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Why CIOs’ Heads Are on a Swivel

In the face of growing commoditization, carriers increasingly focus on innovation as they describe their development plans and go-to-market strategies.

Recently, we spoke to 10 carriers from the Novarica Research Council spanning both the P&C and L&A segments. The insights and perspectives we gained provide a fascinating view of an industry facing significant changes in its markets, customer demographics and persistently low interest rates, which make outside-the-box thinking a necessity.

Innovation is the father of disruption in the insurance industry, and that disruption is now coming from multiple directions simultaneously, so CIOs have their heads on a swivel. CIOS view the most significant source of innovation and disruption as coming from outside the industry—specifically, banking and financial services firms, which tend to require more rapid adoption of advancing technology. Within the industry, insurtech startups are the main sources of innovation, bringing ideas, technologies and processes from other verticals into insurance.

See also: How to Master the ABCs of Innovation  

When it comes to leveraging these perspectives for innovation, the P&C industry is further along than L&A. Many P&C CIOs have put together a combination of insurtech startups, customer experience designers from outside the industry and traditional management consultants to build capabilities. L&A CIOs are still largely looking for that sweet spot of combining outside and inside industry expertise to start getting their arms around what innovation means to them and their companies.

Once a carrier has decided to incorporate innovation, CIOs have to make the move from conceptual to concrete by sponsoring formal activities that encourage creative thinking. While P&C carriers are, by and large, further along the innovation curve, L&A carriers appear to be making greater use of tools like hackathons and ideathons to foster a culture of innovation. Appointing an internal “innovation champion,” whether a person or a team, has become commonplace in L&A carriers. Innovation champions serve notice that innovation is a priority and that resources will be allocated accordingly.

CIOs also have to consider a range of new technologies to support, and even to drive, their innovation efforts. Right now, AI-themed solutions like robo-advice apps are top of mind for CIOs. Wearable devices are more important for life insurers, while semi-autonomous vehicles and telematics are more important to P&C insurers. Drone-based technologies and data collection will continue to be important to both P&C and L&A insurers.

Supporting innovation efforts can also mean recognizing the need to reach outside their own spheres of experience for help. A common approach is to create a venture capital entity separate from the core insurance business. Another approach is pursuing strategic alliances directly with insurtech startups or others, who might have the intellectual know-how, but not the resources and structure, to move ideas from concept to reality. Finally, some insurers are using “flanker” brands, which serve as alternatives to the traditional parent brand, as an entry into the innovation world. These can do things that the parent brand may not allow for.

Like any other initiative, those focused on innovation need funding. L&A insurers favor the traditional budgeting route, and some have levied a corporate “tax” on other business units as a way to aggregate budge monies for innovation. The short-term risk here is that such an approach could cause political or cultural issues inside an insurer. P&C insurers, perhaps due to their having had more time in the innovation space, have found other ways to fund innovation initiatives. Some have gone so far as to carve out a whole separate innovation budget and create “innovation centers,” responsible for coming up with as many ideas as possible and turning the most promising ones around into prototypes quickly, without bureaucratic interference. In terms of investing in innovation, both P&C and L&A CIOs have discovered the power of investing in cultural change and adaptation, looking both inside and outside their organizations for inspiration and new ideas. Many have created innovation centers or loosely coupled investment funds to engage with startups, universities and think tanks. That trend is likely to accelerate as more insurers get serious about innovation.

Understandably, insurers want to see that innovation is leading to new products, more effective and efficient processes, better customer service and, of course, higher profits. Along with that comes a desire to measure and quantify the effectiveness of innovation initiatives (measuring is simply what insurers do, after all). The industry, though, has yet to land on a quantitative and qualitative set of metrics to accurately gauge how successful an innovation project has been. Both P&C and L&A CIOs are for the most part still coming around to the idea that some innovation efforts can pay dividends without those dividends being directly measurable.

See also: Where Will Real Innovation Start?  

