Insurers Can Define Their Future Through Technology
Robert Regis Hyle | August 26, 2014
As research and consulting firm Strategy Meets Action prepares for its annual SMA Summit on Sept. 15 in Boston, SMA founder Deb Smallwood fielded questions on the Summit’s theme for this year, The Innovation Journey, and what steps insurance carriers need to take to prepare for what lies ahead for the insurance industry.
For more information on the SMA Summit, visit the SMA website.
“Next Gen Insurer” is a term we’ve been hearing a great deal lately. What does it mean to you and what qualities do insurance carriers need to possess to earn such a designation?
SMALLWOOD: We are right at the forefront of a huge wave of significant change that will unquestionably impact the insurance industry in major ways. Changing consumer expectations, the fast shift to the digital era, and rapidly advancing emerging technologies—all these are factors that affect every industry, and insurance is no exception. The degree of pain (and success) for individual insurers will depend on how well each unique company is able to build new strategies, embrace innovation, fund transformation initiatives, and create a business that can succeed in a new digital future.
The key is finding the right path to becoming a Next-Gen Insurer. The journey to becoming a relevant and profitable Next-Gen Insurer is complex. While the road may be rough, the opportunities are rich. Next-Gen Insurers will need to discover and embrace new ways to be flexible, adaptable, and valuable as this new digital future unfolds.
SMA is fully dedicated to helping the insurance industry modernize, optimize, and innovate to support today’s needs and position for the business demands of the future. We are investing heavily in models, tools, and insights that assist insurers on their transformation and innovation journeys. One powerful model we have developed is a Next-Gen Insurer framework that depicts what it really means to be a Next-Gen Insurer. This framework helps insurers reimagine the basics—customer, products and services, infrastructure, and business models. It can be used to help insurers find ways to create new levels of agility and competitiveness while harnessing the expertise of the company, enabling them to survive and thrive in a rapidly changing world.
The insurers that are clearly well along the journey to becoming Next-Gen Insurers have some distinctive characteristics. They don’t have their heads in the sand. They see the wave. They understand that the foundations of our industry are shifting, and they proactively identify and assess the trends and influencers inside and outside the industry. They collaborate and leverage partnerships. They are open to outside views, but at the same time seek the outside-the-box thinkers, and the bold dreamers and visionaries inside their own organizations and use them to nurture a culture of innovation. These insurers recognize and embrace the new reality. They know that innovation is a crucial strategic mandate that is defining a new era of winners and losers.
Another popular term is “innovation journey.” To use a traveling analogy, do you believe insurance carriers have pulled into the rest stop for too long when it comes to innovation, or have they just been driving along in the slow lane following the speed limit?
SMALLWOOD: This is a fascinating question. Let’s first look a bit more closely at the term “innovation journey.” At SMA, we do indeed view innovation as a journey. In fact, the word “journey” fits innovation to a tee. Those that embark on this journey do so because of a desire and a commitment to constantly improve, to think differently, and to envision and enact change. The journey for each insurer will be unique. The path that involves modernization, optimization, and innovation will be different for each insurer. The journeys will be shaped by and aligned to the culture, strategies, offerings, and channels that define each individual organization.
SMA has identified four major intersections (at SMA we call them roundabouts) that insurers will find along their journeys, no matter what path they take. These four roundabouts are 1) defining the next generation insurer strategy, 2) transforming core processing and modernizing technology, 3) leveraging next-gen and emerging technologies, and 4) embracing innovation, both inside-out and outside-in.
In today’s insurance environment, we see some insurers that focus solely on operational issues. They spend their time and energy on operational business strategies aimed at repeating yesterday’s success. There are many insurers that have spent significant time circling around the roundabout of transforming core processing and modernizing technology platforms. So, it does give one the sense that some insurers are sort of sitting at a rest stop. But the good news is that recent SMA research shows that more than 85 percent of insurers are embracing the innovation journey. They are making investments in transformation and innovation—assigning formal roles and responsibilities, creating defined innovation processes, and/or putting tools in place for innovation.
SMA is publishing a report to coincide with the Summit regarding emerging technology trends. Can you give us a couple of points you’ve been able to pull out of the report before it is published?
SMALLWOOD: Our SMA research and trends analysis shows that emerging technologies are impacting the insurance marketplace at a rapid pace, with experimentation and adoption by insurers happening faster and more broadly than ever before. The impact inside our industry is more profound than one might think. The pace of adoption by other industries is quickly influencing and pressuring insurers to embrace emerging technologies, largely because of how they are changing customer experience and engagement. Insurers are anxious, as they should be, to capitalize on new levels of business intelligence that make it possible to improve customer interactions in ways that drive growth, profit, and loyalty.
