Disruption is a strange kind of instructor. It enters the classroom with very little warning. It can silently reconfigure the furniture or it can noisily throw it out into the hall. It expects that its students will see through the motions to learn their lessons using their own intuition and insight — putting the room back together in ways that make sense or tearing down the walls and rebuilding a whole new classroom. It has no real rules for class, except for one. Don’t sit down. There is no time to stay still.
Today’s insurance industry environment is characterized by constant disruption, increasing competition and shifting market and customer demands. Innovation is increasingly critical to the future, long-term success of insurers. So, insurers are learning. While they have focused on innovation for decades via the business process reengineering movement, innovations were internally-focused on driving operational efficiencies and effectiveness. Then came the rise of InsurTech in 2015, which, along with emerging technologies, re-aligned innovation to an externally-driven focus on the market and customer. Like that famous line from the children’s book, Where the Wild Things Are, the rules and the barriers vanished “and the walls became the world all around.”[i]
This is why innovation initiatives are laser-focused on creating competitive advantages that respond to the rapidly shifting marketplace and adoption of digital technology. We have lost our sense of space and time and we need innovations to help us reconstruct new models that are less fixed and more relevant to today’s and tomorrow’s lifestyles and technologies. Innovators have had to learn and grow without an official rule book or instruction manual. Innovation has moved from an operational to a strategic imperative to ensure market leadership by outpacing competitors and challenging disruptors to ensure long-term survival and success. This has created a market space where innovation blazes new trails and leads, instead of being asked by operations to “follow and innovate along this path we already know.”
The rise of InsurTech is helping to rewrite the rules of the insurance business. With innovative products, services and business models, from both existing and new entrants, these companies are redesigning organizational and business model structures, and how products and services are defined and delivered. They are using digital technology and data and analytics to better understand, underwrite and service their customers with tailored products and services that are more personalized than ever and meet the under- or unmet needs of a rapidly changing market. In Majesco’s recent Thought Leadership report, The Future of Insurance: Optimization, Growth and Innovation, we explore the idea that companies should take this opportunity to reinvent themselves.
Disruption knows no bounds — including regulation.
This pace of innovation and change has an unintended consequence. It is challenging regulation. For insurers, this is somewhat like being a young student who walks into the principal’s office and says, “If I’m going to grow, you’re going to have to change.”
The only difference here is that insurance regulators (thankfully) already know this. They are keeping in touch and learning about what it takes to create a nurturing environment for insurance innovation, while at the same time continuing to do what they do best.[ii]
As InsurTech and innovation are creating new business models, products and processes to meet rapidly changing customer demands and expectations, we are beginning to see the shifting views of regulators and rating agencies. Why? Because first and foremost their “customer” is the consumer or business owner who has a new set of expectations or who may be creating innovative new businesses that need new risk coverages. As a result, the regulators are beginning to quickly embrace this era of innovation in different ways.
- The first is with the proposed AM Best Innovation rating as a component of the annual rating process.[iii]
- The second is the Sandbox concept originally proposed at the NAIC, now being adopted by states such as Kentucky to promote and support innovation within the insurance industry.[iv]
Who would have thought the combination of innovation and regulation would join together to accelerate the future of insurance? These two words – innovation and regulation — which seem contradictory, are actually working together to ensure that the industry is relevant in a new digital era. In next week’s blog, we’ll look in detail at how these two events are going to impact the insurance industry. But for now, let’s consider at a high level how the cohesive blend of innovation and regulation may give us a new opportunity for strategic alignment within the insurance organization.
3D Alignment — Optimization, Growth and Innovation begins with 2-Speed Strategy.
In Majesco’s report, we also found parallels in how A.M. Best proposed implementing innovation criteria with how Majesco applies its 2-speed optimization and innovation roadmap for insurance leaders. These parallels provide a roadmap and guide to where insurers are on their journey to the future of insurance. They highlight how insurers must demonstrate a well-balanced mix of operational and growth-oriented innovation, have the ability to respond to both internal and external pressures, and also possess the dexterity to balance short and long-term initiatives.
This ensures that innovations remain aligned with optimization efforts and ground-breaking new efforts that all support the insurer’s primary strategic goals.
With AM Best, the NAIC and state regulators recognizing the need to support innovation, insurers need to be prepared to rapidly adapt and respond. They need to ask themselves, “How do we modernize and optimize the existing business while we create a new business model for the future?” How do we position ourselves as leaders?” These questions should be asked out of the realization of the urgency to create the future.
In many cases, insurers are realizing that partnership with and acquisition of InsurTech companies will help them to fast-forward. As noted in a recent A.M. Best survey, “Nearly half of respondents…have either formed a partnership with a research group, university or technology incubator or else invested in an InsurTech fund to help them keep up on new technologies, even as they keep their focus on core competencies.”[v]
This is the right response. If InsurTech is truly trying to erase insurance business models, let insurers be the ones to craft their own futures by designing their own future models. Let insurance thrive off of InsurTech innovations by using those technologies to craft their own unique products, service offerings and distribution methods.
It bears repeating…successful management of the existing business and reinvention of the future business requires making a bet—one that can overcome the drag of the old way of doing things. Making that bet requires leadership, confidence and expertise. At Majesco, we increasingly see this from the growing number of InsurTech and incumbent insurers with whom we are actively working to modernize, optimize and create new businesses – accelerating their path for innovation and future market leadership.
Majesco recognized the future was coming quickly and placed itself among the early leaders in embracing the “insurance platform” concept. The insurance platform model replaces the old paradigm of the integrated suite of core insurance systems implemented in an on-premise environment – often over years at the cost of tens of millions of dollars or more. Our CloudInsurer® platform, which includes our P&C and L&A core systems, is content-ready and architected for a software-as-a-service (SaaS) cloud-enabled platform – one of the first in the industry. And our Digital1st Insurance™ platform, is a next-generation platform-as-a-service that brings the most cutting-edge business and consumer technology trends to insurance, and it is pre-integrated with our core and other related offerings.
Together, these solutions support what we describe as a “Two Speed Strategy”:
- Speed of Operations for the traditional business model with mature systems and processes needing incremental operational improvements through modernization and optimization using modern cloud and API-based modern solutions;
- Speed of Innovation for agile, fast and MVP models to explore, test and learn from new business opportunities – many in 12 weeks or less – by creating the new business for the future using next-generation native cloud, microservices and API-based solutions.
This strategy embraces both the transformation of existing insurance operations and the launching of new business models or products (both which are critical elements to be considered in A.M. Best’s new innovation scoring).
As insurers begin to consider the implications of these regulatory paradigm shifts, we would encourage them to think of new benchmarks as opportunities to modernize and optimize their existing business, while enabling them to experiment and innovate to build their future of insurance at speed and scale. This is the core of strategic alignment.
In our next blog, we’ll look at points of impact. Where are regulatory changes most likely to impact insurers and which ones are designed to give insurers their moments of opportunity? If we tear down the walls of the classroom, are we prepared to learn and adapt and grow in an environment with more variables and fewer constraints? For a sneak peek, be sure to download The Future of Insurance: Optimization, Growth and Innovation.
[i] Sendak, Maurice, Where the Wild Things Are, Harper & Row, 1963
[ii] “Regulators Connect with Innovators at InsurTech Conference,” National Association of Insurance Commissioners, October 3, 2018
[iii] Lerner, Matthew, "A.M. Best plans to add innovation score, requests comments," Business Insurance, March 14, 2019
[v] “Cautious Carriers Often Pursue Innovation Warily: A.M. Best,” Carrier Management, September 25, 2018