Innovation is becoming increasingly important to insurers in 2017, and it requires support from senior leadership to succeed. Insurance is an industry that is generally very conservative, and innovation is all too often looked at with skepticism, or even hostility. Innovation can be hard work that requires a dedication of resources and a willingness to take new risks. It can also require new organizational structures and an acceptance that an asset (e.g., a traditional brand) can also be a liability. Carriers simply cannot double down on the strategies from the past. Innovation is frequently about breaking things and a willingness to walk away from traditional approaches to products, distribution models and operations.

trends

InsurTech Trends to Watch For in 2016

The excitement around technology’s potential to transform the insurance industry has grown to a fever pitch, as 2015 saw investors deploy more than $2.6 billion globally to insurance tech startups. I compiled six trends to look out for in 2016 in the insurance tech space.

The continued rise of insurance corporate venture arms

2015 saw the launch of corporate venture arms by insurers including AXA, MunichRe/Hartford Steam Boiler, Aviva and Transamerica. Aviva, for example, said it intends to commit nearly £20 million per year over the next five years to private tech investments. Not only do we expect the current crop of corporate VCs in the insurance industry to become more active, we also expect to see new active corporate VCs in the space as more insurance firms move from smaller-scale efforts — such as innovation labs, hackathons and accelerator partnerships — to formal venture investing arms.

Majority of insurance tech dealflow in U.S. moves beyond health coverage

Insurance tech funding soared in 2015 on the back of Q2’15 mega-rounds to online benefits software and health insurance brokerage Zenefits as well as online P&C insurance seller Zhong An. More importantly, year-over-year deal activity in the growing insurance tech space increased 45% and hit a multi-year quarterly high in Q4’15, which saw an average of 11 insurance tech startup financings per month.

In each of the past three years, more than half of all U.S.-based deal activity in the insurance tech space has gone to health insurance start-ups. However, 2015 saw non-health insurance tech start-ups nearly reach parity in terms of U.S. deal activity (49% to 51%). As early-stage U.S. investments move beyond health coverage to other lines including commercial, P&C and life (recent deals here include Lemonade, PolicyGenius, Ladder and Embroker), 2016 could see an about-face in U.S. deal share, with health deals in the minority.

Investments to just-in-time insurance start-ups grow

The on-demand economy has connected mobile users to services including food delivery, roadside assistance, laundry and house calls with the click of a button. While not new, the unbundling of an insurance policy into financial protection for specific risks, just-in-time delivery of coverage or micro-duration insurance has already attracted venture investments to mobile-first start-ups including Sure, Trov and Cuvva. Whether or not consumers ultimately want the engagement or interfaces these apps offer, the host of start-ups working in just-in-time insurance means one area is primed for investment growth in the insurance tech space.

Will insurers get serious about blockchain investments?

Thus far, insurance firms have largely pursued exploratory investments in blockchain and bitcoin startups. New York Life and Transamerica Ventures participated in a strategic investment with Digital Currency Group, gaining the ability to monitor the space through DCG’s portfolio of blockchain investments. More recently, Allianz France accepted Everledger, which uses blockchain as a diamond verification registry, into its latest accelerator class. As more insurers test blockchain technologies for possible applications, it will be interesting to monitor whether more insurance firms join the growing list of financial services giants investing in blockchain startups.

Fintech start-ups adding insurance applications

In an interview with Business Insider, SoFi CEO Mike Cagney said he believes there’s a lot more room for its origination platform to grow, adding,

“We’re looking at the entire landscape of financial services, like life insurance, for example.”

A day later, an article on European neobank Number26, which is backed by Peter Thiel’s Valar Ventures, mentioned the company would like to act as a fintech hub integrating other financial products, including insurance, into its app. We should expect to see more existing fintech start-ups in non-insurance verticals not only talk publicly but also execute strategic moves into insurance.

More cross-border blurring of insurance tech start-ups

Knip, a Swiss-based mobile insurance app backed by U.S. investors including QED and Route66, is currently hiring for U.S. expansion. Meanwhile, U.S. start-ups such as Trov are partnering and launching with insurers abroad. We can expect more start-ups in the U.S. to look abroad both for strategic investment and partnerships, and for insurance tech start-ups with traction internationally to expand to the U.S.