Tag Archives: Marie Carr

Innovation: Solutions From… Elsewhere

Insurance is the industry most affected by disruptive change, according to the percentage of CEOs who are extremely concerned about the threats to their growth prospects from the speed of technological change, changing customer behavior and competition from new market entrants.

Insurers know they need to innovate to remain competitive. In fact, 67% of insurance respondents to PwC’s 2017 CEO Survey see creativity and innovation as very important to their organizations, ahead of other financial services sectors and the CEO Survey population as a whole. And, insurance CEOs noted that the area they would most like to strengthen to capitalize on growth opportunities is digital and technological capabilities, followed by customer experience (reflecting the connections between the two).

However, the industry’s traditional conservatism and the dizzying pace of technological change has made it difficult to change. As a result, most insurers are looking outside the industry – typically in the insurtech space (e.g., drones, sensors, internet of things (IoT)) – for the best ways to improve their systems, processes and products. And there is no doubt that industry stakeholders think insurtech has real promise: Annual investment in insurtech startups has increased fivefold over the past three years, with cumulative funding reaching $3.4 billion since 2010, based on the companies that PwC’s DeNovo platform follows.

See also: What Is the Right Innovation Process?  

To facilitate a diverse approach to identifying opportunities and potential partners from different industries and specialty areas, an enterprise innovation model (EIM) is table stakes. An EIM facilitates:

  • New product and service development: Being active in insurtech can help insurers discover emerging coverage needs and risks that require new insurance products and services. As a result, they can improve their product portfolio strategy and design of new risk models.
  • Market exploration and discovery: Prescient insurers actively monitor new trends and innovations, and some have even established a presence in innovation hotspots (e.g., Silicon Valley) where they can directly learn about the latest developments in real-time and initiate innovation programs.
  • Partnerships that drive new solutions: Exploration typically leads to the development of potential use cases that address specific business challenges. Insurers can partner with startups to build pilots to test and deploy in the market.
  • Contributions to insurtech’s growth and development: As we describe below, venture capital and incubator programs can play an important role in key innovation efforts. Established insurers that clearly identify areas of need and opportunity can work with startups to develop appropriate solutions.

Most insurers are looking outside the industry for the best ways to improve their systems, processes and products.

Maintaining awareness, influencing the market and identifying the right partners

To ensure an organization’s innovation efforts are in sync with – or even driving – the latest developments in the market, an EIM needs a formalized yet agile process for identifying and incorporating best practices.

Dedicated assessment of insurtech advancements can allow insurers to identify and promote best practices and key technologies. Moreover, maintaining a close connection with the insurtech market can help a company develop its external knowledge and relationships with innovators. Through this process, insurers can identify potential partners that can help them understand evolving technologies and their applications, and even contribute to developing the capabilities they desire.

With a deeper understanding of the market, capabilities and key players, insurers can be better positioned to facilitate innovation, ideation and design. While some fintech companies already have compelling insurance applications, insurers have a great opportunity to identify and design new potential use cases.

Fast prototyping is key to quickly creating minimally viable products (MVP) and bringing ideas to life. Early-stage startups develop and deploy full-functioning prototypes in near real time and go to market with solutions that evolve with market feedback. The development cycle is shortened, which allows startups to quickly deliver solutions and tailor future releases based on usage trends and feedback and to accommodate more diverse needs. Established insurers can follow the same approach or can partner with existing startups that have a MVP to help them to move to the next stage, scaling.

The ways to accomplish all of this vary based on how the organization plans to source new opportunities and ideas, how it plans on executing innovation and how it plans to deploy new products and services. The following graphic provides examples of EIMs by primary function.

The innovation center

The innovation center (also named “lab” or “hub”) is a structure at a corporate level that bridges external innovation with business unit needs and innovation opportunities. It relies on internal subject matter experts and innovation champions to ignite and drive innovation initiatives at a business unit level. With this model, innovative new products and services go to market under the company’s brand.

The innovation hub provides an outside-in view while promoting innovation internally. With this model, the company dedicates a team to constantly monitor trends and market activity, build and maintain relationships with key insurtech players, identify potential future scenarios and determine new partnership opportunities.

The hub should be managed through business units to effectively innovate (i.e., building prototypes and scaling models). Execution is a key success factor, and we recommend insurers consider complementary innovation models to help promote positive outcomes.

Regardless of the model they use, we recommend that insurers of all sizes consider developing an innovation center and create an external connection based on potential future scenarios.

