Challenges (and Remedies)

Not all these cultural challenges are universally true. Each department at an insurer has its own mini-culture, which can either accelerate or decelerate innovation efforts. However, with insurance firms, especially, there are far more limiting roles than accelerating roles. At a recent trade show, I heard an industry colleague of mine articulate this dynamic in a very simple way: “There are just too many departments at legacy players whose entire role is to say ‘No.'”

Several of those departments operate in a completely different manner than their peers I’ve seen in other industries. Here are some examples of relevant teams, with remedies for the kinds of behavioral and cultural shifts needed to improve innovation performance.

Legal Teams. I remember the first time I had to work with “legal” within the corporate setting. The leadership at one of my former employers was very clear on the role of legal: “Legal is there to help you figure out HOW you can achieve your business objectives, not to tell you what you can’t do.”

The culture I’ve observed in the insurance industry is precisely the opposite, with legal teams more likely to tell you what you can’t do than help enable your success. Sometimes this “guidance” veers very far outside of legal guidance and into business guidance, which is not their role. I’ve even presented certain legal teams with innovations that other insurance carriers have executed in the same highly regulated markets in which we’ve operated, only to receive the usual resistance and the typical knee-jerk “no.” This is often done without ever engaging in the core question of how a competitor, in the same market, can execute an innovation that legal finds dubious (from a regulatory or compliance perspective) and my company could not.

To be clear, legal teams’ work as it pertains to insurance product development is crucial. We are in a highly regulated market, after all, and knowing the laws is critical. But innovation, by definition, requires doing new and different things in new and different ways, especially as it pertains to product development.

Legal teams need to learn how to adapt their guidance based on the actual product and project in question, and cease using their position to slow or stifle innovation efforts.

The best legal teams I’ve seen in insurance dedicate lawyers to innovation teams’ efforts, ensuring deeper understanding, faster response times, higher service levels and a better work product. Done correctly, legal can be a force multiplier for innovation efforts, turning innovations into high-value IP, which can act as swords and shields in a highly competitive marketplace.

Procurement Teams. Given the heavily regulated nature of the industry, it is easy to see why procurement teams at insurers are under pressure–one mistake can be existential to the business. However, innovation efforts are likely less regulated, and there is a very real difference between building something in an innovation sandbox and pushing that innovation into the production-level, scaled business.

Having a stage-relevant procurement model is critical to innovation, lest innovation efforts take 12-18 months to even get started.

The most successful procurement models I’ve observed have special dispensations for innovation efforts (in sandbox environments or for innovation subsidiaries) that allow them to move quickly and onboard external vendors with speed and agility, isolated or “quarantined” from the core business. As results start to show promise, enterprise procurement efforts can run parallel to advanced testing and validation efforts to ensure that, when the time comes to take the partner to production, the hand off is seamless. This makes procurement as strategic partner, not an operational barrier.

Actuarial and Underwriting Teams. Beyond the culture of risk aversion, actuarial and underwriting teams are, rightfully, geared toward minimizing risk. At the extreme, however, this can grind innovation efforts to a halt. For example, actuarial innovation might require new datasets that are non-traditional in order to find better, more nuanced ways to price risk. That said, every actuarial team I’ve ever met has been unwilling to explore new datasets that they weren’t able to use to price risk right now.

This is fundamentally different than how a classical tech company views things. They get all the data they can acquire first, then they figure out what to do with it later, as the data informs their actions and decisions.

This kind of risk aversion, in short, can limit your view of what is possible and will therefore dramatically narrow the universe of innovation opportunities in actuarial and underwriting sciences.

Product Teams. Product teams in insurance often pertain to actuarial, risk-bearing products…the financial instrument itself. These teams are usually assembled in large-scale committees with dozens of different constituents all focused on matching price to risk.

For the financial product, this makes sense—getting something wrong in the rating and underwriting model can tank the business. And with a burdensome regulatory regime, the ability to implement changes (whether making positive changes or fixing mistakes) can take a long time.

But innovation teams or digital product teams do not operate that way. A proper product structure—one focused on topline KPI management, decentralized empowerment and agile processes—is more appropriate for innovation efforts.

Insurers need a “dual path” model—a fast-twitch model associated with innovation efforts and a “slow-twitch” model focused on the core, actuarial business. This allows the innovation teams to test, explore and fail at pace, while not being slowed by governance modes associated with highly regulated product offerings.

Executive Leadership. Insurance leadership suffers from two critical innovation failures: narrative scarcity and change theater.

With “narrative scarcity,” executive leaders don’t effectively articulate why the company must change and why that change must come NOW. In this vacuum, middle management professionals wait it out…banking on the idea that inertia will protect them from having to adapt. Stagnation ensues.

With “change theater,” leaders focus on activities (labs, hoodies, hackathons, prototypes, etc.) without focusing on outcomes like pipeline governance, adoption targets or kill rates. The aesthetic of innovation replaces the economics, and the results never materialize.

Furthering this dynamic, leadership in innovation requires, ahem…leadership.

Eventually, a legacy team (especially those listed above) will resist and try to kill efforts they don’t understand or with which they do not agree. The innovation team can only go so far on its own. Eventually, the top of the house must “call the ball” and make other teams push forward with innovations.

