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November 12 2014 | Denise Garth

With today’s fast pace of change, innovation is no longer a nice-to-have initiative, but rather a must-have strategic, core mandate that is defining a new era for insurance – and separating future winners and losers. Today, it is not any one thing that is creating change, but it is the convergence of many things that together are creating a seismic shift of massive disruption and transformation.  

Strategy Meets Action (SMA) has actively tracked and promoted innovation in the marketplace for several years, and published its first formal innovation research study in 2012, Innovation in Insurance: Reality or Fiction. It was followed by a 2013 study, Innovation in Insurance: From Strategy to Execution. In these surveys, SMA found that innovation was indeed happening wherever insurers were beginning to establish collaborative environments, starting to nurture a culture of innovation, and beginning to select initiatives, small and large, to begin the innovation journey.  

In the newly published 2014 research report, Innovation in Insurance: Expanding Focus and Growing Momentum, we see continued progress, but with a refocus and expanding momentum. SMA believes this reflects the realization that modernization of core systems is a foundational requirement for innovation and table stakes to raising competitive position and becoming a leader in the industry. As a result, insurers are regrouping and reprioritizing their strategic technology and business initiatives around the modernization of their core systems, a foundational requirement for innovation.  

At the same time, insurers’ innovation approaches and efforts are broadening, by getting outside-in views, engaging in open innovation, and developing an ecosystem of outside resources to fuel the innovation journey. This move reflects a best practice from outside the industry: acknowledging that no business can expect to harness the future and all its conceivable possibilities on its own. Within their ecosystems, insurers are primarily engaging industry relationships with agents, business partners, software partners, customers, other insurers, and a supply chain as catalysts for ideas and innovation. However, more outside-in relationships with high tech, other industries, futurists, venture capital firms, and academia are beginning to take shape as well. The ecosystem is gaining importance and momentum because leading insurers recognize that due to day-to-day operational demands, there is a lack of time, expertise, and resources for tracking, assessing, and putting the implications for insurance into context. Also, the whole network benefits from the generation and integration of new ideas and thinking that stems from the input of the outside organizations, providing the much needed outside-in perspective that helps to break down legacy assumptions.

The expanding focus and growing momentum for innovation is reflected in some key survey results, including:

  • A majority of insurers (65%) have focused on innovation for five years or less, evenly split between 2 years or less (32%) and two to five years (33%). However, nearly a fourth of insurers (26%) have focused on innovation for five years or more. That puts 59% of insurers focused on innovation for the last two years, highlighting the growing momentum.
  • Innovation leadership and organizational approach takes many different forms for insurers. Interestingly, only 7% of insurers have a dedicated innovation area within the company. In contrast, over half of insurers (51%) have no single area of the organization leading innovation. Interestingly, nearly 28% of insurers have their strategy or R&D leadership/areas lead innovation. SMA believes this reflects the resurgence of strategy and R&D to provide an enterprise wide approach for innovation, maximizing the strategic impact and value of innovation initiatives to the organization’s Next-Gen Insurer vision and strategy.  
  • Encouragingly, more insurers believe their investments are positioning them well ahead on the innovation journey as market leaders at 9% and movers at 33% as contrasted with those that are at the early stages of the journey as mainstreamers at 22% and those at the very beginning stages or not focused on innovation as laggards at 9%. SMA believes this reflects the broadening focus of continued implementation of modern core insurance systems and innovation. 
  • The top four industries influencing insurance in the next year include healthcare (46%) with the potential influence of the healthcare insurance exchanges; high tech (45%) with potential of Google, Amazon, and Apple entering or disrupting insurance; telecom (32%) with the race for the customer’s connectivity, data, and services; and government (32%) with some states aggressively piloting new technologies such as driverless vehicles.
  • The focus and business drivers for innovation are changing, reflecting the shifting landscape of influencers, threats, and competitors for insurance. Enabling growth (42%) and profitability (30%) moved into the top spots, up from second and fourth in 2013. But a bigger shift has also emerged, reflecting the demands of the digital revolution and outside industry influencers. In 2013, improving existing products and providing great service were in the top six. In 2014, there is a shift in focus to developing new products and engaging and strengthening customer relationships, which is directly related to meeting the new demands and expectations of customers.  

A new future is rapidly unfolding, and the pressure is on. Innovation can never cease. It must advance with a sense of urgency. Each and every day, insurers must recommit to their innovation journey and the culture they have created for it – and avoid falling into an operational trap.  

And remember what Charles Darwin said: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

Innovation will be a journey of great disruption, great opportunity, and great change. Have you started your innovation journey?

Contact me at dgarth@strategymeetsaction.com if you’d like to learn how SMA can help you on the innovation journey and discover new opportunities for the insurance industry. Click here to learn more about SMA’s research.  

 


For more information, please contact Deb Smallwood at dsmallwood@stratetgymeetsaction.com