A.M. Best plans to start assessing innovation as part of the credit rating methodology it uses to evaluate carriers in the first half of 2020, Chief Rating Officer Stefan Holzberger said.
The initiative, disclosed earlier this year, won’t affect a company’s rating for the time being. Rather, it is meant to encourage a carrier to be mindful of technology changes and keep pace, Holzberger explained during a Carrier Management interview at the APCIA Annual Meeting on Oct. 21 in Boston.
“We’re not going to publish the innovation scores initially,” Holzberger said. “Because of where the industry is today, we do not expect to see any ratings changing at the time we go live with a methodology. That could change over time, but I think not publishing the scores and our feeling that the ratings don’t need to change currently, that has alleviated some concern in the market.”
By concern, Holzberger is referring to initial industry reaction that A.M. Best would be developing innovation criteria as part of its evaluation process. There were some worries.
“When we said there was going to be [a] scoring of companies [on] their innovation, there was a little bit of concern, right? Nobody wants to get a bad score,” Holzberger said. “As part of the public feedback that we received, there was this concern over [the fact that] this is a new initiative for A.M. Best, and there is some subjectivity around levels of innovation. So, we’ve actually taken feedback on board.” (Related article: “Putting Insurer Innovation Under the Rating Agency Microscope“)
Right now, Holzberger said the ratings agency is in the process of soliciting feedback from the market.
“We’ve had two public commentary periods this year for giving an opportunity to the insurance companies, the broker community, regulators and government agencies” to comment, Holzberger explained ,
Holzberger said that companies it evaluates have been informed that once the process goes live there will be some time spent calibrating scores “across the rated universe.”
A.M. Best’s process in developing this innovation criteria began with a survey last year of more than 450 insurance groups in 48 countries, and most said that innovation was crucial to their success. Holzberger said the addition of this criteria is important because carriers need to keep up with the pace of change in society.
“It is more and more going to be a competitive advantage for insurance companies to be innovative, to change with the times, to use data and technology,” he said. “It’s going to be crucial for them to remain relevant in the market, harnessing those changes through an innovative culture.”
Assessments will look at a number of innovations, Holzberger said, including the use of data analytics to improve product design, and boosting the customer experience through innovations such as online technology or artificial intelligence.
“We feel that there are all kinds of applications for the insurance sector and for a company to be innovative,” he said. “It’s not just about finding one piece of technology. It’s much broader than that, because…there are many, many ways that insurance companies can be innovative and improve their business.”