Tag Archives: robo-advice

5 Critical Traits for an Adviser

After decades of experience working with and getting to know thousands of people whose job it is to give advice around insurance, investments and real estate, I’ve observed a few traits that I personally believe are critical to long-term relevance. Frankly, I also believe they will make certain advisers immune to the threat of their job being eaten by technology.

There is quite a bit of concern over robo advice threatening these livelihoods. We must consider that the underlying reason is a trust problem with those who make their living giving advice while at the same time selling products for a commission. But the underlying cause of mistrust may actually be the absence of one or more of the following five characteristics of advisers that matter more in the trust equation:

1. They seek to help their community first, then benefit from it later.

There’s a not-so-subtle distinction between people who join a community group because they want to network for business purposes and people who join because they are interested in helping advance the mission of that group. While oftentimes both motivations can exist at the same time, the real test would be to ask those people if they would have either joined or stayed with that group even if their prospecting need were not there.

While those inside the business may not see the distinction, others can see it a mile away. Trust erodes when intentions are not clear.

See also: 3 Major Areas of Opportunity  

2. They see work and life as inextricably intertwined and are in love with both.

Advisers who will stay relevant, who are “nondisruptable,” are people who always seems to be there for what’s most important, whether the market is crashing, an individual lost his/her job or someone’s kid or grandkid is in a little league game. From the outside, it may look like those advisers are either always working or never working. And the answer would be: yes, they are.

3. They keep score based on outcome versus income.

While earnings and sales numbers are important for a successful practice, putting numbers on the board is not what makes nondisruptable advisers sleep well at night. Rather, they create metrics of their own, consciously or unconsciously, counting things like how many people they have advised, how many thank you letters they receive, how many people they’ve helped employ or even how many hugs they have ever received from their clients. Counting these means they never need to count sheep.

4. They are described similarly by families, friends, clients and communities.

Nondisruptable advisers show one face to everyone. While they may have many interests, they bring their best to every situation and see the role of adviser as a calling and not just a career. Anyone can give advice from his/her own point of view. However, it takes care, skill and emotional intelligence to deliver advice that’s in someone else’s best interests.

The question remains as to whether these traits can be taught. Sure, someone could write a book or perhaps create a coaching program around them, but I’m not sure either would help. I suspect that people are either raised in such a way that these traits develop or they experience something dramatic that shifts their perspective quickly and forever changes their attitude.

5. They leave a mark that lives past them.

While this trait certainly isn’t realized until the adviser passes away or can no longer do his/her job, that individual’s ability to make an impact is unmistakable and therefore nondisruptable. You just know it when you see it.

See also: Insurance Coverage Porn  

This article was inspired by and is dedicated to my long-time friend Jane Lopp from Kalispell, Montana. Jane and I met at Prudential, where she built an impressive practice with an outstanding team, a supportive family and a community that felt her presence in countless ways. Nothing stopped Jane, including being confined to a wheelchair due to a muscle disease. Jane’s life was taken after a car accident on April 21 of this year, and, as her husband, Bob, noted, she was full of life and at the peak of her career.

If you know someone like Jane who embodies these five traits, please give them a hug. They deserve it.

DOL Fiduciary Rule: What It Means

In April 2016, the U.S. Department of Labor (DOL) released a regulatory package that established a new standard for fiduciary investment advice. Under the Fiduciary Rule, investment recommendation given to an employee benefit plan or an individual retirement account (IRA) is considered fiduciary investment advice and therefore must be in the “best interest” of the investor.

As a result, financial advisers who provide investment advice under the new standard now face limits on receiving commission-based compensation. Considering that 50% of U.S. financial assets is held in retirement accounts, the impact of the rule is significantly affecting insurers, broker dealers and investment managers.

The DOL has long been concerned that people rolling over assets from an employer-sponsored pension plan to an IRA are not being well-advised and, as a result, are investing in products that are not most suitable for their needs or are unnecessarily expensive. Central to the DOL concern is what it perceives to be a lack of transparency around the standard under which an adviser is providing advice and how he/she is compensated. This is not surprising because advisers operate under multiple standards, with a majority of asset flows falling under a “suitability” rather than fiduciary standard.

To address these concerns, the DOL expanded the definition of the term “investment advice” under ERISA, thereby imposing fiduciary status under both ERISA and the Internal Revenue Code on firms and advisers who provide investment advice under this expanded standard. A fiduciary is subject to the duties of prudence and loyalty and is prohibited from acting for his/her own interests or in a manner adverse to those of the ERISA plan or IRA. Accordingly, fiduciary status will have a fundamental impact on adviser compensation, as advisers who are fiduciaries may not use their authority to affect or increase their own compensation in connection with transactions involving an ERISA plan or IRA.

