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.