As a world, a nation, an industry, a business and as individuals we have all been deeply affected by the pandemic that has swept through our lives.  Years from now, we’ll all be talking about how it changed our lives and how it disrupted businesses forever … insurance being one of them.

Of course, there are many insurance implications arising from it because it has and will bring so many levels of change, short-term, mid-term and long-term.  We have a webinar on April 30, 2020 titled, “The Future of Insurance Post-COVID-19: Insights, Learnings & Recommended Actions from Top 50 InsurTech Influencers”, where myself and three of my Top 50 InsurTech Influencer peers – Chris Cheatham, Sabine Vanderlinden and Mike Conner will share and discuss our views – with a short-term, mid-term and long-term view.

One of those implications at the top of the list will be a corporate self-assessment and an industry assessment of how we need to adapt to a “new normal” that is still unfolding.

Out of previous crises, including 9-11 and the 2008 financial meltdown, some insurers began to make some operational and technology changes. But these were not enough to fully address shifting customer needs and expectations or to achieve the digitization of insurance through the entire life-cycle.  In contrast, others (including some InsurTechs) did make significant changes by introducing new products, customer experiences and business models that are adaptable to significant market shifts.  Regardless, the industry and every insurer must learn and be prepared for future crises, because they will come.

Key questions to ask include:  Will we have maintained high levels of service to customers? Did they get the customer experience they demanded and needed?  Were insurers ready for WFH business operations? How rapidly could they change business systems for underwriting, billing and claims?  These are the conversations we need to have because this layer of disruption is highly relevant to each insurer’s state of transformation and innovation preparedness. Will random unpredictable events be the next driver of strategic change? Will platform systems, now necessary for insurance agility and flexibility, become Burning Platforms for insurance leaders?

Innovating for the Unexpected — AM Best’s Visionary Criteria for Insurers

In the midst of all of this, A.M. Best, one of our industry’s most trusted rating organizations, has been watching all of the other disruptive shifts over the last number of years with great interest, in an effort to understand and encourage insurers in their transformation and innovation initiatives. On March 20, 2020, A.M. Best released preliminary findings from innovation rating tests in its Special Report: The Advent of Innovation.

Most anyone would agree that innovation and disruption are related topics. Innovation deals with creating an entirely new approach that adds value to something. Disruption deals with accepting the reality that something new will likely change our current approach. Today’s insurance systems need both the capability to capitalize on innovation and the adaptability to weather disruption. For the past several years, insurers and insurance technology experts, such as Majesco, have been championing the development of platforms and the use of ecosystems that manage both innovation and disruption efficiently. Jim Gillard, Executive Vice President & COO, AMBest, sums this up succinctly.

“Structural shifts — demographic, technological, economic and environmental — are redefining the insurance industry,” said Jim. “Innovation can be away for an insurer to rise above these challenges…As innovation becomes more pervasive, insurers that don’t innovate can expect to find themselves at a disadvantage through adverse selection and worsening operating efficiencies.”[i]

This assertion certainly rings true with most insurers, whether they are on the road to innovation or not. A.M. Best believed that the importance of innovation would be best viewed through measurable criteria, so that real innovation knowledge could use performance indicators as evidence. A.M. Best’s criteria are outlined in its new report.

While most insurers might ask themselves the question, “Have our investments in innovation really paid off?” A.M. Best’s criteria seem to ask a similar question that’s more rhetorical — “Is innovation anything at all if it doesn’t make an impact?”

Spoiler alert! What A.M. Best found through its test surveys, interviews, criteria and analysis was far more important than just the answer to these questions. They found some critical links between “method” of innovation and innovation impact and they found preliminary evidence that the most innovative insurers are already some of the most highly rated insurers.

What Makes Innovators Impactful?

Among many of the highlights from the A.M. Best report, we find that innovators share at least three key elements:

  1. A culture of innovation.
  2. A “material portion of the annual budget” is dedicated to constructing replicable innovation initiatives. Most often this utilizes some outside resources.
  3. Analysis/recording of innovation’s impact. Measurable results.

In their segmentation of insurers (Leader, Prominent, Significant, Moderate, and Minimal) A.M. Best recognized that Leaders proactively constructed the whole company culture, from the leadership through to management, to not only accept innovation — but to make innovation a documented repeatable process instead of an ad hoc process.

Majesco’s research findings echo these A.M. Best reports. In our 2019 Strategic Priorities report, we found that insurance companies are widely varied in their responses to change and disruption as either Leaders, Followers or Laggards.

On one end of the spectrum are the Leaders that have a burning platform and are forward-thinking. They understand the intersection of customer, technology and market boundary shifts and are blazing new trails to the future with their incubators, hackathons and InsurTech investments and partnerships. They are moving the industry forward and they are building their future with new products, services, business models, digital capabilities and ecosystems that will sustain them as the future rapidly unfolds with new competitors, new customers and new market opportunities.

