Insurers may face “death by a thousand cuts”--not unlike what banking faced as fintech disrupted all parts of the value chain at once.
Silicon Valley has been a worldwide hub for innovation for so long that its name is practically a synonym for “innovation.” A recent Brookings Institution study found that the GDP of the Silicon Valley region alone would rank 12th in the world, and its per-capita GDP would rank third—trailing only the Swiss financial hub in Zurich, and the Norwegian capital, Oslo.
Recently, we at Novarica had the opportunity to lead a tour through some of the Valley’s most innovative companies to gain insight and learn best practices in operationalizing enterprise-wide innovation. As insurers look to the future and begin to integrate innovative practices, the network of companies in Silicon Valley provides a fascinating prototype for success.
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One corporate board member we spoke to described the diversity and density of the network in the Valley as a key enabler of innovation. The combination of people, funding, technology, education and opportunity creates a virtuous cycle that is neither accidental nor easily replicated. The most successful forces of disruption in this space tend to be headed by experienced founders who possess the requisite mix of industry knowledge and entrepreneurial savvy.
Whereas past industry changes were motivated by competition from incumbents, the source of today’s threat comes from new entrants who are using their industry knowledge to solve targeted issues around customer experience and operational efficiency. These new entrants will not signal the immediate demise of traditional insurers. However, as one executive from the Plug and Play Accelerator shared, insurers may face “death by a thousand cuts”--not unlike what the banking industry faced as many new fintech startups disrupted different parts of the value chain simultaneously.
Insurers can stay ahead of the curve by collaborating with insurtech startups and keeping a finger on the pulse of this community. Startups can offer access to talent and ideas, unencumbered by internal cultural barriers, that insurers otherwise would not be able to access; likewise, insurers can offer startups insight and capital. As technological shifts continue to push the industry forward and disrupt the value chain, the most successful insurers of the future will be those that can recognize the upside potential in investing and partnering with up-and-coming insurtech startups.
A key learning from the time in Silicon Valley is that innovation should not be an isolated experiment that only takes place in a lab setting; rather, it should begin at the top of an organization and permeate throughout. It is a continuing investment that focuses on empowering an entire organization and consistently absorbing new people and the ideas they bring. As another executive at Plug and Play noted, it’s not enough to “throw money” at startups and innovation: Insurers must be active participants in creating a culture of innovation, and in operationalizing best practices within their organizations.
This includes managing talent properly. For a rising generation of engaged employees, work is much more than just a place to "punch a time clock." It is a place of learning, collaboration, ideation, fun and social interaction. Organizational investment in employees pays dividends by giving a sense of ownership, and consequently a vested interested in the stake of a company and its success.
Carriers will need to step well outside of their comfort zones to be able to support having a “seat at the table” as the technology-driven economy goes through significant changes in both demographics and technology acceptance. Products will need to evolve as customers become ever more comfortable with technologies that change how we perform basic functions (e.g., keeping a home safe, using a motor vehicle for transportation, getting advice on lifestyle issues). In addition, carriers will face challenges related to talent management because legacy internal business processes may not be consistent with changes in expectations for employees who have come of age in the 21st century. Carriers may also face the uncomfortable truth that the geography associated with traditional home office environments may not be consistent with attracting the caliber of talent required to effectively compete in a faster-paced and more transparent world.
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While a variety of actions should be considered by carriers, a key next step should include gaining a better understanding of their own operations from an external (rather than an internally focused) perspective. It is also imperative that insurers find ways to more effectively participate in the rapid evolution of capabilities being delivered through a broad ecosystem that is focused on disrupting traditional business models to drive economic value.