The incubator

An incubator can drive innovation from idea to end product by identifying new opportunities and developing related solutions. Although it does require a significant investment of both money and resources, it has proven especially effective in addressing complex problems and devising new approaches to them.

Although the incubator can be internal, external structures typically create unique development environments and attract necessary talent. Via an external approach, ideas come mostly from outside the company and a panel of internal or external innovation specialists provide high-level guidance and approval for the innovation the company is seeking through the incubator.

Although the incubator initially drives innovation, business units typically become involved during the development process. They have an important role, especially when planning to deploy new solutions within the organization. The incubator can wind up as a start-up that can go to the market under its own name.

One of the main strengths of the incubator model is that it facilitates execution. It holds an idea until a prototype is developed and a minimally viable product is available. The gradual involvement of business units during the process enables the model to adequately scale. Upon adoption by its future owner, the incubator and business units can address any related challenges related to operating capacity, cyber risk, regulation and other issues.

Strategic venture capital (SVC)

The SVC model offers the opportunity to participate via stake or acquisition in relevant insurtech-related players. This is a way to influence and shape the development of specific startups (e.g. pushing them to solve specific problems) and acquire key capabilities and talent, and as a way to derive value from strategic investments.

In the SVC model, the company establishes a new ventures division, which sources ideas from the outside. The company provides funding and support for equity, while a SVC from this new structure explores, identities and evaluates solutions and markets new ventures under its own brand. The funds thatSVC invests in a startup help new players augment their capabilities and scale their business model. This could lead to potential market joint ventures, acquisitions or other deals to monetize the initial investment.

Established insurers with SVC arms are usually leaders in specific market segments and therefore leverage their experience and knowledge to select key ventures. To become more active with insurtech, these structures can be linked to innovation centers, thereby allowing companies to connect ventures with business units.

Instead of choosing one model over the other, we propose one that combines key elements from each. Companies can select elements based on their need for external innovation, the availability of talent, their ability to execute and the amount of investment the organization is willing to commit.

EIM operating options

EIM operating characteristics

Bridging the cultural divide

Complicating the need to innovate is the fact that an insurer’s culture often influences an external company’s decision about partnering with it. In fact, according to our 2016 Global
FinTech Survey, more than half of fintechs see differences in management and culture as a key challenge in working with insurers. Insurers also realize this, and 45% of insurance companies agree that this is a major challenge.

See also: How to Create a Culture of Innovation  

Accordingly, insurers will need to assess the availability and compatibility of existing resources and determine how and where they can find what may not currently be available. By clearly articulating the organization’s needs, defining explicit roles and establishing a model for enterprise innovation, an insurer can address any underlying concerns it may have about partnerships.

While insurers can create internal structures to support innovation, most of them will have to enlist external resources in one way or another. In fact, we expect many talented professionals without insurance-specific skills will be the ones who wind up driving innovation.

Attracting and developing innovators

Insurers can create internal structures to support innovation, but – as EIMs stipulate – success ultimately depends on having the right talent. And, most insurers will have to enlist external resources – ones who have an entrepreneurial mindset and who are well-connected to insurtech – in one way or another.

How does a company attract and retain this kind of talent? There are four primary ways:

  • Acquire the new talent from start-ups. This works well if the acquired company keeps running its business under its own start-up rules, away from the acquirer’s bureaucracy. Otherwise, if there is too much acquirer interference, then retention will be a challenge in a market that covets innovators.
  • Attract the talent directly from the market. This option typically requires a new mindset from the hiring company in terms of business role, work environment and even location. Establishing a presence in relevant innovation hotspots will help make an offer more attractive, facilitate external connections and demonstrate the insurer’s commitment to letting innovators be free to innovate.
  • Partner with startups, technology vendors, universities, researchers and other proven innovators. This option represents a major opportunity because it enables the insurer to create the connections to and formal partnerships with new talent. However, while identifying desired capabilities is relatively easy, there will need to be strong alignment of purpose between the organization and the new partners for the relationship to work. In this case, the Innovation Hub should be the most helpful model.
  • Grow the talent. This option is probably the least disruptive because it doesn’t require external changes. Large organizations have the opportunity to discover talent within their structures. But, the organization will have to ascertain and leverage the mentality and professional background of employees in many different ways. Gamification, internal collaboration groups and other resources can help in the search for potential in-house innovators, but most companies will need a more sophisticated staffing model to develop this talent (e.g., having specific development plans and offering “external” experiences in projects and with partners).

