Why innovation fails so often in insurance: The curse of the rollercoaster
Conquering the rollercoaster: The evolution of insurance innovation ecosystems
In our new report, Insurance Innovation Blueprint – How to design predictable and effective innovation capability in insurance, we have carried out an in-depth analysis of how innovation happens in the insurance sector. We have identified key Building Blocks (a set of innovation infrastructures like innovation labs or having a venture capital arm) that make up an innovation blueprint for most insurance businesses.
In this article, we want to share what we discovered when it comes to the evolution of innovation in the insurance business and acquiring innovation maturity.
Evolution of insurance innovation
There is a journey that plays out whereby insurers will try different things, which either succeed or fail. Those experiences lead them along a path, and that journey can either be a rollercoaster ride of peaks and troughs or – if planned and executed with humility and caution – a steady progression from one step of a ladder to the next.
By mapping out the evolutionary path, one can assess maturity and guide an insurer to the next step on its journey.
Looking at the data we have gathered on 250 large global insurers, there is no single common journey through this evolutionary path, and that should come as no surprise. Yet there is a common ‘evolutionary trunk’ from which we see different evolutionary branches growing. Here, we will set out the key cycles we see along the way.
Organizations proceed on this journey at different paces. However, there is a common pattern that appears time and again, which takes the form of one year of debate, then two years of action. This can often be played out over and over. The reader should endeavour to fast-track some of the prevarication and unknowns by using this report as a guide to best evolve their innovation maturity.
The six key cycles of the insurance innovation rollercoaster
|1) Inspiration||A set of relatively short-lived stimulants, often external, that create a halo effect. They drive an appetite for innovation through imitation.||Innovation committees|
Labs and garages
|2) Democratization||Getting staff involved in innovation to resolve the disconnect between innovation inspiration and the realities of operating the business.||Hackathons|
Idea management platforms
Incentivization of staff
Training for innovation
|3) Separation||There is a scaling back as it becomes clear that asking tens of thousands of people to innovate is unwieldy. This provides a rich environment to develop and incubate major innovation in its own silo before introducing it to the business units.||Labs and accelerators|
Corporate VC and scouts
|4) P&L Proximity||Innovation is reconnected to the business, the P&Ls and the customers. More focus on using innovation to solve problems in the here and now.||Embedded innovators|
Alignment to P&Ls
|5) Greenfield||The organization is trying to build new businesses, not just innovate within the existing business model.||Venture build and studios|
NewCo and greenfield
|6) Collaboration?||Organizations work together to address macro challenges that they are powerless to influence alone.||Consortia|
Global problem spaces
Cycle 1: Inspiration
Here, we see a set of relatively short-lived stimulants, often external, that create some sort of halo. Examples in the everyday world around us might include the rise of Amazon or Netflix. More commonly, inspiration comes in the form of a personal experience such as:
- An executive ‘digital safari’ trip to Silicon Valley.
- Hearing something inspiring at a conference.
- Participation in a hackathon.
- Establishing an idea-sharing platform.
Cycle 2: Democratization
This is where the disconnect between the aspirations of the inspiration cycle and the reality of the business units becomes clear, and efforts are made to bring them together. It primarily entails getting the established staff involved in innovation through a range of tools and activities such as hackathons, idea challenges, incentivization and training.
Cycle 3: Separation
This stage is usually entered when the organization comes to the realization that asking tens of thousands of employees to innovate is no easy task. BAU always takes precedence. The task of innovating is placed in the hands of dedicated people or teams.
Cycle 4: P&L Proximity
Unsurprisingly, the typical consequence of Cycle 3 above is that innovation finds itself swinging back towards the rest of the business and, therefore, the P&Ls and the customers. We have said many times that there is generally no ‘right or wrong’ approach to innovation, but what we learn here is that there are definite downsides to innovating in isolation. We can go so far as to say that this is usually something to be avoided and that innovation works best when it is pushed out to the edges of the organization, where it touches the end customer.
Cycle 5: Greenfield
At this juncture, it should be noted that these stages are not necessarily sequential. Cycle 5 might occur at the same time as Cycle 4, or even before it. This is the point at which organizations are trying to build new businesses, not just innovate within the current business units. Usually this takes on the characteristics of venture building, and there are relatively few examples of insurers who have reached this level or cycle of maturity
Cycle 6: Collaboration?
With Cycle 5, we arrived at the chain of maturity that we see today. Few have evolved beyond this. In approaching Cycle 6 from a conceptual perspective, we must inevitably engage in a certain amount of crystal ball gazing.
We see a number of macro challenges, such as climate change or pandemics, and intangible assets like reputation or business resilience. There is little that any one organization can do to address, solve or meaningfully impact these challenges alone. Collaboration is, perhaps, the only way forward.
There are fuzzy boundaries between the six cycles we have outlined. However, they combine to describe the overall direction of maturity according to the evidence presented by our data set. By understanding the cycles and their interrelationships, insurers have a better chance of conquering the rollercoaster and instead moving towards the “Ladder” model of steady upward maturation we mentioned earlier.
If you want to know more about the Rollercoaster and Ladder models, as well as other aspects of Innovation Blueprints for insurers, have a look at the full Insurance Innovation Blueprint report.