Innovative insurance

In the mid-1980s, Peter Wood launched Direct Line, which shook up the UK Property and Casualty market and changed the insurance sector’s value chain forever. This is just one example of innovation changing the state of the insurance industry.

Innovation addresses specific challenges for both insurers and brokers. Customers are often sceptical that there is any genuine distinction between different providers’ offerings making it difficult for an insurer to differentiate itself.

According to Emil Kowalski and Malcolm Stokes from PA Consulting, genuinely innovative propositions, well-designed and distributed with flair and energy will attract new business.

Kowalski and Stokes says that innovation correlates strongly with benefits such as:

• Accelerated and profitable revenue growth

• Strong customer branding, underpinning improved customer satisfaction and loyalty

• Higher employee satisfaction and efficiency levels.

Though this correlation has not gone unnoticed. More CEOs across the insurance sector are placing innovation among their top business priorities, realising that their organisations must engage in a process of constant renewal and experimentation if they are to compete effectively and grow profitably.

“They realise the need to embrace innovation as a key organizational discipline – and yet the vast majority are deeply dissatisfied with innovation performance,” says Kowalski.

Despite the growing recognition of innovation’s importance, most insurance firms struggle to make it happen in any meaningful way, or to generate significant benefits from it.

Kowalski and Stokes say there are a number of reasons for this, including the conservative attitudes of managers, regulators and customers noted above. More specifically, the obstacles to successful innovation fall into two major categories.

The first category relates to lack of vision and leadership. Without strong leadership, there is no agenda or mandate for innovation, and therefore no development of an appropriate framework or capabilities.

The processes that contribute to innovation – such as market research and product

development – remain fragmentary, with poorly defined objectives, roles and steps.

There is no effort to get close to the market or to customers, and thus no ‘fuel’ for profitable innovation: instead there is guesswork and tinkering that may destroy

value rather than creating it.

The second set of obstacles comprises cultural and structural barriers. Many insurers are not organized or resourced in ways that support innovation.

“Cross-functional teamwork and collaboration may be difficult, and new thinking can get tangled up in red tape. Employees may have little or no incentive to innovate – and may in fact be discouraged from doing so by their firm’s risk-averse culture. And even if a good idea does get the green light, it may be slow and difficult to put it into practice,” says Kowalski.

A few industry leaders have taken steps to systematically address the challenge of innovation and transform their firms. “But in general, insurers’ efforts at innovation are remarkably poorly managed, ill-defined and incoherent,” says Kowalski. Yet as Peter Wood knows, innovation is a key driver of long-term market leader