Complementing these options is the insurance industry leadership’s advocacy of new methods to foster change in employee skill sets. According to insurance respondents to PwC’s 2017 CEO Survey,

  • 61% are exploring the benefits of humans and machines working together (considerably higher than any other FS sector), and
  • 49% are considering the impact of artificial intelligence on future skills needs (also considerably higher than any other FS sector).

Implications

In response to this rapidly changing environment, incumbent insurers are approaching insurtech in various ways, prominently through joint partnerships or startup programs. But whatever strategy an organization pursues, insurtech’s main impact will be new business models that create challenges for market players and other industry stakeholders (e.g., regulators). In this environment, insurers will need to move away from trying to control all parts of their value chain and customer experience through traditional business models, and instead move toward leveraging their trusted relationships with customers and their extensive access to client data.

For many traditional insurers, this approach will require a fundamental shift in identity and purpose. The new norm will involve turning away from a linear product push approach, to a customer-centric model in which insurers are facilitators of a service that enables clients to acquire advice and interact with all relevant actors through multiple channels. By focusing on incorporating new technologies into their own architecture, traditional insurers can prepare themselves to play a central role in the new world in which they will operate at the center of customer activity and maintain strong positions even as innovations alter the marketplace.

To effectively develop these new business models and capabilities and establish mutually beneficial insurtech relationships, established insurers will need to start with a well-thought-out innovation strategy that incorporates the following:

  • An effective enterprise innovation model (EIM) will take into account the different ways to meet an organization’s various needs and help it make innovative breakthroughs. The model or combination of models that is most suitable for an organization will depend on its innovation appetite, the type of partnerships it desires and the capabilities it needs. EIMs feature three primary approaches to support corporate strategy, partnering via innovation centers (or hubs), building capabilities via incubators and buying capabilities via a strategic ventures division. Companies can select elements from each of these models based on their need for external innovation, the availability of talent, their ability to execute and the amount of investment the organization is willing to commit.
  • Even though insurers can create the internal structures that support innovation, most of them will have to enlist external resources in one way or another. Accordingly, they will need to assess the availability and compatibility of existing talent and determine how and where they can find what may not currently be available. Much like with enterprise innovation models, there are certain ways (often in combination) that insurers can locate and obtain the resources they need, including acquiring it, trying to attract it, partnering and growing it internally.

4 Tech Impacts on Business Models

Just a decade ago, “insurance” and “innovation” seemed mutually exclusive. Insurance products and the business overall hadn’t changed much over the previous century and the likelihood of insurers – which, by their very nature, are risk-averse – changing anytime soon seemed unlikely to many both inside and outside the industry.

However, over the past decade, there have been dramatic changes in the world that insurers cover and in the data and technology available to them. The result is that insurance companies have opportunities to explore new revenue models and improve profitability in ways that did not exist even just a few years ago.

See also: Secret to Finding Top Technology Talent  

The most prominent changes and their effects on revenue models include:

1. Consumers, social media, and data – The ability to connect, communicate with and observe insureds and potential insureds in real time or near real time has opened up new possibilities for insurers to understand their customers’ needs, pain points and desires. Many carriers have started to rethink their customer experience so they can “listen” directly to their customers instead of being solely reliant on their distribution channels.

  • Revenue model implications –Insurers are using technology and data tools to explore opportunities to provide complementary products and services to insureds. These tools enhance carriers’ understanding of customer needs and enable them to address these needs seamlessly via direct and indirect channels.
  • Profitability implications – Insurers are rethinking their business processes and customer journeys to identify “leakage areas” and “moments of truth” when profits are hurt by 1) frustrated customers choosing to leave or 2) missed opportunities to expose customers to products and services that meet their needs.

2. Insurtech – While the fintech boom has subsided somewhat elsewhere in financial services, insurtech is still growing. Traditionally, one of the biggest hindrances to many insurers in getting new products or new product enhancements to market was their own technology and data environment, and the belief that they alone had to build any new technology from scratch. However, the rapid rate of technological change and insurtech capabilities has led many carriers to look externally to enhance their capabilities and test new products and delivery models for their products. This underlies the promise that insurtech offers for established players – in fact, we think the opportunities that insurtech presents outweigh the threats many incumbents perceive.

  • Revenue model implications – Insurers are increasing their investments in, partnerships with and acquisitions of insurtech companies to more quickly bring new products and services to market, especially ones that better match pricing to a more accurate understanding of the risk or actual use of the insurance (including on-demand and usage-based insurance models).
  • Profitability implications – As a result of technological disruption, insurers are rethinking their value-chains and leveraging insurtech and other technology systems to improve operational areas that have historically been inefficient in terms of cost, time and use of human capital.