See also: Does DOL Ruling Require a Plan C?  

A catalyst of widespread organizational change

The DOL Rule is causing significant changes to the insurance industry that go well beyond compliance. While the industry needs to be prepared for the June 2017 applicability date, delayed from the original April date, the rule (even if delayed again) is also a catalyst for more meaningful change for both insurance manufacturers and distributors. In many cases, these changes have been contemplated for some time.

Compensation For starters, to mitigate any conflicts of interest resulting from distribution compensation, insurers should inventory current compensation and understand the impact of changing models to various distribution channels. The industry has been focusing on the issue of compensation for some time, anyway (e.g., moving to commissions for annuities), and the DOL rule provides further impetus for change. This change will not be easy, not least because the industry has a variety of products and uses different distribution models. To facilitate the transition to the new environment, carriers and distributors will need to understand the current hierarchy and how it might change.

  1. What is the distribution channel? Is the distributor a fiduciary? If so, what exception or exemption is the distributor using?
  2. How will changing the hierarchy affect agents’ livelihood?
  3. Do you risk losing agents to a carrier that will pay “conflicted” compensation?
  4. How do you factor in outside compensation (e.g., marketing fees and allowances, 12-B1 fees)?
  5. Depending on the product shelf, there will be different types of conflicts.
  6. Determine which transactions are prohibited. Determining “red” and “green” transactions should be relatively easy, but determining “yellow” ones will be much more difficult, especially because the rule is fairly ambiguous in this regard.
  7. Understand each other’s point of view. Distributors will create rules for types of compensation they will allow in their systems. Although they are currently uncertain about how they will have to adapt, carriers will have to change their compensation structures and communicate them to distributors.

Carriers and distributors will also need to safeguard against personal and organizational conflicts of interest.

  1. How do we pay our workforce and others?
  2. What is non-cash compensation?
  3. How do we provide incentives to agents to sell products and sell certain product classes over others?
  4. What is the difference between suitability and fiduciary?
  5. Inventory products and create a tool to identify potential conflicts. This will be a complex undertaking, but it will enable carriers to determine who and how much carriers pay and why, as well as if conflicts are permissible or need to be disclosed.
  6. Perform a compensation impact analysis; assess the performance of distribution compensation as it currently exists and what seems likely in the future. This should include an assessment of the future model’s effect on revenue, profitability, market position, channel attractiveness and overall company performance.
  7. As part of a change management strategy, ensure that there is regular, clear and informative communication – both internally and externally – on impending change.

Changes in agent training

Once the fiduciary rule is in effect, agents will need to be advisers first and sellers second. Even though many insurers, especially ones with captive sales forces, have already tightened sales practices in recent years, this does represent a genuine cultural shift and a novel convergence between compliance and sales and distribution. As a result, agents will need more training on their fiduciary role – all the way down to call center scripts – and, with rationalized product lines, most likely less product training than in the past.

Some carriers are experiencing impacts they didn’t foresee. Because of their increasing need to respond to fiduciaries’ requests, they’re having to adopt their distributors’ policies and procedures (including access data requests) and change their product portfolios, share classes and fee structures. If they don’t do this, they risk losing shelf space to insurers that do.

Product rationalization – The DOL rule is intensifying carriers’ and distributors’ focus on product rationalization. Smaller product portfolios and resulting streamlined distribution models will facilitate carrier understanding of its product suite and compliance risks when providing “best interest” advice to consumers, reduce training required for agents and help the industry reduce costs and increase scale. For example, with annuities:

  • There are many providers offering many similar products, and oftentimes riders emulate characteristics of other carriers’ products that companies can’t build themselves. The rule provides the industry further incentives to address the inherent inefficiency in this state of affairs.
  • When determining which products to sell, financial strength is going to be a key product rationalization consideration for distributors because compensation will be more normalized with fewer products. When product portfolios shrink, lower-rated carriers’ products aren’t going to receive shelf space, especially if distributors can’t clearly demonstrate their benefits to customers. As a result of portfolio rationalization and likely decreases in commissions, both carrier and distributor consolidation is likely to increase.
  • Moreover, this isn’t just a business decision but also a compliance one; distributors will have monitoring policy procedures to confirm adherence to this policy. Accordingly, distributors will have to establish a product selection methodology for each segment that accounts for appropriateness and applicability.

