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Inventing Your Future: A 3 X 3 Approach

When you add it all up, the insurance industry has many characteristics that make it an attractive target for aggressive investments in innovation. First, it is enormous; it is estimated to be a global market of premiums written of more than $4.7 trillion. Second, it faces multiple challenges that offer opportunities for exploitation by nimble, efficient and innovative competitors, including:

  • Low-interest-rate environment: Together, forcing a focus on the core business of insurance, creating enhanced customer experiences and value and rethinking operations to manage expenses are driving the innovation of business models underpinned by an efficient, flexible and variable-cost-based infrastructure.
  • New customer attitudes and behaviors: From a move toward owning to renting, looking for niche solutions such as short-term, on-demand insurance or seeking solutions that help to manage risk, there is a growing need for new products and services that may be offered through new business models.
  • Changing customer expectations: Fueled by digital technology, data and experiences from other digital companies (Amazon, Google, Facebook, etc.), expectations are radically shifting and driving increased dissatisfaction levels with how insurers engage and interact with customers.
  • Traditional insurance is stale and complex: Insurance is seen as an intangible, low-engagement product that customers do not enjoy buying. They are seeking alternatives that make the process simple, quick and painless, with engagement that meets their needs.

Yet insurance is still needed by individuals and businesses to protect them and help them manage an increasingly changing risk environment. As a result, there is a gap between what traditional insurers are providing and what is needed in today’s rapidly changing marketplace.

Enter the greenfields, start-ups and incubators that are aiming to innovate insurance. They are seeking to define new business models and processes that create a better way to “do insurance,” capture new market opportunities, create products and services and be at the forefront of the changing market. The nature of this new pressure is characterized by technology, data and very active investment activity as reflected in the new term, InsurTech. The research firm CB Insights is tracking more than 130 start-ups and private companies in the InsurTech space that have raised more than $3.5 billion in aggregate funding.

Many insurance companies recognize the importance of not standing idly by while others are reinventing insurance and creating new models, products, services and value propositions. Indeed, a survey conducted by Celent among its insurance panel found that 86% felt that innovating over the next three to five years was critically important (InsureTech Has Arrived: A Primer, May 2016). And, as highlighted in Majesco’s recent thought leadership report, Greenfields, Start-ups and Incubators … Innovation in Insurance Products, Channels, Services and Business Models, a small but growing number of companies are becoming active in this space by establishing venture capital units/divisions; creating start-ups and greenfields; and incubating new products, services or channels.

See also: How to Plant in the Greenfields

Still, most insurance companies have been hampered by the prospect of needing to do multiple monumental tasks simultaneously: First, continuing to run the current business with existing (and in many cases) outdated legacy systems; second, modernizing those systems to bring the current business into the modern era; and third, innovating/re-inventing the business in the race with InsurTech competitors to respond to the rapidly changing needs, expectations and risk profiles of the customer.

Three Boxes

This dilemma is not new.  The tension between the current state and the vision of the future state is always there; it is just more pronounced today, given the pace and complexity of change. The companies that are exemplars at innovation are the ones that embrace these tensions and manage them strategically.

Consultant and Dartmouth professor Vijay Govindarajan adapted an ancient Hindu philosophy to characterize the required components of this capability in his new book, A Three-Box Solution to Managing Innovation (Harvard Business Review Press, April 26, 2016).

  • Box 1 (with Hindu god Vishnu, the preserver, as the metaphor) is about managing the present and keeping the current success of the company going.
  • Box 2 (based on Shiva, the destroyer) is about selectively forgetting about and letting go of the past. This includes some of the things that led to the company’s current success, which may not be relevant in the future; they are today’s strengths but may very well be tomorrow’s weaknesses.
  • Box 3 (based on Brahma, the creator) is about inventing the future — the game-changing innovations that are going to transform the business for tomorrow.

Govindarajan explains that many companies stay stuck in Box 1 and are afraid of Box 2. In an interview with the Huffington Posthe noted, “Once companies become large and successful, the tendency is to preserve success. The tendency is to focus on Box 1. Box 1 is about managing the present, Box 2 is about selectively forgetting the past and Box 3 is about creating the future. For large companies, success becomes a trap because they tend to focus on Box 1/present.”

Successful companies balance activity and focus across all three boxes. For example, a healthy Box 1 is critical to fund the activities in Boxes 2 and 3, which will determine the future of the company. As he said, “Just as the three Hindu gods work in concert to keep the universe humming, a company manager must keep the present business strong and at the same time get rid of outdated enterprises and develop new lines.”

Three Steps

A Three-Box framework is helpful for structuring strategy for innovation and reinvention, but putting it into action isn’t necessarily easy. In our experience working with numerous carriers on their transformation journeys, we have found the following three tools to be helpful in moving from thinking to action.