3. Internet of Things (IoT) – Although IoT technically is part of nsurtech, the impact of device networking is creating unique risk management – even risk avoidance – opportunities for insurers. From commercial and personal line P&C to life/health and group, IoT opens up opportunities for carriers to move from simply computing the probability of risks and then reacting to them as they occur to being able to monitor potential risks and prevent their occurrence.

  • Revenue model implications – Insurers are exploring how IoT can open up product and service opportunities. In the P&C space, insurers have the option of partnering with IoT companies to provide IoT solutions as part of their product offering in both B-to-B and B-to C. In life/health and group, we expect insurers to continue to test how devices can reinforce healthy lifestyles and open up opportunities for insurers to make life and health truly about “life and health” and not just death and sickness.
  • Profitability implications – Insurers are leveraging IoT to reduce claims frequency and severity. We expect new insurance models will test and explore ways to share these benefits with the customers – for example, by using behavioral economics techniques to provide incentives and reinforce positive decision-making and lifestyle choices.

4. Bionic Advice – There is currently a lot of talk about robots and machines replacing humans. However, at least for now, the real opportunities are not in finding the “perfect algorithms” that completely automate advice. Rather, they’re in machines enhancing the effectiveness of advisers and other distribution channels. And, the insurance industry appears to be prepared; in our recent annual CEO Survey, 61% of insurance CEOs said their companies are exploring the benefits of humans and machines working together.

See also: How Technology Breaks Down Silos

Numerous studies have confirmed that customers prefer the flexibility of interacting with insurance companies via the channels of their choosing – and this still often includes human ones. The real benefit of robo-advisers and AI is that they can automate basic advice but provide immediate, detailed information specific to a given customer that an adviser then can use to inform her product and planning suggestions. In addition, robotics and AI increasingly provide insurers the opportunity to capture information and refine their understanding of and recommendations for their customers throughout the sales and customer lifecycle processes.

  • Revenue model implications –Insurers are exploring bionic advice models to increase revenue by better matching products and customer needs and by creating new product bundles based on an enhanced understanding of customer segments.
  • Profitability implications – Insurers have lost out on many sales opportunities over the years – not because they had disinterested customers but because they or the channel partner never really understood customer needs. Many carriers realize this and are exploring how to deploy bionic advice models to automate customer follow-up, either in real time (e.g., while talking to an adviser) or at specific intervals (e.g., annual review, life event, etc.). The goal is to help carriers be more relevant to customers and, by offering appropriate products and service bundles, increase the products per household and boost “stickiness.”

Implications

In the case of the scenarios we describe here and others that could emerge, we see some consistent patterns:

  • New revenue models will result from the opportunity to leverage data, technology, social medial platforms and mobile devices that lead to the creation of new products, services and pricing strategies.
  • Insurtech is not just about new products and services. Insurance companies will continue to take advantage of emerging technologies and data to enhance their internal operating models. This, in turn, will enable them to market new products and services faster and to sell and service them more efficiently.
  • Insurance companies will continue to explore how to leverage peer-to-peer models and behavioral economics to drive new pricing strategies, growth and profitability.

Group Insurance: On the Path to Maturity

The group insurance market shows real promise, but most carriers are still trying to determine the best path forward. Moving from being in a quiet sector to the front lines of new ways of doing business has shaken the industry and confronted it with challenges – and opportunities – that many could not have foreseen even a decade ago.

For starters, let’s take a look at where the market is right now. Three recent trends, in particular, are having a profound impact:

  • The Affordable Care Act, which has led health carriers to increase their focus on non-major medical aspects of the parts of their business that the legislation has not affected. In turn, this has led to intensifying competition.
  • Consumerism, which has resulted largely from workers’ increasing responsibility for choosing their own benefits. This has created disruption as employees/consumers have become increasingly dissatisfied with the gap between group insurance service, information and advice and what they have come to expect from other industries.
  • The aging distribution force, which means that experienced brokers/agents are leaving the work force and are being replaced by inexperienced producers at decreasing rates or are not being replaced at all.

Group players – which historically have been conservative in their market strategies – focus on aggressively driving profitable growth. To do this, they are concentrating on four key areas: 1) growing their voluntary business, 2) streamlining their operating models, 3) re-shaping their distribution strategies and 4) making significant investments in technology.

See Also: Long-Term Care Insurance: Group Plans vs. Individual

Group insurance is no longer a quiet sector of the industry but instead is in the front lines of developments in customer-centricity and technological innovation.