However, regardless of product, the challenges of rationalization also represent an opportunity for insurers to have more profitable product portfolios because they can focus on what they’re best at. They also should be able to create products that are less capital-intensive and, with a level fee/different fee structure, potentially profitable in earlier years. In addition, rationalization can help solve the challenge of a shrinking captive and independent agent workforce; fewer and more transparent products should reduce the need to replace many of the agents who are at or near retirement age. Because of the ability to inexpensively manage small accounts and automatically comply with fiduciary standards, as well as the potential to increase scale as needed, robo-advisers should become an even more popular way for insurers to sell products.

Data and technologyMoreover, the DOL rule makes capturing and maintaining new types of data a high priority for carriers and distributors. Agents will need to track, from the time contact is made with a client, how they acted in his/her best interest, and this record – which should be readily available to customers – will demonstrate that agents are being compliant (i.e., defensibility), as well as facilitate monitoring. Automating data capture, which should be especially effective via the robo-adviser channel, is the easiest way to ensure data is repeatable and transparent (again, defensible). This requires automating certain process to maintain compliance and be competitive in the future. Most of the industry has been aware of the need for technological changes, namely process automation, for some time – and many have been making them – but the DOL rule serves as yet another catalyst, especially for those companies that have been slow to act.

See also: Stepping Over Dollars to Pick Up Pennies  

Facilitating effective compliance

Distribution traditionally has had little to no involvement in regulatory compliance, and the DOL rule represents a new challenge for most organizations. We recommend that compliance should:

  1. Oversee distribution;
  2. Provide quarterly “health checks” to the board of directors in to review compliance on a quarterly basis;
  3. Maintain a traceability matrix that outlines key strategic and operational decisions related to rule requirements and thereby provides the company defensible documentation to minimize and mitigate losses.

Implications: Far beyond compliance

As a result:

  • The industry is likely to increase its already growing investments in and use of digital and online channels, including robo-advice.
  • Some insurers are divesting their broker-dealers; as a result, we expect to see consolidation among smaller insurance broker-dealers, independent broker-dealers and regional brokerages over the next three years.
  • The DOL’s move to increase transparency and eliminate conflicts of interest is helping drive convergence of regulation toward a broad fiduciary standard. Whether or not the SEC proposes to cover non-retirement accounts given the mandate for a federal uniform fiduciary standard under the Dodd-Frank Act, some fiduciary agents have already started to consider extending the DOL standard to an increased scope of accounts to avoid potentially awkward double standards for investors who hold both retirement and non-retirement accounts.

Regardless of political developments, we believe the rule’s core framework will remain intact. The industry has already made significant progress toward complying with it, and there is general recognition of the importance of removing conflicts of interest between financial advisers and retirement investors. As a result, financial advisers and firms should continue their work to meet the rule’s requirements.

Key Findings on the Insurance Industry

Insurance CEOs are acutely aware of the disruption and change facing their industry. Keeping pace isn’t just a matter of adopting new technology. It’s also about being innovative and developing the customer intimacy needed to meet fast-shifting market expectations, while sustaining an unrelenting focus on reducing costs.

Disruption and change

Insurance CEOs’ concerns over regulation, the pace of technological change, shifting customer behavior and competition from new market entrants have continued to rise from their already high levels. In fact, no other industry group of CEOs is as “extremely concerned” about the threats to growth in these four areas.

Incremental innovation and marginal cost savings won’t be enough to sustain profitability and growth in this disrupted marketplace. The good news is that many insurers are embracing innovation. Two-thirds of insurance CEOs see creativity and innovation as very important to their organizations, ahead of other financial services sectors. They’re also ahead of the curve in exploring the possibilities of artificial intelligence and humans and machines working together.

Innovation and growth

86% of insurance CEOs believe technology will completely reshape competition in the industry or have a significant impact over the next five years. The gathering transformation is already evident in areas ranging from robo-advice to pay-as-you-go and sensor-based coverage.

See also: Convergence: Insurance in 2017  

Cutting-edge customer interaction and data analytics have enabled insurtech businesses to set the pace in the marketplace. However, rather than being just a threat, collaboration with insurtech businesses can help more established insurers to make the leap from incremental to breakthrough innovation. This includes improving insurers’ ability to analyze the huge amounts of data at their disposal, which can lead to better customer understanding, higher win rates and more informed underwriting. Partnership with insurtech can help insurers improve processes, increase efficiencies and reduce costs.

