Over the past few years, the term ‘awesome’ seems to have lost some of its meaning as a result of overuse. We’re wondering if ‘Innovation’ is heading in the same direction, at least as it relates to insurance and technology. We’d like your thoughts.
How does innovation relate to insurance technology?
Those of us who have been involved with insurance technology for a few decades generally agree that while technology has been important in supporting backroom operations, it has never had the same strategic prominence in the industry as it has had in other sectors (e.g., securities, retail distribution).
In the past decade, however, there seems to have been a change. The persistence of a soft market has forced practitioners to look to technology to be a differentiator as margins are squeezed. ‘Innovation’ has become a focal point for solutions on a number of fronts.
The seminal work of Harvard Professor Clayton Christensen, in his book, The Innovator’s Dilemma is usually referenced. Christensen put forward the notion of “disruptive innovation”; a change (usually technology enabled) which either creates a new market or radically alters the behaviour of an existing market (e.g., by lowering prices significantly).
Insurers can’t be blamed for looking at innovation and disruptive technologies as an obvious solutions. And suppliers have responded, using ‘innovation’ and ‘disruption’ in their marketing. A number of conferences, seminars, white papers, etc. have followed the lead. Hence, the Innovation Inflation spiral.
(We saw a post recently which suggested that web-based certificate-of-insurance technology was innovative. It might have been in 1995 when it was introduced, but in 2013?????)
So will insurers respond to the siren’s song of Innovation?
We see three challenges.
1. The problem with obvious solutions ….
Early in our career, we heard an exhortation from a wizened practitioner: “When dealing with problems involving complex systems, the obvious solution is very often wrong.” Profitable growth in the insurance industry is a complex challenge and, while technology is a necessary component to the solution, it is unlikely to be sufficient in the absence of changes to product, distribution, etc.
2. Instant Karma isn’t going to get you ….
There are some technology-based changes that are available that we believe will alter the shape of the industry – e.g., telematics/usage-based insurance and predictive analytics. Most of these require time as well as money. The changes will be coming, but not quickly.
3. The filthy lucre ….
A large percentage of insurers are undertaking significant IT projects to replace legacy systems. The investment required for the disruptive technologies will be competing against these fundamental system changes in the allocation of scarce resources. Unless the business case for innovation is substantial, it faces a tough road.
Where does this leave Innovation? What do you think?
There are substantial challenges facing insureds, insurers, brokers, and other industry stakeholders. We think that there are opportunities for leaders to come forward with creative solutions, some of which may be innovative. However, we think that the term Innovation should be given a rest in favour of descriptions with a bit more depth.
We’d love to know what you think. Is Innovation still a rallying cry that works? What would be an alternative? Anything you can share would be awesome.
I see a very big 4th challenge, which is the unsexy and unambitious scope of implementing everyday innovations that are not disruptive to the market, but actually do deliver real improvements in our existing processes. The majority of innovations being implemented in our industry are incremental innovations – i.e. we’re not implementing technology that is new to the world, just new to my company.
So while web-based certificate of insurance technology is not innovative to the market in 2013, it is definitely incremental innovation to the company that doesn’t have it yet, and you can bet that it’s plenty disruptive to that company in the midst of implementing it for the first time. The same goes for e-docs, which is primarily a productivity and process improvement – but it’s also an incremental innovation in how we deliver the same Declaration pages that we’ve delivered since the 1800’s.
I would argue that even the disruptive innovation of telematics will be largely implemented as an incremental innovation by most insurers. After all, if it takes your company until 2015 to implement a telematics UBI program that you’ve designed in 2013, it will likely not be disruptive to the market when it finally gets launched.
So my strong preference is not to create one more buzz word for the market to hype, or even worse for the market to trivialize the ongoing and necessary incremental innovation as not sufficiently disruptive and therefore somehow unworthy, but instead to focus on the idea and do a much better job of incorporating as much incremental innovation as we can everyday in our projects and processes. I like to think that it’s the idea behind the word, not the word itself that drives the market to rally around it.
Thanks, Debbie. Your comments captured the exact spirit of the original post. Not everything has to be ‘innovative’ or ‘disruptive’ or even ‘awesome’ to have real value!
Interesting post and I agree with the author to some extent that the term innovation has been used and abused way too much. Not all software solutions adopted by carriers can be termed innovative, but some of the work being done by insurance technology companies is definitely path breaking. An example that comes to mind is mobile application development, which is markedly different from traditional web and enterprise-based technology solutions. Again, mobile applications may not be “innovative” per say for a lot of industries, but for insurance that has been slow to adopt technology to begin with, it’s definitely awesome.