Tag Archives: insurance innovation

6 Key Ways to Drive Innovation

Insurers and intermediaries know that innovation has the potential to disrupt their current business and operating models. And they know that they need to innovate faster than their competitors to defend and grow their business. Yet few have found a winning formula for embedding innovation into their people, products or processes.

Feeling the disruption

The fact that new technologies, innovations and business models are changing the dynamics of the insurance market is clear. More than eight in 10 insurance executives responding to our recent survey, Innovation in Insurance, said that they believe their organization’s future success to be tied closely to their ability to innovate ahead of their competitors.

But with new entrants, new technologies and new business models emerging at an increasingly rapid pace, many insurers are also concerned that innovation will bring more disruption than value. Many are already feeling the heat. In fact, almost half of our survey respondents said that their business models were already being disrupted by new, more nimble competitors.

For some, the risk of disruption and the opportunity for competitive advantage is driving a renewed focus on innovation. In a recent interview with John Geyer, senior vice president of MetLife’s innovation program, for the report, A New World of Opportunity: The innovation imperative, he said: “If somebody’s going to disrupt our industry, it might as well be us.”

Indeed, new technologies are reducing losses and costs while saving lives and increasing customer satisfaction, reducing risks and driving new business models and consolidation within the industry. New advances such as driverless cars, machine learning, home sensors and “robo-agents” empowered with artificial intelligence and mobile payments offer a world of opportunity for insurers.

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The capacity and capability to innovate

While many insurers recognize the vast possibilities that innovation brings, many seem reluctant to be first out of the gate. This is not entirely surprising; most organizations responding to our survey reported that they lack the hallmarks of an innovative organization, such as dedicated budgets, formal strategies, executive-level support and measurement processes.

Even those that want to take first- mover advantage (as almost a third of our respondents’ claim they wanted) face significant challenges catalyzing innovation. In part, this comes down
to capacity: 79% of respondents across the globe told us that they were already running at full tilt just keeping up with their core requirements.

Capability is also a key concern. Lack of skills and capability was ranked by 74% of respondents as a top three barrier to innovation, particularly for smaller and mid-sized organizations and those based in Europe. Simply put, insurers know what they need to do to drive innovation but recognize they lack certain skills to achieve it.

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To be fair, most insurers have certainly been working hard to improve their innovation strategy and capabilities. Many have already implemented cultural change programs focused on fostering innovation and training programs to develop idea generation and innovation skills. Others have put their sights on widening their innovation ecosystem by engaging in partnerships with academics, FinTechs and other third parties to drive innovation. Some have even changed their business models or created innovation “hubs” or “labs.”

Lessons from leaders

Our experience suggests that while all of these previous initiatives are valuable, few organizations have been bold enough in their objectives or their execution to truly drive change. Based on our research, our interviews and our experience, we have identified six key ways that leading insurers are becoming more innovative.

  1. They are focusing on creating a customer-centric culture. While more than half of respondents say they have conducted a cultural change program in the past five years, our experience suggests that they may have focused their efforts in the wrong area. Rather than trying to become more innovative, insurers may instead want to become more customer-centric, which, in turn, will drive innovation.
  2. They are willing to disrupt their existing business models. Doing more of the same, only faster, is not a recipe for long-term growth. Leading insurance players recognize the need to innovate not only product and service development, but also how they approach innovation itself. Insurers and intermediaries need to be willing to try new models and partner with new stakeholders to truly compete in an innovation-led competitive marketplace.

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  1. They apply agile and dedicated leadership. Innovation requires leadership, strong executive support and clear vision. There’s no secret engine behind a door that creates innovative energy for an organization. It’s not about having the best game plan; it’s about having a coach who knows which players to put in the field to execute on the game plan. That’s how goals are scored.
  2. They mitigate risk by investing and experimenting. The best companies have discovered ways to link their investments to the expected frequency and severity of risks to ensure they are appropriately matching investment to risk. They have started to experiment with new business models. Looking at the viability of their current business model and the role of technology in their competitive strategy, they are also exploring new business models and businesses as the profile of risk changes.
  3. They understand why they are investing. While most organizations report that they measure their return on their innovation investments in some way or another, the leading insurers are working to ensure that they have the right alignment with business objectives and are broadening their metrics beyond simple financial ROI calculations to include more subjective measures such as public reputation or customer engagement.
  4. They learn from others. We believe partnerships will be key to future success, but we need the right structures, models and infrastructure to create value. Large organizations need to learn to partner, and all organizations need to learn to partner effectively. Consider alliances with partners outside of insurance to accelerate customer benefits and expand the value chain.

The road ahead

Our research and discussions with established and start-up players suggest that — to make the most of this new world of opportunity — the insurance industry needs to pivot from a traditionally risk-averse culture to one that encourages experimentation while mitigating financial risk.

To achieve this, insurers will need to tap into new sources of innovation, accessing fresh ideas from employees, customers, investors and partners, which, in turn, will require progressive leadership at the top of the organization.

The innovation imperative is clear for insurers. Now it’s time to make the most of the world of opportunities that exists for those bold and innovative enough to seize these opportunities to create competitive advantage.

