Our research on innovations in the global insurance industry has revealed insights in terms of the nature and pace of innovation. This work falls within our Idea Pulse 2021 research process, with a new report due out in a few weeks.
In this analysis of c. 500 recent innovations by the top 250 global insurers, we found instances of innovation that boldly reimagine the status quo, push the boundaries of emerging tech, and shows more insurers testing new innovations. Some key reflections from our experienced team are shared below, in the form of recommendations on innovation for senior insurance leaders.
Unlock the value of the back office through innovation
The insurance innovation scene today is full of intense activity around market-driven innovation; for example, renters’ insurance or cyber insurance and customer-driven innovation, such as telehealth. While innovation is imperative in these high visibility and competitive areas, we urge insurers to not neglect the back office – whether in distribution, servicing or operational efficiency. Although industry veterans are burdened with the complexities of legacy systems and disparate M&A portfolios, we believe that the back office has embedded value in terms of expertise, data and experience. By applying new tech innovations and partnerships to these areas, insurers can stand to unlock financial and qualitative value. Do use our Ten Types of Insurance Innovation taxonomy to test the ‘spread’ of your innovation portfolio.
Copycat and adapt – from other lines and regions
Look for inspiration from other lines and geographies, perhaps even other industries. Take a closer look at the innovation objectives of other lines and regions – and see if there is some overlap with your needs. For example, greenfield private insurers in newly-opened markets of Asia are forced to compete with well-entrenched state-owned monopolies. Rather than competing head-on, such insurers are adopting agile strategies such as digital and product innovation – building direct digital distribution and point-of-sale channels, creating innovative protection products for first-time, younger buyers and building partner ecosystems with eCommerce, telecom and banking firms. Insurers in the developed markets should consider applications for some of these innovations to stay relevant in changing markets and risks in their regions as well.
Go to the heart of issues
In the last decade, a culture of systemic innovation has built up in the insurance industry. Having seen all forms of advances in technology and data applied across the value chain, we have yet to see a quantum leap into the heart of key issues. An example is risk classification in life insurance: the nature of work and living has become extremely dynamic in the same decade; yet traditional definitions of occupation continue to drive classification, even though a majority of first-time insurance buyers are likely to change occupations, or even work in more than one industry at the same time. Health morbidities and job losses due to economic recessions are becoming more common as causes of early retirements, but retirement products still use traditional models of retirement age. Somehow the changing nature of risks in human life and economic activity are yet to drive change in the way risks are qualified. In the financial services industry, insurance against risks continues to be more of an art than a science. There is an untapped opportunity for insurers across the globe to go deeper into innovation in this area. Do look at the “Missed Opportunities” section of our Idea Pulse reports for a set of suggestions targeted by insurance line.
Do not be afraid to push the boundaries of tech
The breath-taking advancements in technology from cloud, big data analytics, IoT and connected tech, machine learning and artificial intelligence, augmented reality, autonomous machines, and blockchain have found many applications in the insurance industry. Cloud computing, visionary insurtechs, and venturing businesses like our sister business, Alchemy, have made it possible to pilot new ideas at a fraction of earlier investments and time to market. Insurers should exploit this opportunity – take a sandbox approach, for example, develop proofs of concept, learn from failures and evolve – do more rather than less – so as not to lose out.
Consider innovation with a societal purpose, such as sustainability and customer trust
Customer loyalty need not be a one-directional business metric i.e. customer loyalty to the insurer. Insurer loyalty to customers became the reputational “acid test” of 2020. During COVID-19, insurer responses such as premium holidays, move to usage-based premiums, and free added-value services, such as mental health counselling, went a long way in building customer brand appreciation and trust. Expectations of insurers as the risk experts have increased – to provide meaningful risk solutions for resilience and sustainability – against the backdrop of depressed economies and continuing anxieties of living with a high-risk pandemic. As a social enterprise ourselves, we at Ninety are encouraging our insurer clients to consider what kind of impact their innovations can have and be more purposeful in driving positive change in uncertain times. An interesting stat of note: nearly 40% of our summer 2020 projects for (re)insurers had sustainability, climate or ESG as a primary motive.
Consider collaborative innovation with industry peers for global catastrophe risks
In Ninety’s view, building systemic risk resilience for global-scale events needs industry-wide backing to bring in scalable and groundbreaking innovation. The insurtech landscape, though wide, is limited in scale and coverage, and we found multiple instances of insurers partnering with almost the same insurtechs for catastrophic risk modelling. Risk intelligence is segregated by competing carriers which, though necessary, creates barriers to information sharing, despite being ultimately managed at the same source. Another example is pandemic insurance – there is only one epidemic risk modelling startup which is collaborating with competing insurers to design pandemic risk solutions: a potential single point of failure – and division of resources that can prevent scalable innovation. See the bigger picture. For example, consider a decentralised “tsunami early warning system” for insurers for cyber events, built on a decentralized, peer-to-peer blockchain (no human dependency). The COVID-19 pandemic exposed the vulnerabilities of federated, international agencies to local points of failure in communication. An early warning system built through an industry collaboration, though ambitious, demonstrates the kind of innovation required to tackle systemic risks – ideas that ultimately help with better reserves and risk transfer planning, perhaps dynamically.
We trust that these ideas and recommendations will support your planning. For a conversation with a Partner at Ninety, book in here…