Oldwick, NJ (Dec. 17, 2018) – A significant majority of insurers understand that innovation is increasingly becoming a differentiator in the global marketplace, according to results of an A.M. Best survey of its rated entities on the subject. These survey results are part of an extensive A.M. Best special report on innovation, titled “Insurers Agree Innovation Is Critical for Future Success.”
A.M. Best believes innovation is needed as the insurance industry rapidly changes and new risks emerge that require up-to-date service processes and coverages emerge. Nearly nine out of 10 respondents from more than 450 insurance companies globally said that innovation was moderately to extremely critical to their organization’s success. Key reasons for innovating varied, but most companies said they wanted to better address customers’ needs (22%); to gain a competitive advantage (21%); or to realize operational efficiencies (16%). At the same time, more than half of the respondents’ companies have allocated between 1% and 5% of their budgets toward innovation, while 17% of insurers have allocated more than 5%.
“As the pace of innovation picks up, insurers who do not innovate successfully may have to contend with adverse risk selection,” said James Gillard, managing director, credit rating criteria, research and analytics. “Other challenges owing to significantly higher expense ratios compared with companies’ more innovative competitors, or lower growth because more innovative peers may have access to lower-risk customers, are distinct possibilities as well.”
Companies also were surveyed on the challenges innovation can help them overcome, as well as the technologies in which they expect to invest. Other sections in the report examine key trends that are expected to impact the major industry sectors in the near to midterm, and identifies implications for the industry and for future operational and policy initiatives:
- Respondents from each of the primary industry sectors shared similar views on innovation; however, their segment-specific concerns colored survey responses to questions regarding their innovation strategy, process and implementation;
- Despite barriers to achieving progress, companies in emerging regions responded that they see innovation as even more vital, compared with responses from developed regions, as it can give them an edge in penetrating markets faster and fill a niche that currently is not being met; and
- The use of artificial intelligence, big data, Internet of Things, cloud computing and blockchain technology all have the potential to reshape the industry’s value chain, but are experiencing differing levels of acceptance in the insurance industry. The adoption of blockchain in particular faces a more difficult hurdle than the other technologies due to its current narrow usage.
Other report sections focus on the impact of innovation on regulation, as well as answers to frequently asked questions regarding A.M. Best’s innovation initiative. As a next step, A.M. Best will be developing a new criteria procedure focused on evaluating innovation and also will be reviewing where a more explicit assessment of innovation fits into Best’s Credit Rating Methodology.
To access this special report in full, please click here.
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SOURCE: A.M. BestTags: A.M. Best, Innovation, report