The Changing Shape of Insurance Innovation
Business has always had innovation, but innovations seem to come in waves.
In the last 2-3 decades, however, a sort of grand wave of business innovation has given us a heightened sense of what it means to be an innovative company. We’re now seeing the results of a different kind of business model and digital mindset that actually began in the mid-1990s.
In 1993, for example, Wired magazine arrived on the scene, a kind of future-focused technology and business tome that married hip business science with a philosophy of innovation. Nicholas Negroponte, the futurist, and author of the bestselling book, Being Digital, was an investor and a columnist. Wired also used cutting-edge design, which helped readers to understand that looking ahead was not just food for thought, it was food for practical application. Business itself was in the midst of redesign. To meet the future head-on, we would need to apply creative innovations to meet the needs.
Two years later, the magazine Fast Company arrived on the scene, showcasing companies that were launching new business models and new ways to work. Fast Company was out to prove that innovation didn’t just happen in the technology shop, it had to be a common thread in an organization’s culture. Non-executives were given a voice. Innovation was anti-silo. Even physical office spaces were changing to open layouts with more collaborative environments.
Since then, what we thought was fast is now slow in comparison. In insurance today, changing customers, channels, and technologies are moving faster than many insurers can adapt. Risk is shifting as well, creating the need for new types of products and offerings serving large and niche segments.
Insurance’s definition of innovation has been changing as both insurers and InsurTechs grapple with the right formulas for growth. What started as anxiety over the InsurTech boom soon created a sense of excitement. Now the InsurTech innovation wave is maturing into a real collaborative environment made up of platforms, ecosystems, and modern data management.
What’s next in insurance innovation?
Majesco recently hosted an Insurance Growth & Opportunities webinar to discuss these trends with a group of respected innovation leaders to participate, each holding a different role within some of our industry’s most innovative companies. Our panel included:
Arlene Kern, Senior Vice President and Innovation Scout, Munich Re
Peggy Klingel, Innovative Leader and Growth Strategist, Allstate
Chris Cheatham, Product Evangelist, Bold Penguin
Jay Sarzen, VP Senior Solutions Manager US, Swiss Re
and myself, Denise Garth, Chief Strategy Officer, Majesco
In our next two blogs, we are going to “replay” some insights and sound bites from this energizing conversation, but you may wish to view the full webinar here. The three questions we try to answer in this blog are:
- How has innovation evolved within the organization?
- How are individuals and business customers driving innovation?
- How are changing risks pushing insurance in new directions?
The Innovation of Innovation:
How has innovation evolved within the organization?
Denise Garth: How companies approach innovation has rapidly evolved over the last three to five years. Five years ago, innovation was a separate department. Then companies tried to take these ideas and implement them operationally to drive innovation. What have your organizations learned to give innovation more impact?”
Arlene Kern: At Munich Re, we’ve had those dedicated innovation departments for seven years now. We’ve seen a shift away from the idea of the big disruption that was going to displace some of the carriers within the incumbent ecosystem. Instead, we’ve really seen that there has been a big partnership. InsurTech now is about enabling technology — working together with startups and incumbents to do what insurance companies have been doing all along. Except that now, these partnerships help them to do what they do faster, better, and cheaper while placing the customer first and making sure the customer experience is improving every single day.
Jay Sarzen: That resonates for us here at Swiss Re as well. The one thread that we’ve seen in successful deployments of innovation is that there has to be a shared commitment from the top down throughout the organization. It’s one thing for the senior leadership team to say that they’re going to go down a certain path, but unless they give those lower down the ladder the right to fail, we don’t really see that innovation is going to go anywhere. Do the lower folks buy into it? Are the senior leaders giving them enough air cover to innovate and drive change throughout the industry?
Peggy Klingel: Allstate, like many carriers, has been innovating for quite a while, and it has shifted from a centralized kind of activity to being more embedded within our business units. It gives us the opportunity for innovations to be tied to the business unit and to get the buy-in of the employees who are involved at a very early stage in the innovation activity.
Because innovation is not in a centralized place, we make sure that we’re communicating across some of these teams. In some cases, we may even combine a demo, or tests for different business units looking at new technology.”
Denise Garth: Chris, what’s your perspective, having been one of the InsurTech startups acquired by Bold Penguin, and now part of a larger insurer organization?
Chris Cheatham: Getting new tech to stick within a company like a large carrier is hard. During the InsurTech wave that we just experienced, I think there was a lot of Innovation Theater, where people would say, “Let’s go look.”But it was very, very difficult, to get technology to actually stick. I like this idea of embedding — finding a champion that can use the solution. I think that’s absolutely key. Just having an innovation team isn’t enough; you have to cross the chasm and get to the operations side so that these products can get used.
We’re at an interesting time. I’m paying attention to who’s placing [InsurTech] bets now because those are the companies that will really benefit from this next wave of InsurTech.
Denise Garth: AM Best, with their innovation rating, is looking at the difference between those that are innovating and really trying to do it both operationally and strategically versus those that aren’t. The analysis that they have from a P&C perspective is that those who seem to be innovating more, have experienced better profitability and more growth. So, there is a correlation between embedding it in the use cases, and then tying it to real business, business results, and business solutions.
Arlene Kern: Just the fact that AM Best placed innovation into their rating, is the recognition that innovation is essential and core. If you’re not innovating, that’s a real risk to your business. It’s everybody’s job to innovate now, and that is an evolution.
Peggy Klingel: It does bring up the question of how we define innovating. Some innovation is process automation and core improvement. But we still need to leave some room for a few big-shot innovations and longer-term bets.
