With today’s fast pace of change, innovation is no longer a nice-to-have initiative, but rather a must-have, strategic 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 the convergence of many things that are creating a seismic shift.
Strategy Meets Action (SMA) has actively tracked and promoted innovation in the marketplace for several years and has been publishing formal innovation research since 2012. In our latest report, Innovation in Insurance: Expanding Focus and Growing Momentum, we see continued progress, but with a refocus. SMA believes this reflects the realization that modernization of core systems is a foundational requirement for innovation.
At the same time, insurers’ innovation approaches and efforts are broadening. Insurers are 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 with agents, business partners, software partners, customers, other insurers and a supply chain as catalysts for 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 because leading insurers recognize that day-to-day operational demands mean there is a lack of time and resources for tracking, assessing and putting the implications for insurance into context. Also, the whole network benefits from the integration of new thinking as the input of the outside organizations helps to break down legacy assumptions.
The expanding focus and growing momentum for innovation is reflected in some key survey results, including:
- More than a fourth of insurers (26%) have focused on innovation for five years or more, and 33% have focused on it for two to five years. That puts 59% of insurers focused on innovation for the last two years, highlighting the growing momentum. A majority of further 32% have made innovation a focus for two years or less.
- Innovation leadership and organizational approach takes many different forms. Only 7% of insurers have a dedicated innovation area. More than half of insurers (51%) have no single area of the organization leading innovation. 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 enterprisewide 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 (9%) and movers (33%) as contrasted with those that are at the early stages of the journey as mainstreamers (22%) and those at the very beginning stages or not focused on innovation as laggards (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 are: healthcare (46%), with the potential influence of the healthcare insurance exchanges; high tech (45%), with the 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 expectations of customers.
A new future is rapidly unfolding, and the pressure is on. Innovation can never cease. It must advance with 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.
As 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?