All too often, the C-Suite just shrugs and defers to the legacy “veto departments,” which not only kills innovation culture but wastes the innovation efforts that have already proven successful. There is literally nothing an innovation team can do if the C-Suite isn’t on board and willing to enforce innovation culture in their own departments. One department does not make a culture of innovation.

What “Good” Looks Like: Cultural Countermoves

Now that we’ve diagnosed the problem, let’s turn our attention to the remedies.

Leaders don’t fix cultural issues by hanging posters, printing hoodies, drafting PowerPoints or distributing talking points. Leaders change the culture by changing incentives, governance and rituals so that different behaviors are rational.

Here are some fundamental, structural changes firms can adopt to better align innovation incentives to create a culture of innovation.

1) Rewire Funding and Ownership

• Move from projects to products. Assign a directly responsible individual (DRI) for each proposition with a multi-year charter and a ring-fenced budget.
• Monitor stage-gates with scaling lanes. Define three risk tiers (explore → build → scale) with explicit criteria and KPIs to graduate or kill. Each tier has different governance, controls and spending thresholds.
• Set clear KPIs, then empower the teams to achieve them. When they do, take the product to scale and remove blockers that obstruct.

2) Put Risk and Compliance in the Design Room

• Co-author guardrails. For each tier, agree “safe-to-try” boundaries—data, marketing claims, underwriting rules, model risk appetite—so teams know how to experiment without fear and, importantly, where they can push and get aggressive without worrying about the hammer coming down.
• Demand service-level expectations. Risk/compliance commit to response times (e.g., five business days) and provide templated controls for repeatable patterns (e.g., new distribution partnerships, gen-AI use in underwriting notes).
• Enforce lane accountability. So long as teams stay in their boundaries, Risk and Compliance are there to inform; they are not constituents with product-level veto power. Everyone has their part to play, and each team needs to “stay in their own lane.”

3) Change What Gets Measured (and Paid)

• Track leading indicators. Learning velocity (hypotheses tested per month), customer signals (NPS, activation) and option value (the expected value of what you’ve de-risked) are the metrics of innovation that make a difference. (See related textbox, “What Is Option Value?”)
• Align compensation accordingly. Make a portion of leadership and product incentives contingent on portfolio health (graduation rate, timely kills, scaled adoptions, value delivered), not just this year’s combined ratio or policy growth.
• Support “portfolio-level” management. Most importantly, ensure that executives manage at the portfolio level, not the product or project level. Product teams are responsible for explaining missed KPIs; executive teams are not responsible for digging into each test to engage tactically.

4) Professionalize Adoption, Not Just Prototyping

• Develop adoption plans at day zero. No build without a named distribution path, enablement plan and operational playbook…ones that are right for the product, not the political constituents.
• Build dedicated “Scale Squads.” Develop a standing team (ops, change, training, analytics) focused solely on taking validated pilots to broad adoption and enterprise scale.

5) Build an Ambidextrous Talent System

• Create dual hiring tracks. Allow leaders to rotate between core and new ventures without career penalty. Reward those who retire initiatives with clear learning as much as those who scale.
• Hire translators. You need people fluent in underwriting, actuarial, data, AND product and technology. They are unicorns. Invest to grow them.

7) Make the Narrative Unmissable

• Make the “why now” question Connect business innovation to solvency and relevance: climate volatility, digital distribution, embedded finance and AI-driven operations cannot be “nice to have” features. They are mission-critical parts of the businesses of the future.
• Ritualize storytelling. Incept monthly “decision reviews” where teams share hypotheses, evidence, kills and next bets. Celebrate initiatives that deliver tangible results as well as “kills” that saved money.

Closing Thoughts: Make It Rational (and Realistic) to Innovate

In the modern business world, if you aren’t disrupting, you are dying. You are either attacking or you are defending…and if you are on the defensive, you are dead already…you just don’t know it yet.

Worst of all, if you have people who prefer complacency over victory, you have no chance of turning this around.

Great companies transform themselves constantly. They examine every aspect of their businesses for ways they can do things better, faster, cheaper. If you aren’t doing the same, you are at a strategic and tactical disadvantage—one that will increase exponentially over time. The modern business environment is tantamount to waging war. But here’s the deep, dark secret of innovation: Your teams want to WIN!

Innovation methods and processes give a company the tools and tactics necessary to win. But as we’ve discussed, if you don’t have the right cultural disposition, all the tools and tactics won’t help you. This is hard work. Because culture is so powerful, it can be extremely difficult to turn around. Cultures don’t change because you ask nicely. They change when the rational choice inside the system is to seek truth, shape learning and scale what works. In insurance, that means rewriting the operating model so prudent risk management and rapid experimentation are not enemies but partners.

If you fix the incentives, governance and rituals, innovation ceases to be a heroic exception and becomes the normal way work gets done. That’s the cultural shift that endures—and the one your shareholders, customers and people deserve.

Need a detailed playbook to implement these fixes? In a bonus article, the author offers: A Practical Blueprint: The Five Plays to Shape an Innovation Culture and a 90-Day start guide.

This article is the second part of a series of articles by Haden Kirkpatrick.

Read Part 1, “On Innovation in Insurance.”