Data, digitization and trust

While digitization and data proliferation are now central elements of the insurance business, they bring increased cyber risk. More than eight out of 10 insurance CEOs (81%) are “somewhat” or “extremely” concerned about the impact on their growth prospects, on a par with banking and capital markets (82%).

Given the volume of medical, financial and other sensitive policyholder information that insurers hold, breaches could lead to a loss of trust that would be extremely difficult to restore. More than seven out of 10 insurance CEOs (72%) believe that it’s harder to sustain trust in this digitized world, though they also see the management of data as a competitive differentiator.

Grappling with regulation

A massive 95% of insurance CEOs are at least “somewhat concerned” about the potential impact of over-regulation on their growth prospects, and 67% are “extremely concerned.”

See also: Insurance Coverage Porn  

The need to implement so many regulatory reforms across so many areas has inevitably tied up management’s time and made reporting more cumbersome. Compliance demands and costs also continue to rise, straining operational infrastructure and holding back returns. However, these are the unavoidable realities of today’s marketplace. Insurers that are able to build the changes into business as usual can gain a critical edge. And pressure on returns means the “second line” now has to pay its way as part of an approach that shifts the focus beyond compliance to sharpening competitive advantage.

Download the full report here.

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.

A New World Full of Opportunity

The primary drivers of disruption in insurance – notably, fintech (and more specifically, insurtech) – are coming from outside the industry. However, while the pace of change and market disruption has been daunting for most incumbents, the growing presence of insurtech companies is not a threat, but rather is creating real opportunities for the industry.

We see a combination of market and organizational priorities that open the door for these new opportunities.

  • External opportunities primarily relate to social and technological trends and pertain to the shift in customer needs and expectations (which digital technology has facilitated). Insurers have been taking action in these areas to stay relevant in the market and at least maintain their market position. For many companies, focusing on these opportunities remains critical, but this is not enough for them to gain a truly competitive advantage.
  • Internal opportunities relate to using technology to enhance operations and business function execution. For example, some insurers have used artificial intelligence (AI) technology to enhance internal operations, which has improved efficiencies and automated existing customer-facing, underwriting and claims processes.

To take full advantage of these opportunities, insurers need to determine their innovation needs and make meaningful connections with innovators. Doing so will help them balance their innovation mix – in other words, where they can make incremental innovations (the ones that keep them in the game) and where they can strive for real breakthroughs with disruptive and radical innovation (the ones that position them as market leaders).

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:

  • Partner – Innovation centers (also known as hubs or labs) are the most common of the three EIM approaches. Their main purpose is to connect insurers to the InsurTech ecosystem and create new channels for bringing an outside-in view of innovation to the business units.
  • Build – Incubators are a common and effective way to build innovative capabilities and accelerate change. They can be internal, but most companies have preferred to establish them externally and then bring their ideas back into the company.
  • Buy – In this case, an insurer typically will establish a strategic corporate ventures division that sources ideas from outside the company. The company provides funding and support for equity, while the venture explores, identifies and evaluates solutions, and participates in new ventures.

Companies can select elements from each of the above 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.

See also: Innovation — or Just Innovative Thinking?  

Insurance leaders’ innovation agenda should include:

  • Scenario planning – What are potential future scenarios and their implications?
  • Real-time monitoring and analysis of the insurtech landscape – What’s out there that can help us now, and what do we want that may not exist yet?
  • Determining how to promote enterprise innovation, including which combination of approaches will most effectively accelerate and enable execution – What’s the best approach for us to stimulate and take advantage of innovation?
  • Augmenting the organization with new and different types of talent – Where are the innovators we need, and how can we best attract and employ them?
  • Cyber security and regulation – Are we prepared for the operational challenges that new technology can present, and have we and our real and potential partners considered the compliance ramifications of what we’re doing or considering?

Typical Exploration Topics

Some of the typical exploration topics across lines of business are:

  • Personal lines: usage-based insurance, shared and on-demand economies, peer-to-peer, direct-to-consumer, ADAS & autonomous cars.
  • Commercial lines: direct to small business, drones and satellite imagery, internet of things, alternative risk transfer, emerging risks.
  • Life and retirement: robo-advice, personalized insurance, medical advances, automated underwriting, decreasing morbidity and mortality risk.