The Independence of the Customer:
How are individuals and business customers driving innovation?
Denise Garth: When we talk about change in the industry, the heart of change is really driven by our customers, whether they’re businesses or individuals. How do you see customers driving change in disruption? And do you see that it’s different for individuals versus businesses?
Chris Cheatham: One thing that happened during the pandemic, right in the middle of the InsurTech boom, was that customers really expected to be able to do everything digitally. In commercial insurance, we are seeing a lot more people wanting to shop for commercial insurance online, start the quoting process themselves as the business owner, then eventually talk to an agent. Agents still exist in the chain, but people want to start shopping online for commercial insurance, just like they do everything else.
Peggy Klingel: If you look at the history of how we’ve focused on customers, it’s shifted quite a bit. We pivoted from [insurers] deciding what customers might need, to focusing, in a granular way, on the customer journey. Years ago, we built apps that described where claims were in the process. We then realized that the customer doesn’t care about our internal processes. They just want to get paid on a claim. They don’t need to be educated on the underwriting process. We’ve spent a lot of time testing with customers, so the innovation has shifted to be much more customer-centric than ever.
Jay Sarzen: As we talk to our various treaty partners, one thread has emerged. Customers, whether business or personal, want to have their specific risk underwritten. They don’t necessarily want to be in a risk pool, subsidizing poor behavior. It’s really incumbent upon these carriers that we’re working with to get a better handle on their underwriting processes. That leads to a better outcome for those that engage in this behavior and will give them a more favorable premium rate.
Also, carriers really have to start delivering that Amazon-esque experience. It’s just an expectation now that you can make changes to your policy: raising limits, lowering limits, enhancing coverages, decreasing coverage, all with a few swipes on an iPad or an iPhone. And if you can’t provide that to your customers, you really do run the risk of running behind. Better underwriting. Easier to use. That’s what we’re seeing.
The Personalization of Risk:
How are changing risks pushing insurance in new directions?
Denise Garth: There are new risks and combinations of risks that are shifting the need for insurance. It’s not just about the property being close to a fire hydrant, or customers in a fire zone. There are so many other elements to take into consideration, with a layering of multiple different types of risks. Let’s talk about these areas of change and risk.
Arlene Kern: Risks are changing pretty quickly. We’re seeing cyber risk evolve into something that every business cares about. Even physical risks, with the evolution of climate change, are starting to look different. And there are other digital risks. How many digital assets do you have? How do you protect digital assets? The risk landscape today looks very, very different than it did 15 or 20 years ago.
Chris Cheatham: What I’m paying attention to is how everything is becoming more niche. Tech has enabled lots of MGAs to distribute lots of smaller insurance products. And I think that’s going to be a trend we see going forward where people just want to do something much smaller than before. For example, I’ve seen a lot of surety bond InsurTech startups. This is a really tiny, but very profitable segment. Underwriters are getting appointed by a carrier and then spinning out and doing an MGA for surety bonds. I expect that type of thing to continue to proliferate. Some of the MGAs that were started recently received huge valuations prior to 2021, but they may struggle going forward. Some will succeed. But the next wave, I think is going to be super interesting because it is going to be super, super niche.
Peggy Klingel: We’re watching the niche products too. Our method is to bring together solutions from a variety of different areas — insurance and adjacent solutions such as identity protection — and package that up for our customers.
I think the future of the success of all these other products (microinsurance and very niche products) is to build a more personalized coverage for the customer based on their particular situation. They need the ability to get a personalized solution at the click of a button — an embedded purchase during a home or an auto purchase.
The technology needs to enable that because no customer wants to run around and search for a bunch of different niche products, whether that’s a business or consumer.
Jay Sarzen: Swiss Re believes that there’s a real opportunity for cyber products. It’s not something we really love, necessarily, because there are so many unknowns about it, but the opportunity is there to help carriers get a better handle on the nature of cyber risk.
We’ve not yet seen a “Hurricane Andrew” cyberattack. We don’t know what a true [cyber] catastrophe really looks like…and as a reinsurance carrier, we’re wholly interested in that.But there is plenty of room for a good cyber product that gives a little bit more comfort to insurance carriers.
We’ve discussed MGAs. One of the programs that we offer our partners is that we will help source deals for them from what we call “adjacent sectors,” like a mortgage lender or a car loan provider. These companies are sitting on troves and troves of data that can be turned into an insurance program. We work with them to find a carrier and we can provide the reinsurance. As Chris and Peggy mentioned, this is born out of the recognition that there is a real desire on the part of consumers to get very targeted, very niche offerings that are relevant to them, and that are going to cover their exact needs.
Denise Garth: Yes. The growing types and reach of channels are one of the next areas we want to focus on that is tied to growth. The personalization of — not just what customers want to buy — but where they want to buy and when they want to buy. We’ll cover that in our next segment! You will see that the discussion with Arlene, Peggy, Chris, and Jay is insightful, thoughtful and helps provide an understanding of how the insurance market needs to get on the innovation train to ensure future leadership and success.
In our next segment with our panelists, we’ll cover the move to multi-channel models. How will all of our considerations become more effective with enabling technology innovations which will expand markets and lower costs? How do insurers upgrade their data and analytics to fit into customer-focused innovations? What are the next steps for InsurTech? For a deeper analysis, check out the full webinar, Insurance Growth & Opportunities — How Next Gen Technology, Products, Data, Channels and Ecosystems are Driving Change in the Face of Increasing Market Changes.