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July 9, 2018

3 Myths That Inhibit Innovation (Part 2)

Summary:

With the right tools and processes, a few individuals working within well-chosen constraints can produce breakthrough innovations.

Photo Courtesy of Pexels

Even though senior leaders in many insurance organizations realize that innovation is an imperative in the current environment, there are many reasons that success is difficult. There are some legitimate roadblocks, but many of the reasons that innovation efforts are either never started or, more troubling, never successfully completed are falsehoods.

In the first installment of this three-part series on Myths of Insurance Innovation, we covered strategic complacency: those myths that are a function of misreading the current environment and lead to a lack of urgency. As we saw in our last post , even though the importance of innovation efforts is high, the urgency is low, and other concerns take precedence.

Financial Myths

Here, we look at a problem closely related to the lack of urgency: the canard surrounding innovation and financial performance. One of the key ways that financial concerns inhibit innovation decisions is through a focus on quarter-to-quarter results. Innovation efforts are often seen as hurting financial performance.

Many insurers have multiple development efforts in flight at any time competing for resources, and the list always grows. There are two ways to add an effort: either put it into the current work queue, adding the attendant costs, or shift resources by slowing or stopping work on an existing project. But adding expense reduces corporate financial performance, and diverting resources from needs such as critical infrastructure can be a poor choice.

Because there is little urgency, the innovation project can be tabled. The rationale is that, once the workload has been reduced and critical infrastructure improvements have been made, then the work on innovation can be started.

See also: Can Insurance Innovate?  

Unfortunately, the day when urgent tasks have been completed and resources have been freed up for innovation often never arrives.

Additionally, as financial performance is pressured by market cycles and underwriting performance, it is easy to postpone innovation to a time when underwriting results are sure to be better. But hard markets are further apart and of shorter duration because new pricing and underwriting tools and processes enable faster course correction.

Concerns about cannibalizing revenue from profitable business units may manifest themselves in two primary ways. First, leaders of the organization may be concerned about the overall impact on corporate performance. Second, business unit managers will fight to protect their resources – they not only need to protect their people and initiatives, but the battle for resources also determines status and potential for career advancement.

In fact, companies often aren’t playing a zero-sum game with resources. In many instances, net new revenue from additional products easily offsets the revenue loss in the existing product line.

An even bigger financial myth is that innovation is only for the largest carriers. The assumption is that successful innovation requires dedicated labs, large staffs and huge budgets. This is understandable, given the nature of how our industry deals with change.

The press is full of stories of how giant insurance brand Y built this amazing offsite lab with 30 full-time staff. The result of this multimillion-dollar investment? An amazing new product or process that is revolutionizing some aspect of the insurance ecosystem.

It is easy to see why this myth has come to be: The successes are often well-funded efforts. But there are as many highly effective improvements being fielded that aren’t heralded.

See also: InsurTech: Golden Opportunity to Innovate  

The truth is that most successful innovation efforts are driven by small teams with limited resources. With the right tools and processes, two to five individuals working within the boundaries of well-chosen constraints are able to quickly formulate, develop and launch innovations that will scale and quickly return multiples of the original budget.

Constraints on financial and time resources are actually very effective in focusing a team’s efforts because the limits encourage timely decisions and trade-offs.

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About the Author

Marty Agather is a proven thought leader and accomplished writer and speaker on insurance innovation. He blogs frequently on insurance topics. In addition, Agather speaks at insurance industry conferences and events on varied topics.

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