First, develop a target operating model that defines how to efficiently and effectively operationalize your company’s vision and business strategy for both the existing business and the future business model. The right combination of business processes (process strategy), organizational structure and staffing (people strategy) and technology and data assets (technology strategy) will likely be different for the existing and future models, so ask these key questions: What is your minimum viable product? New operational model? New business model? What areas of the existing business are most critical to keep it funded today and the future? A target operating model can help you define your existing and future business so that you rapidly get results and value.

See also: How to Turn ‘Inno-va-SHUN’ Into Innovation

Second, create and execute a well-documented, detailed business transformation plan that makes it explicitly clear how the transition from current to future state will occur. The plan should include details on your current state to help drive new efficiencies — including all of the connections, data flows and work flows — and the inevitable bottlenecks and inefficiencies that are costing you money and reducing quality. It should also include details that define your new business model and what you need for the future business, which is likely very different from your current model. To create confidence in how and when you will arrive at the future state defined by your target operating model, the plan must identify and document an appropriate number of transition states that define what the process, people and technology components will look like — and for how long.

Third, leverage cloud platforms and partner ecosystems across all boxes to eliminate the need for new infrastructure and reduce the uncertainty around the veracity of future state business model ideas through “fail fast” experimentation and rapid scalability.

These three steps combined with the Three-Box framework create the 3 X 3 approach for ensuring your company’s current and future success.

3 X 3 Approach to Reinvent Your Business

Reinvention and Transformation: The New Normal

The wave of change to a digitally and data-empowered world driven by ever-increasing customer demands is inevitable. And it is a given that there will be constant pressure from both start-ups and established companies to outdo each other in the race to better meet those needs and capture more share of the enormous value presented by the insurance market.

For insurance companies, the need to reinvent and transform the business is no longer a matter of if, but when. Together, the Three-Box framework and three-step approach provide a formula to use to develop your reinvention and transformation strategy. But the bigger challenge insurance leaders face is the pace of transformation — because the pace of change is not slowing down.

Insurance leaders should ask themselves: Do we have a strategy that considers both transforming the legacy business and creating a new business for the future? Who are our future customers and what will they demand? Who are our emerging new competitors?  Where are we focusing our resources… on the business or on the infrastructure? What can we do to demonstrate to all employees that we must be — and that we are — committed to working in balance across all three boxes?

How to Turn ‘Inno-va-SHUN’ Into Innovation

No industry has been witness to as many changes in the business world as insurance. Paradoxically, the insurance industry has remained (relatively) the same operationally. However, it can no longer turn a blind eye to the change rapidly occurring around and within insurance. The need of the hour is not “inno-va-shun”— shying away from necessary change. It is a straightforward pursuit of real innovation, the combination of modernization and creativity that will capture business and keep it.

Unfortunately, our minds have conjured up thoughts around innovation that make it seem like more of a hurdle than it actually is. We may harbor futuristic, expensive, technologically impossible notions around the term. But innovation, stripped of all the hype and abstractness associated with it, is simply a survival tool that will foster competitiveness and growth. There is little mystery involved, and there is much opportunity for payoff to the business. In some cases, becoming innovative is as simple as lifting off traditional constraints. Experts within and outside of insurance are centered on constraint removal, asking, “What is the shortest path from unmet insurance needs to insurance sales?” This has sparked an investment frenzy.

InsurTech, (a variant of Fintech) is focused on innovation and investments in insurance, and it is growing by leaps and bounds. CB Insights reports a figure of $2.65 billion in InsurTech investment for 2015, representing 350% growth over 2014 investments.  According to PwC’s survey based on companies included in their DeNovo platform, funding of Fintech start-ups more than doubled in 2015, reaching $12.2 billion, up 118% from $5.6 billion in 2014.

Cutting-edge InsurTech and Fintech companies are forcing insurers to take a radically different look at the competitive landscape. There is an increasing awareness by insurers of this change, reflected in a PwC report indicating that 74% of insurance companies identified their own industry as the one part of the financial services sector that will most likely be disrupted by FinTech over the next five years.

So what innovation is happening in insurance?  Is it all about hiring a set of experienced contrarians, providing them with a fertile environment, lots of time and space and access to unlimited funds to come up with an assembly line of  “the next” ideas that will radically transform the insurance industry? That sounds exciting. Who wouldn’t want their own highly funded insurance incubator?

See also: How to Plant in the Greenfields  

The truth is far more prosaic. Innovation in insurance is not just restricted to developing new solutions and technologies or products and services but it is grounded in the consistent development of new offerings, channels and business models to reach and expand in existing and newer markets. It is the building of the next-generation insurance operation that will work as the world changes.

