Insurance has been around for centuries. It can be said with reasonable confidence that no industry has been witness to as many changes in the business world as insurance. Paradoxically, however, the insurance industry has remained (relatively) operationally the same. However, it can no longer turn a blind eye to the change and disruption 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?
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 “new” 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 new 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 in order 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.
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 rapidly. An acceptable 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, MGA’s, underwriting firms and others are incubating new products, new business models, 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?