Reprinted from (Regulatory Challenges Facing the Insurance Industry in 2016,) Copyright: 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

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Google Applies Pressure to Innovate

This article was first published at re/code.

It’s a common thread in nearly every industry: Innovation occurs when consumers’ growing needs and expectations converge with intense competition. It’s no surprise, then, that insurance — not exactly known for being on the forefront of technology — is one of the last remaining industries to innovate and fully embrace data, analytics and customer communication technologies.

Insurance is a complex purchase business with a convoluted ecosystem and ever-changing regulatory requirements that has kept the industry in a well-protected bubble from external competition for decades. Now in 2015, the announcement of Google Compare for auto insurance pushes the industry to innovate from a technology standpoint, but most importantly from a structural standpoint, by changing the way insurance companies interact with their customers. The reasons below outline why Google has the greatest chance to succeed where others have not.

A Lesson From Other Industries

Google has previously disrupted numerous industries to great success — think health, travel and navigation — mostly because of its dominance in search. Many of Google’s consumer-facing businesses have followed as logical next steps in the Google search process. For example, do you want to use Google to search for the best insurance company, or would you prefer to find the best insurance company with the cheapest policy? Do you want to use Google to find the route for your road trip, or would you prefer to have Google find you the best route? Google’s constant innovation stems from a simple but effective idea: Eliminate an unnecessary extra step (or steps) in the process, and give the consumer what they desire most — ease and simplicity.

There are some who believe that the tech giant may not be doing anything noticeably different from other aggregators in the auto insurance space. However, if its accomplishments in other industries tell us anything, Google will find a way to engage the consumer better than incumbent insurers do. Rather than writing its own business and determining individual risks, Google has teamed up with carriers of all sizes to reach customers efficiently, allowing them to quickly search, get rates and compare policies “pound for pound.” Already, this platform has helped shift the insurance industry’s emphasis on the customer by allowing peer-to-peer ratings and allowing consumers to openly disclose any negative or positive experiences, which will breed superior customer service and experience.

Millennials Trust Google

It is highly unlikely that Google will ever become a full insurance company with its own agents and underwriters, but Google brings a brand name that elicits trust and familiarity. This is especially true of Millennials, who are set to overtake Baby Boomers as the largest consumer demographic, at 75.3 million in 2015. When Strategy Meets Action reported in early 2014 that two-thirds of insurance customers would consider purchasing products from organizations other than an insurer — including 23% from online service providers like Google — it created tension in the insurance industry. These findings are largely a reflection of consumer discontent with insurance companies and their seeming lack of transparency.

Millennials do not trust insurance companies, but they do trust Google with just about every engagement they have with the Internet. And consumers trust other consumers: Google Compare’s user feedback platform brings transparency to consumers and requires the insurance industry to reevaluate how to effectively engage customers in a tech-driven environment. Pushed by Google’s unique insight into Millennials, traditional insurance companies must acquaint themselves with their new consumers, who are often considered impatient, demanding and savvy about social media.

Establishing a Preferred Consumer Platform

An eye-opening Celent study recently found that less than 10% of North American consumers actually choose financial service products based on better results. Instead, a vast majority places higher importance on ease (26%) and convenience (26%). Based on these findings, Google is using a business model that embodies the preferred consumer experience, a notion that is being reinforced by initial pilot results in California.

According to Stephanie Cuthbertson, group product manager of Google Compare, millions of people have used Google to find quotes since its launch in March, and more than half received a quote cheaper than their existing policy. Other new entrants, like Overstock, have reported issues with completion of purchase because consumers will browse offerings but still hesitate to complete their purchase online in a single visit to a website. Google’s platform is attempting to avoid this issue by announcing agency support through its partnership with Insurance Technologies, allowing consumers peace of mind by speaking to an agent before purchasing a policy — but maintaining the online price quote throughout the buying experience.

Potential for Future Growth

While Google Compare is beginning with auto insurance, work with CoverHound gives a glimpse into where it may be looking to expand. CoverHound’s platform specializes in homeowners’ and renters’ insurance, the latter of which is growing exponentially with the Millennial generation, who prefer to rent rather than buy. According to a recent TransUnion study, seven out of 10 Millennials prefer to conduct research online with their laptop, computer or mobile device when searching for a new home or apartment to rent.

Google Compare has also already shown momentum by recently announcing its expansion of services to Texas, Illinois and Pennsylvania, while adding a ratings system for each company it works with — much like the insurance version of TripAdvisor or Expedia.

The Bottom Line

Nearly every industry undergoes disruption when consumer expectations shift and businesses are forced to adapt and keep up. For decades, insurance didn’t have the kind of pressure from outside entrants that it is currently facing. Whether Google fails or succeeds early on makes little difference: Its entrance is a wake-up call. The more tech companies enter the space, the more traditional insurance must struggle to play catch-up.

These new entrants are helping to not only force innovation from a technology standpoint but also to bring an innovation culture to the industry so insurers can stay ahead of consumers demands around buying and customer service. Agents and insurance carriers have a level of expertise that is unmatched by the Googles of the world, but it will be wasted if insurers can’t figure out a way to integrate that expertise in a modern way and connect to consumers through different social channels.

The writing is on the wall, and how traditional insurance reacts will ultimately decide its relevance in the industry of the future.