Opportunities for insurers

As part of PwC’s Future of Insurance initiative, we have interviewed many industry executives and identified six key insurtech business opportunities. We see a combination of market and organizational priorities, which open the door for both external and internal opportunities.

External opportunities primarily relate to social and technological trends and pertain to the shift in customer needs and expectations (which digital technology has facilitated). Insurers have been taking action in these areas to stay relevant in the market and at least maintain their market position. For many companies, focusing on these opportunities remains critical, but this is not enough for them to gain a truly competitive advantage.

External opportunities:

  • Are mainly driven by customer expectations and needs and enabled by technology.
  • Offer front runners the opportunity to gain market relevance and position themselves.
  • Also offer fast followers opportunity because value propositions can be quickly replicated.

Internal opportunities relate to using technology to enhance operations and business function execution. For example, some insurers have used artificial intelligence (AI) technology to enhance internal operations, which has improved efficiencies and automated existing customer-facing, underwriting and claims processes.

Internal opportunities are:

  • Mainly driven by technological advancements.
  • A source of competitive advantage but demand deeper change.
  • An opportunity to set the foundation for how the company understands and manages risk.

To take full advantage of these opportunities, insurers need to determine their innovation needs and make meaningful connections with innovators. Doing so will help them balance their innovation mix – in other words, where they can make incremental innovations (the ones that keep them in the game) and where they can strive for real breakthroughs with disruptive and radical innovation (the ones that position them as market leaders).

See also: 10 Predictions for Insurtech in 2017  

Some examples of change are:

  • Incremental: Omni-channel integration, leveraging mobile and social media solutions and experiences to follow existing trends in customer and partner interaction;
  • Disruptive: Usage-based and personalized insurance that leverages technology and data to develop new risk models based on behavioral factors. This also has the potential to drive radical change.
  • Radical: Crop insurance, where data from different sources (such as weather and soil sensors) is leveraged to optimize and predict yield. As a result of this deterministic model, claims are paid up-front at harvest time.

There is no single perfect innovation mix. It depends on a company’s strategic goals and willingness to invest. Insurers should take into account current insurtech trends and determine long-term potential market scenarios based in part on current indicators and emerging trends. A short-term view will not foster the change that leads to breakthrough innovation.

As a starting point, the following questions can help you evaluate how prepared your organization is to drive innovation.

  • Corporate structure
    • Which parts of your organization drive innovation? Does the push for innovation occur at the corporate or business unit level (or both)?
    • How is the board engaged on decisions about the organization’s innovation mix?
    • What is the organization doing to make innovation a part of its culture?
    • What are the main challenges your organization faces when driving innovation?

  • Strategy, ideation and design
    • How does your organization become familiar with new trends and their implications?
    • To what extent has your organization used an “outside-in” view to inform your innovation model?
    • Which potential future scenarios have you identified and shared across the organization?
    • To what extent have you aligned your innovation portfolio strategy with potential future scenarios?
    • How does your organization approach ideation through execution?
    • Which capabilities are you leveraging to enable and accelerate the execution of new ideas?
  • External participation
    • What investments has your organization made in innovation?
    • In which areas is your organization participating (e.g., autonomous cars, connected economies, shared economies)
    • What structures (potentially in specific locations) has your organization created to support external participation?
    • To what extent has your organization managed to attract talent and partners?

Fast prototyping is key to quickly creating minimally viable products/solutions (MVP) and bringing ideas to life. Early stage start-ups develop and deploy full functioning prototypes in near-real time and go-to-market with solutions that are designed to evolve with market feedback. In this scenario, 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.

Incumbents can follow the same approach and align appropriate capabilities and resources to develop their own prototypes. They also can partner with existing startups that have a minimally viable product (MVP) to help them to move to the next stage, scaling. For this, they have to take into consideration several factors, including operational capacity, cyber risk and regulation (among others) to deploy the MVP in an “open” market. As opposed to controlled pilots or proofs of concept that are controlled environments, this “open” market is driven by demand. Lack of proper resources and the inability to scale the startup will severely compromise or actually prevent successful innovation.

See also: 7 Predictions for IoT Impact on Insurance  

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 enterprise innovation operating models by primary function.

Final thoughts

In a fast-paced digital age, insurers are balancing insurtech opportunities with the challenge of altering long-standing business processes. While most insurers have embraced change to support incremental innovation, bigger breakthroughs are necessary to compete with the new technologies and business models that are disrupting the industry.

This article was written by Stephen O’Hearn, Jamie Yoder and Javier Baixas.