Frankly, we have gotten a bit weary of the term ‘innovation’. It seems that every second consultant, supplier, and blogger is beating the innovation drum, while reciting a litany of benefits ranging from improved profitability to better golf scores. It is a bit like dietary fibre: we all know we need more, but do we really need to hear about it before, during, and after every meal?
Fortunately, some analysts approach innovation in a pragmatic manner that meets the needs of insurance executives and professionals. A recent report, Innovation in Canadian Insurance: The Leadership Gap, from Celent’s Mike Fitzgerald is a case in point.
What does innovation mean?
Celent has a definition of innovation that we have found to be concise, clear and, significantly, measurable: “Innovation is defined as fundamental changes to products, services, or business models that break existing tradeoffs and result in value to the customer.” (emphasis supplied)
Celent also differentiates innovation between incremental, which focuses on changes to the existing business models, and disruptive, which builds new business models and/or creates new markets.
Tell us what you really mean…
Based on a survey of Canadian insurance professionals, Fitzgerald found that there are inconsistencies between what insurers believe and what they do. The first, and likely most important of these inconsistencies, lies between the changing consumer expectations and insurer strategies.
Regarding the need for innovation, all of the respondents indicated that consumer expectations were changing, and two thirds of the respondents “expressed that customer expectations are changing rapidly” and that “innovation will be critical in the next three to five years”.
However, when asked how important innovation was to the company’s business strategy, only one-third of the respondents said that innovation was critical to their company’s strategy. Sixty two percent indicated that innovation was important, but not critical and 5% indicated that innovation was not necessary to execute their strategy.
Where are we on the landscape?
Survey respondents were asked how they felt financial services compared with other industries on innovation performance. Two thirds of respondents indicated that their sector was either worse (54%) or much worse (14%) than other sectors.
However, in comparison with other insurers, 68% of the respondents felt their companies were about the same (54%), better (11%), or much better (3%) than their industry peers.
Fitzgerald comments: “The Canadian insurance professionals in the study report that their companies perform about average in a poorly performing industry.”
Leadership matters ….
The report’s subtitle is “The Leadership Gap” for a reason.
Respondents were asked to comment on the perceived support for innovation efforts from senior leadership. Using the Net Promoter Score method, the results show that, outside the Chief Innovation Officer (where one exists), the only position which gave a positive score is the CEO (+10%). The balance are negative:
CFO -46%
COO -24%
CIO -14%
LOB Heads -46%
What are the barriers and what can we do?
Respondents seem clear on what barriers to progress inside the company exist. The top three were:
- Lack of structure – staffing and tools
- Day to day demands require staff focus
- Company inertia
Sound familiar? Most companies have the same problem. Too much to do, no time, no resources.
Fitzgerald comes forward with recommendations which puts the onus on the leadership, with interesting accountabilities:
- Estimate the probability of disruptive entrants to quantify the threat – this the role of the Board and the CEO
- Assess where the company really is with innovation. This needs to be the CEO to measure in business terms.
- Establish a common language – This allows precision in measurement and management
- Revise rewards systems to support both innovation and ‘fast failure’
- Do not ‘govern out’ innovation. “The disciplines enforced by a project management office (PMO) can inhibit the introduction of new approaches”
- Introduce new delivery models. Provide resources to back-fill experienced personnel to experiment and innovate.
Taking this personally …
The survey asked whether the respondent was satisfied with her company’s management of innovation. The largest segment, with 41% of the respondents, is either dissatisfied or very dissatisfied.
Fitzgerald sees this unease as a bit of light. Noting that most insurers rank themselves as being average within a poorly performing industry segment, Fitzgerald writes: “dissatisfaction may provide a meaningful platform for change to the status quo approach.”
What do you think?
The report raises a lot of questions to explore, and we’d like your input. Fundamentally, do you agree with the importance of innovation? Do you think that the low rating in fact reflects the state in Canada?
Operationally, are insurers taking innovation seriously, or putting its priority too low?
Personally, would insurer innovation have a material impact on your behaviour as an insurance consumer?
As a consumer, I want my insurer to be at least as innovative in their business as I am in my personal life and hopefully more so, given their resources. That is not only intuitively pleasing to me but also gives me confidence that my insurance provider is innovating internally as well as externally, thus assuring me of superior value and performance for my insurance dollars – particularly when the “moment of truth” (a claim) arrives.
As an industry participant, I prefer to be associated and aligned with leaders, winners and long term successful businesses – and I believe commitment to innovation is one of the key markers that identifies such companies.