Rather than wait for transformation of the existing business, insurers are looking to innovate, reinvent and create new business models to operate and succeed in a new business paradigm. The time is ripe to experiment and be part of the disruption unfolding, rather than being left by the wayside

Helping fuel the innovation is an array of new partnerships, accelerators, incubators and innovation labs within the industry and individual companies. They are creating solutions, products, services and business models, de novo options – de novo, from the Latin expression meaning “from the beginning,” “afresh,” “anew,” “beginning again.”

And it is not just new capital backing de novo models. Existing traditional insurers are investing into their own greenfields, start-ups and incubators. They are launching new companies and business models to reach new market segments and introduce new products and services. They are carefully building and maintaining the new efforts outside of the traditional brand, distribution channels and business operations to keep the new efforts out from under traditional constraints. There is a wide array of experimentation and de novo options happening within insurance companies to respond to these challenges by generating opportunities.

But to do so, these insurers need a “platform solution” that will enable agility, innovation and speed, not unlike platform solutions that have powered de novo options in other industries. Fundamental to the platform is the need for low IT costs because investment must be focused on the business, products and channels, not in the capital and operational expenditures for the traditional bricks and mortar infrastructure. An insurance cloud platform can be the differentiating and critical enabler.

See also: InsurTech: Golden Opportunity to Innovate  

New platforms need to go beyond the core insurance solution to include ready-to-use, pre-built content, data sources, channel options and best practices that can jump start the business. An ĵacceptable timeframe would be weeks to months, instead of the years that many business transformation projects require.

The insurance industry is quickly realizing the need for innovation. It is not a question of when … but how soon one innovates. New insurance companies, MGAs, underwriting firms and others are incubating new products, new business models and new channels and reaching new market segments. The unprecedented number of new endeavors is a clear indication of this phenomenon. Yet, too many insurers are locked into legacy core systems or engaged in multi-year legacy transformation programs, limiting their ability to innovate and experiment with de novo options.

Rather than waiting, insurers should aggressively seek to leverage a “platform solution” as outlined in the Majesco report, Greenfields, Startups and Incubators: Innovation in Insurance Products, Channels, Services and Business Models. Experimenting and innovating today will prepare insurers for tomorrow’s opportunities.

One cannot but agree with Rob Siltanen when he said,

“Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.”

How are you preparing to change your world — the world of insurance?

To Shape the Future, Write Its History

[Editor’s Note: While my frequent co-author is writing here about how companies, in general, can use a powerful tool to drive change, all those involved in the insurance ecosystem should pay particular attention. The tool, which draws from two books that Chunka and I wrote together — found here and here — is most valuable in industries where it’s clear that dramatic disruption is coming but where the form of that change isn’t yet defined: the very definition of insurance these days. — Paul] 

“History will be kind to me,” Winston Churchill said, “for I intend to write it myself.”

When it comes to corporate innovation, my experience is that history will indeed be kinder if leaders take the time to write it themselves—but before it actually unfolds, not after.

Every ambitious strategy has multiple dimensions and depends on complex interactions between a host of internal and external factors. Success requires achieving clarity and getting everyone on the same page for the challenging transition to new business and operational models. The best mechanism for doing that is one I have used often, to powerful effect. I call it a “future history.”

Future histories fulfill our human need for narratives. As much as we like to think of ourselves as modern beings, we still have a lot in common with our earliest ancestors gathered around a fire outside a cave. We need stories to crystallize and internalize abstract concepts and plans. We need shared stories to unite us, and guide us toward a collective future.

Future histories provide that story for companies.

The CEO of a major financial services company occasionally still reads to internal audiences parts of the future histories that I helped him and his management team write in early 2011. He says they helped him get his team focused on the right opportunities. As of this writing, his company’s stock has almost doubled, even though his competitors have had problems.

To create future histories, I have executive teams imagine that they are five years in the future and ask them to write two memos of perhaps 750 to 1,000 words each.

For the first memo, I ask them to imagine that the strategy has failed because of some circumstance or because of resistance from some parts of the organization, investors, customers or other key stakeholder. The memo should explain the failure. The exercise lets people focus on the most critical assumptions and raise issues without being seen as naysayers. There is usually no lack of potential problems to consider, including technology developments, employee resistance, customer activities, competitors’ actions, governmental actions and substitute products. Articulating the rationale for failure in a clearly worded memo crystallizes thinking about the most likely issues.

To heighten the effect, I sometimes do some formatting and structure the memo like an article from the Wall Street Journal or New York Times. Adopting a journalist’s voice helps to focus the narrative on the most salient points. And everybody hates the idea of being embarrassed in such publications, so readers of the memo pay attention to the potential problems while there’s still time to address them.