Growing the voluntary business – The voluntary market has been of interest to traditional group insurance carriers for more than two decades, but the success of the core employer paid group insurance business has resulted in a lack of robust voluntary capabilities. However, with employers shifting more costs to employees, voluntary products have become a key way to manage group benefit costs while expanding the portfolio of employee products.

Some carriers are expanding their voluntary businesses by offering a modified employer paid group product in which the employee “checks the box” to pay an incremental premium and receive additional group coverage (e.g., long term disability (LTD), life and dental). Other carriers are exploring models where employees can sign up for an individual policy at a special premium rate. The former example is a traditional voluntary product, while the latter example is a traditional worksite product. For most carriers, adding the traditional voluntary product is fairly straightforward because it is still a product that the group underwrites. However, more carriers are looking into the worksite product (which AFLAC and Colonial Life & Accident have executed particularly well) because, with the passage of the Affordable Care Act, some see a potential opportunity to reach small businesses that previously may not have been interested in group benefits.

Streamlining operating models – Group carriers also are trying to develop streamlined, cost-effective, customer-centric operating models. The traditional group insurance operating model has been built around product groups such as group LTD, short-term LTD, dental, etc. However, the product-based model is inefficient because it increases service costs, slows speed to market and fails to support the holistic views of the customer that enables carriers to serve customers in the ways they prefer.

Group insurers are now investing both time and capital to understand how to remove inefficient product-focused layers of their operations and streamline their processes to profitably grow. Many have focused on enrollment, which cuts across products and is a frequent source of frustration for everyone. Carriers are frustrated because they can spend days and weeks trying to ensure that everyone is properly enrolled in the right plan. Moreover, what should be a fairly straightforward, automated process often can require considerable manual intervention to ensure that employees are properly enrolled. In the meantime, employees are frustrated with recurring requests for information and the slowness of the enrollment process. Employers are frustrated by the additional time and effort that they have to expend and the poor enrollee experience. Producers become frustrated because the employer often holds them accountable for the recommended carriers’ performance.

Reshaping distribution strategies – In terms of distribution, private exchanges initially promised to connect group carriers with the right customers using extremely efficient exchange platforms. As a result, many group carriers joined multiple exchanges expecting that this model would put them on the cusp of the next wave of growth. However, success has proven more elusive than they expected, largely because they’ve spread themselves too thin across too many, often unproven exchanges. And, while private exchanges still offer great potential, many carriers have now begun to rethink their private exchange strategies with the realization that the channel is not yet a fully mature group insurance platform.

Investing in technology – Whether group carriers are focusing most on entering the voluntary market, streamlining operations or refining their private exchange strategies, successful in all these areas depends on technology. Group technology investments have lagged behind the rest of the industry. The reasons for this range from a lack of proven technology solutions that truly focus on the group market to downright stinginess and the resulting reliance on “heroic acts” and dedication of committed employees to drive growth, profits and customer satisfaction. However, viable technological solutions now exist – and they are probably the most critical element in the march toward effective data integration, efficient customer service and ultimately profitable growth. Every facet of the business –underwriting, marketing, claims, billing, policy administration, enrollment, renewal and more – is critically dependent upon technological solutions that have been designed to meet the unique needs of the group business and its customers. Prescient group carriers understand this and have been investing in developing their own solutions and partnering with on-shore and offshore solutions providers to fill gaps in non-core areas.

Whatever their primary focus – growth, operations or distribution – a necessary element for success is up-to-date and effective technology.

A market in flux

In conclusion, group insurance is in a time of transition. Major mergers and acquisitions have already started to reshape the market landscape, and existing players are likely to use acquisitions and divestitures as a way to refine their market focus. Moreover, new entrants are looking to exploit openings in the group space by providing the kind of focus, cutting-edge product offerings and service capabilities that many incumbents have not. These developments show group’s promise. The winners will be the companies that wisely refine their business models and effectively employ technology to meet the unique needs of new, consumer-driven markets.

Implications

  • We will continue to see group carriers focus on the voluntary market, especially traditional group-underwritten products. They will look to not only round out their product bundle by providing solutions that meet consumer needs, but also integrate their offerings with other employee solutions like wealth and retirement products.
  • Group insurers will continue to aggressively streamline processes to promote productive and profitable customer interactions.
  • Private exchange participation strategy needs to align with target markets goals, including matching products with appropriate exchanges. Focusing on participation means that group carriers avoid spreading themselves too thin trying to support the various exchanges (often with manual back-end processes).
  • Group carriers can no longer compete with antiquated and inadequate technology. Fortunately, there are now group-specific solutions that can make modernization a reality, not just an aspiration.