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Innovation is Everywhere for Insurers

Deb Smallwood | June 09, 2015

Innovation. It is the buzzword that is quite literally everywhere today. From Silicon Valley start-ups to automated e-commerce to the federal government and yes, to insurance—everyone, everywhere seems to be innovating. Innovation makes our lives easier; innovation has streamlined processes, and innovation is the engine for changing the world for the better.

But is there a dark side to innovation? Can innovation be a threat? For too long, too many in the insurance industry have viewed innovation as a threat to business. Insurance companies have resisted innovation by trying to control outcomes and impacts, like dumping water on a fire.

Since innovation is taking the world by storm, the time is now to both examine some of the inherent fears of innovation and insurance and understand why they exist.  We first need to understand the nature of the view of innovation as a challenge or threat and then we can begin to change the lens to view it as an opportunity to be a Next-Gen Insurer.

Understanding the Threat View

First, the nature of the threat: Insurance companies are inherently risk managers, yet risk-adverse. Not only is that the business insurers sell—risk protection—it is also how too many insurers fundamentality operate their business. Thus, insurers tend to retreat from change and innovation. Change is viewed by these insurers as costly, a distraction, or just too risky.

If you think just a small number of insurers aren’t innovating, think again. SMA Ecosystem Research shows that since 2010 the percentage of insurers merely “surviving” versus “transforming” or “growing” has more than doubled in 2015. Fear of change is not endemic to small companies either, it is a universal symptom.

As time goes on with these intrinsic views on the threat of innovation, what we see happening is the rest of the world starts to pass them by. Consider that just 30 years ago, GEICO was a niche government-employee insurer. Had they held onto closed views rather than innovate their personal auto offering to the public, the opportunity cost would be in the billions of dollars.

Opportunity costs are at the core of every Economics 101 course; it is the value of something not yet realized.  And what makes an opportunity cost so intimidating for these innovation/risk adverse insurers is that it is hidden. It is not visible or necessarily fully quantifiable. It is easier, they argue, to keep doing business as usual than to have to take unnecessary risk to realize some hidden benefit.

Next, take the external influencers, like Google, Apple, Facebook or Amazon. Companies with traditional innovation-phobic views look at external influencers as threats against business and develop strategies to avoid them. Rather than looking to integrate and expand on capabilities, these insurance companies retreat.

Like GEICO 30 years ago, it used to be easy to operate a profitable business without innovating. Companies could keep market share while still affording the luxury of doing “business-as-usual.” However, all that changed with the dot-com boom, Web 2.0, social media explosion, and globalized e-commerce.

If the reality of the web isn’t the biggest deterrent from holding onto this innovation as a threat view, the changed role of the consumer certainly should be. Today, the collective insurance customer has a voice. A bad experience with an insurer has the potential to go viral from Facebook to Reddit, and the expectation that business transactions are private is a thing of the past. In addition, customers have ever-rising expectations of how companies should interact with them. There is a demand for customer choice regarding channels to research buy and service policies. Customers have increasing demands for mobile, social, gamification, and other technologies to be used in the customer experience. Finally, customers now have at their fingertips more data on who and why they should choose an insurance provider than ever before.

Mark Breading, SMA partner recently blogged on SMA’s website, “We are now entrenched in a digital revolution that is powered by these maturing and emerging technologies. This revolution is driving transformation across the insurance industry, impacting every internal process and every external interaction. The adoption and deployment of maturing and emerging technologies is fueling this revolution, and insurance as an industry has little control over it. Attempts to control the use of these technologies by putting exclusions in existing policies, failing to offer new solutions, or denying claims will only provide the incentive for customers to seek alternative options and encourage new competitors to develop novel solutions that will spur further disintermediation and disruption.” This quote sums up the reality of the market.

While we recognize, it is natural for many insurers to view innovation as a threat. What we would argue, though, is in today’s world there simply is no other choice. The baseline expectation of collective consumers will force these insurers to not only innovate but to embrace it. But how?

Realizing the Opportunity

We have established that innovation is a necessary reality. Now, let’s understand how to embrace it for an opportunity to become a Next-Gen Insurer. Innovation does not have to be a wide-eyed idea from leftfield. It can and, in many cases, should be part of the organization culture, process, and environment. Innovation can be a systematic business decision and integrated into our day-to-day business models.

One way SMA recommends managing change or innovation is to leverage the established risk management methodology everyone has—to view innovation as a system, just as you would view any type of risk. By viewing potential changes or threats in a systematic way companies can prioritize and rank potential changes or even investments, then they can allocate resources based on the rankings of importance.

Another aspect of this method is to realize the potential with each of the proposed changes. Through this exercise you can also track which are the priorities, which will drive more profitable growth or improve customer experience and formulate which ones to ignore, which to monitor, and which to embrace and manage. By imagining a future and putting priority and investments behind proposed changes you realize the opportunity of innovation.

The Next-Gen Insurer Model 

The Next-Gen Insurer framework identifies eight major influencers, coupled with the explosion of data, which are creating the pressure points for change and demanding insurers to rethink the fundamentals of their businesses around customer, products and services, infrastructure, and business model.

The core of the Next-Gen Insurer is culture. Creating a culture where innovation is supported is another key to viewing innovation as an opportunity versus a threat. 

Strengthening the four pillars around the core culture of your company (customer, products and services, infrastructure, and business model) is a great place to start when you look at where to innovate. By making those four areas as strong as possible, you can mitigate the real external threats.

Where Do We Go From Here?

In conclusion, by understanding the “threat view” more closely we can start to pull apart the arguments that are holding so many back by facing the realities of today. It is a busy world, but it is an exciting one! What we once thought was impossible, is today’s reality. We owe it to ourselves and our business to treat innovation as a tangible opportunity to modernize the core capabilities of what makes a Next-Gen Insurer.

SMA’s annual Summit provides a great place to think beyond just modernizing core capabilities. This year’s focus is: Becoming the Next-Gen Insurer. It is an opportunity to hear what insurers are doing to cultivate, activate, and accelerate transformation and differentiation.

Deb Smallwood, the Founder of SMA, is recognized for her expertise in how insurers can deploy technology to innovate and differentiate in the insurance industry. Deb can be reached at or 603-770-9090. Learn more about SMA at  

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