The second memo is the success story. What key elements and events helped the organization shake its complacency? What key strategic or technological shifts helped to capture disruptive opportunities? How did the organization’s unity help it to out-innovate existing players and start-ups? This part of the exercise encourages war-gaming and helps the executive team understand the milestones on the path to success.

Taken together, the future histories provide a new way of thinking about the long-term aspirations of the organization and the challenges facing it. By producing a chronicle of what could be the major success and most dreaded failures, the organization gains clarity about the levers it needs to pull to succeed and the pitfalls it needs to avoid.

Most importantly, by working together to write the future histories, the executive team develops a shared narrative of those potential futures. It forges alignment around the group’s aspirations, critical assumptions and interdependencies. The process of drafting and finalizing the future histories also prompts the team to articulate key questions and open issues. It drives consensus about key next steps and the overall change management road map. In a few weeks’ time, future histories can transform the contemplated strategy into the entire team’s strategy.

Future histories also facilitate the communication of that shared strategy to the rest of the organization. Oftentimes, senior executives extend the process to more layers of management to flesh out the success and failure scenarios in greater detail and build wider alignment.

Future histories take abstract visions and strategies and make them real, in ways that get people excited. They help people understand how they can contribute—how they must contribute—even if they aren’t directly involved in the innovation initiative. People can understand the timing and see how efforts will build.

People can also focus on the enemies that, as a group, they must fend off. These enemies may no longer be saber-toothed tigers, but they are still very real and dangerous to corporations. “Future histories” unite teams as they face the inevitable challenges.

Venture Capital and Tech Start-ups

Unicorns – to some they are just mythical creatures of lore. To today’s tech world, a unicorn is a pre-IPO tech start-up with a billion-dollar market value. These are the companies driving innovation, technology and disruption in every corner of every business, and their impact is truly being felt across the insurance industry.

The number of unicorns is as elusive as the creatures themselves, as the herd is growing rapidly.

“Fortune counts more than 80 unicorns today, but more appear with each passing week. Some even received their horns, so to speak, as the magazine went to press. And they’re getting bigger — there are now at least eight ‘decacorns,’ unicorns valued at $10 billion or more. So much for being mythical.” — Fortune

Recognizing the powerful sway that unicorns have over new technologies, business models and more, insurers are now getting into the unicorn game themselves. They are identifying technology start-ups that can transform insurance and are becoming venture capitalists to tap into this great potential for creating the next generation of insurance.

Different models and approaches are being used to identify, assess and influence these companies’ offerings. By understanding the benefits of outside-in thinking, insurers are finding ways to leverage these innovations. Some insurers are partnering with leading technology firms. Some of the large insurers are setting up their own venture capital firms. Still others are creating consortia to fund new start-ups to help accelerate innovation.

Insurers and Unicorns

The following are a few examples of new partnerships in 2015; the trend is continuing;

AXA– In February 2015, AXA announced the launch of AXA Strategic Ventures, a €200M fund to boost technology start-ups focused on customer acquisition, climate change, travel insurance and more. The goal is to advance AXA’s digital and customer strategy by connecting with new technologies, new solutions,and new ways of thinking. The company anticipates the fund will complement AXA’s major operating investments, across all entities, into research and digital developments that will help transform how customers experience AXA.

XL Insurance – On April 1, 2015, XL Insurance announced the formation of a venture capital fund, XL Innovate, to support insurance technology start-ups, with a focus on developing new capabilities in the insurance sector. XL indicated that this effort would extend its capabilities in existing markets and give it new opportunities to address some of the most pressing and complex risk problems in the global economy. In addition, XL sees it as a critical element to driving focus on innovation forward while securing relevance in the future.

Global Insurance Accelerator – In February 2015, a group of seven Iowa-based insurers announced the formation and launch of the Global Insurance Accelerator (GIA), an insurance accelerator for start-ups. The start-ups receive $40,000 in seed money from the pool to create a minimum viable product to present to the Global Insurance Symposium. The insurers involved believe that the accelerator program will bring potential innovation and technology insights to the insurance industry.

The Future

Innovation, technology and the need to be future-ready are fueling today’s unicorns and their capital supporters rapidly expanding the herd. In turn, these new business models and market leaders are spawning challenges and opportunities for all companies.

Today’s forward-thinking insurance companies are running their businesses while simultaneously creating their futures as Next-Gen insurers. It’s critical to recognize the power and benefits of innovation and the role that unicorns play in planning for tomorrow.

This is a decisive time as Next-Gen insurers emerge along with their unicorns to disrupt and redefine insurance and competitive advantage. What is your company’s approach to leverage and experiment with emerging technologies, start-ups and unicorns to fuel the potential and enable future market leadership?