On the other end are Laggards who are watching, waiting and wondering, “What’s the rush? We’ll save money and time if we jump in after they have paved the way.” And, there are the Followers who lie in between, most trying to roust up enough resources to drive digital transformation to keep from not falling too far behind the leaders.

In Majesco’s 2019 report, Insurance Platforms: A Burning Platform for Market Leadership in the Digital Era of Insurance, we point out that creating the future through speed of innovation is what makes Leaders stand apart from the pack. Leaders (and to a lesser extent, Followers) are clearly positioning themselves to be competitive in the Future of Insurance, and a platform-based insurance business model is a key route to enable innovation. Leaders have a broader and more focused set of strategic initiatives.

Leaders distinguish themselves with a stronger focus on initiatives instrumental to creating a new business model, including channel expansion, entering new markets, adding value-added services and developing new products.

They are redefining and reimaging the future of insurance … taking control before someone else does. And they are doing it within a repeatable innovation methodology that fits with A.M. Best’s innovation criteria. When A.M. Best looked at insurers’ processes and structure, they found a key indicator of whether or not an insurer had crossed the bridge from “one off” innovation ideas to become sustainable, structured innovation-led businesses.

“…the vast majority of companies lacked a replicable innovation process. Most entities instead elected to formulate innovative initiatives ad hoc; few provided AM Best analysts with evidence that they had processes or structure in place to consistently develop, implement and assess changes.”[ii]

Constructing Digital Ecosystems and Processes for Innovation Impact

Here is where innovation meets impact. Innovation resources are used to construct systems, platforms and processes that foster the innovations themselves. According to A.M. Best, “Transformative initiatives are those that create value, improve customer engagement and experience, lead to superior business models, or significantly enhance growth opportunities…”

To make this happen, insurers most often need to reach outside of their internal resources. A key success factor in today’s insurance market is a recognition that it is no longer desirable or optimal to “go it alone,” particularly in the platform economy, where digital ecosystems are a multiplier effect for growth. Majesco research found that most insurers (80%) agree on the value of partnerships and ecosystems, indicating that they are involved with at least one partnership or ecosystem with insurer, reinsurer, MGAs and InsurTechs at the top for partnerships. A.M. Best echoes this finding.

“Some companies take a hybrid approach, allocating a specified budget for innovation while also partnering with the other organizations to improve products, services or business models. External investments in such companies can also support an organization’s overall innovation strategy.”

This also makes innovation structures scalable. It allows innovation strategies to fit any size insurer within any markets, broad or niche. Once an insurer pursues a platform approach to systems, it can stop filtering out innovative ideas that can’t be done because “systems won’t support it.” The ability to capitalize on capabilities requires the adoption of a modern architecture that supports easy, rapid integration through microservices or APIs running in the cloud to drive speed to implementation, speed to market and speed to value, at scale. To bring us full circle, we consider that value is ultimately where Innovation’s impact becomes visible, tangible, and proven as real innovation.

Innovation’s Impact on Tomorrow, Today.

Today’s global stress points are proving that insurance technology experts are going to have to adapt themselves to fit tomorrow’s mold. The future will require us to not only become innovation experts but also to become expert managers of the unexpected.

Future leaders will reevaluate costs, looking to move from fixed to variable. They will rethink business continuity and scalability for operations, and how to accelerate adoption of platform technologies to drive operational effectiveness and innovation.  These leaders will learn and adapt from the plethora of innovations and experiments launched in the short-term, mid-term and long-term that can provide substantial opportunities.  The result: a stronger, more flexible and more resilient business that will deliver and meet customer expectations.

Finding the right balance between managing today’s business while creating the future business is more important than ever, because change and crisis will continue.

If anyone in the insurance industry has ever wrestled with how their role is contributing to all that is good in the outside world, they now have the answer. Global stability, financial stability and the individual personal security of billions of people and businesses, are positively impacted by how we operate, manage risk and deliver on our promises. Our innovations and our expertise are crucial to people and businesses — not just today, but every day.

While the implications of the pandemic are still unfolding, pressure will build for our industry to address digital transformation and embrace innovation to be prepared for a new future that is here today.  Are you ready to begin your journey into that future and the next steps of innovation? Be sure to download Insurance Digital Transformation: A New Era of Core Systems, Next Gen Technologies and Ecosystems.

[i] Finnegan, Hopper, Imsirovic, Varvaro, Ermakova, et. al, Special Report: The Advent of Innovation, A.M. Best, March 20, 2020

By:Denise Garth

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