

Part of our Innoflection series: senior reflections on insurance innovation
Time and time again, an inability to place value on innovation leads to its demise in an organization.
We saw this, for instance, when we examined 250 large global insurance businesses in 2020 for our Insurance Innovation Blueprint report. We heard story after story of innovation being called into question because of an inability to place commercial value on it, e.g. this from an innovation leader with a front-row seat at Aviva’s Digital Garage: “Without commercial value, your days as an innovation team will be numbered.”
Now, commercial value is just one form of innovation value. I’m not discounting the others, but want to tackle this one, which seems to be the hardest to evidence in the terms required by those who hold the innovation purse strings.
This short article presents a thought that might help: a way to frame innovation’s commercial value in a way that is familiar to the organization already. It’s a thought that crystallized amongst the participants of a recent workshop on the topic of measuring innovation value. I wanted to share this thought more widely here, as I think it is helpful for the insurance market, and worthy of development. My thanks to the participants at that workshop, who hailed from Munich Re, AXA XL, Hiscox, Cigna, Beazley and Royal London, for the intellectually-stimulating conversation.
The thought is this: innovation is valued not by the opportunity it creates, but by the amount of risk it removes from that opportunity.
Yes, it’s a simplistic statement that we can pick holes in. And yes, innovation is also often about changing organizational constructs that impede change. But the thought offers an interesting and alternative frame, which links an idea to a calculable, financial risk. You see, much of innovation is about taking an idea and, through careful Design Thinking and Lean Startup methods, taking the risk away from that idea until we are confident to launch it successfully.
It’s a little like the apocryphal quote attributed to Renaissance sculptor Michelangelo. Asked about the difficulties that he must have encountered in sculpting his masterpiece, David, his response was: “It’s easy. I just remove any marble that doesn’t look like David.” As organizations, we find it difficult to recognize the potential value in the unworked blocks of marble that we take as our innovation starting points. Sometimes the raw material has defects that preclude any eventual value, but – where value is to be had – it’s not until a sculptor removes the bits that don’t look like the final masterpiece that its inestimable value is revealed and understood.
We innovators in insurance need to be sculptors. And we need to help our organizations trust the sculpting process, the innovation process. Trust in the innovation process is not earned by grandiose claims, nor by Silicon Valley trips, but by humble demonstration, by careful execution, and by aligning ourselves to the organization’s measures of value.
And doing that might be easier than we’ve tended to think. You see, insurance, and particularly the risk management branch of insurance, is also about taking something (a business, a person, a factory, etc) and through careful assessment, modifications, and adaptations, ‘carving’ the risk away from it until we understand it well enough to underwrite it with confidence.
Innovation and risk management, in the end, do the same thing. A simplistic view, perhaps, and one that doesn’t recognise the inherent skillsets required for each of the two disciplines. But, if I apply a child-like simplicity to it: Risk management takes away the risk of mainly physical perils; Innovation takes away the risk of mainly business model perils.
This leads to an interesting corollary: as insurers, and notably the Lloyd’s of London market, grapple with intangible risks like intellectual property, reputation and human capital, I wonder whether we might foresee a point where the intangible and currently incalculable risk around new business model failure becomes risk managed and eventually insured. That would, in effect, herald the invention of something one might call ‘innovation insurance’. This will seem implausible to some, but it has a certain appeal. Whilst I understand it presents a series of fundamental challenges, I’d love to talk with a (re)insurer or market player who had the imagination to prototype this…shout if that’s you!
If we, as an industry, could embrace this way of thinking, we could perhaps give ourselves a more effective, more credible innovation accounting standard in insurance. That would give confidence to our innovators, and fuel to our ideas. And that’s something we need if we’re to continually reinvent ourselves to better serve our purpose of protecting humanity.
Postscript: I’d love this thought to be developed, challenged, stretched and perhaps even brought to life in a calculable way by people smarter than me. If that’s you, if this notion resonates with you, and if you have the tools to calculate the risk reduction in a manner that is acceptable to the industry, I’d love to hear from you and let’s prototype this together. Please join the discussion below, and let’s see whether we can advance this thinking. Similarly, do reach out if you’re looking for an experienced set of ‘sculptors’ – the teams here at Ninety deploy structured innovation frameworks to de-risk insurance ideas from the outset. I’d be happy to connect you with them.
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Note: this is part of our Innoflections series: senior reflections on insurance innovation. A space for big ideas. Happy to share this space from time to time, so get in touch for a chat if you’ve got a big idea to share.