SMA is actively tracking nine emerging technologies: 3D printing, the Internet of Things (IoT), Drones/Aerial Imagery, Driverless Vehicles, Wearable Devices, Gamification, Artificial Intelligence, Semantic Technologies, and Biotechnology. Our research shows the adoption rate is being led by the Internet of Things. IoT is followed by Artificial Intelligence, Drones/Aerial Imagery, and then Driverless Vehicles. Over the next five years, IoT will drive new business models and companies that have been created from unexpected combinations of companies and industries—all with the purpose of owning the customer relationship and revenue.
When some people discuss the future of technology and insurance technology you hear about flying cars and drones and how difficult it will be for insurers to manage risk, but how different do you believe 2019 will be from 2014 in terms of how carriers operate their business and the technology they will use?
SMALLWOOD: At SMA, we believe the industry itself will be significantly different in 2019. The metamorphosis will happen either because we, as an industry, have proactively defined our future or because it has been shaped and redefined for us by the external influencers that are at work all around us.
The business of insurance is on the cusp of what is probably the greatest level of change that has ever surrounded or permeated our industry. This change is being fueled by the breadth and depth of emerging and advanced technologies that are changing customer engagement, transforming products and services, redefining business and revenue models, breaking down barriers to new entrants, and more. Just consider the impact of the Apple iPhone, introduced only seven years ago. Think about the resulting disruption, destruction, and construction of many industries and businesses.
We are witnessing an era of mass personalization, the likes of which have never been previously experienced. This is much different than mass customization. It’s truly personal. This personalization power is disrupting and realigning customer loyalties, relationships, revenue models, and even the long-term viability of traditional business models. The sheer speed of the growth and the influence that new technology and customer engagement companies like Google, Amazon, Apple, eBay, Twitter, Facebook, and others are experiencing is amazing. And, it has even accelerated in the last three years due to the rapid experimentation, adoption, and acceptance of the technologies that these powerhouses are using to create a transformed and new customer experience.
This growth and influence are being fueled by the drive and commitment to emerging technologies and innovation. The insurance industry finds itself in a bit of a paradox. Insurance is an industry of tradition, based on business assumptions and models that have changed little over decades and, in some cases, centuries. Insurance companies have, by the nature of the business, a risk-averse culture. Yet insurers find themselves operating in a world that is rapidly changing, where new business and customer engagement models are being created, and potential competitors inside and outside the industry are making bold, sometimes risky, moves and readily embracing new and emerging technologies.
Because insurance is a part of every industry, reaching nearly every individual or business, we have an incredible opportunity. We can be right at the center of this change. We can be in control. We can determine our destination and our destiny, rather than waiting for others to determine our future. The choice is ours.
What are two or three points you hope participants in the Summit bring back to their offices?
SMALLWOOD: The theme this year is The Innovation Journey. We’ll focus on how insurers can cultivate, activate, and accelerate innovation in their own organizations. The agenda, speakers, and content are shaping up to be amazing. There is something for everyone, no matter where their organization is along the innovation journey. Insurance leaders, technology experts, and SMA partners will share insights, research trends, and most importantly, success stories.
Attendees will hear how insurers are cultivating innovation, how they are fueling fresh thinking, energizing novel strategies, and creating adaptive organizations. They will learn how innovation is being activated, about the varied ways insurers are taking action and capitalizing on the foundation they have laid to achieve new levels of success and differentiation. Participants will gain an understanding of how the market leaders are accelerating innovation and distancing themselves from their competition with modern, flexible environments and emerging technologies that give them the ability to dynamically adjust to market opportunities and achieve sustainable success.
What do the partners at SMA hope to achieve from the Summit?
SMALLWOOD: Our ultimate goal is to help create awareness of the possibilities along the journey and to showcase the progress that is being made in our industry. The path is important. We must, as an industry, get it right. Innovation is essential for our success. We hope to spark a renewed sense of urgency and demonstrate that the opportunities at hand provide valid reasons for enthusiasm and excitement. We aim to provide participants with clarity so they are able to effectively bring change back to their own organizations and to our industry as a whole.
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The Email Chat is a regular feature of the ITA Pro magazine and website. We send a series of questions to an insurance IT leader in search of thought-provoking responses on important issues facing the insurance industry.
ITA LIVE 2019
The tide is up! It's time to register for ITA LIVE 2019, our annual educational and networking conference! Our theme is "The InsurTech Revolution: Cutting Through the Hype." and we'll be bringing in a torrent of industry thought leaders, amazing insight and wonderful perspectives on the world of insurtech and its impact on the insurance landscape.
ITA LIVE 2019 will present real-life examples of true startup technologies that are helping insurers gain real advantage -- and a competitive edge -- in the marketplace. We’ll highlight the more successful InsurTech partnerships, while offering case studies that demonstrate exciting innovation and cutting-edge techniques impacting all aspects of the insurance ecosystem.
Ride the wave to LIVE 2019. Sign up today! We look forward to seeing you in May, 2019!
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