Helen Bradley, Client Director – Executive Education, London Business School
Insurance has often held a paradoxical relationship with innovation. As Ralph Koijen, Professor of Finance at London Business School observes in his latest book The Economics, Regulation, and Systemic Risk of Insurance, stonemasons in 1400BC Lower Egypt were among the first to establish an aid fund in case of accidents on projects such as the pyramids. Insurance has often been at the frontier of innovation throughout history. But why in more recent history are the established brands in the sector being slow to adapt to the world around it compared to new entrants?
Increasing digitalisation and the Internet of Things is transforming the industry beyond recognition.Once again insurers have to make predictions in areas where currently there is no data, driverless cars is just one example. Of course, this has always been a part of the insurance world – insuring the first space exploration, for example, presented new unknowns. What’s different this time is the speed of change that insurers have to respond to. Will the insurance sector have more of an affinity with the gambling sector, which has to set its odds every day?
Entire business models will need to shift as the impact of innovation gathers speed – commentators speculate that 65% of primary school children today will enter jobs that do not currently exist. This pace of change is both exhilarating and unnerving. Companies will need to choose whether to combine data collection and advanced analytics into their products and services, or whether to partner strategically with business intelligence specialists. Or do both.
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Forging new alliances
Firms are thinking strategically about forming alliances with those companies that have data to enhance their predictive models. In turn, those with the data, mobile operators and car manufacturers for example, are already leveraging their assets in a different way than they were previously and pushing themselves up the value chain. For some insurers the future is already happening in some part of their world.For others, they are missing opportunities by not breaking through the paradigm of their existing business models and routes to market.
Insurance start-ups in the Insurtech space are demonstrating how much potential for innovation there is in the sector. These firms are harnessing new ways of working and inventing new solutions for customers – peer-to-peer carriers and customer-centric value propositions. These companies are redressing the innovation paradox.
To stay relevant,insurance leaders at larger firms recognise that agility and innovation can happen through alliances. As these alliances form, ideas for new products and ways of serving the customer will move in many different directions. Amidst these expanding opportunities, the insurers who succeed will be those who are clear on their focus.
Fostering new talent
In response to sector changes, insurers recognise the need to have the right talent in place. Let’s take actuaries as a specific example, who are trained to think in terms of detail, analytics and predictability. They should be supported to broaden their mindset to meet the challenges and opportunities this highly dynamic industry is facing. New entrants, change in customer needs, other players holding key data – the world is changing so fast that insurers need to get ahead to remain in business.
Insurers can begin to re-think their HR and recruitment policies to stay current. Are certain skills and qualities being overlooked? Could the skills which feature at the bottom of the current wish list help propel your firm into the future? How entrepreneurial is your team? How are you accessing your customers? How well placed are your teams to respond to the different needs of customers? London Business School’s Making Innovation Happen programme teaches business leaders that there are many moving parts to an innovation value chain, from idea generation, to conversion and diffusion. Innovation often fails not for lack of ideas, but due to a lack of follow through.
The onus is with insurance leaders to not only attract and identify a diverse selection of talent, but to spot the gaps in the innovation chain. How can you ignite a business culture which encourages innovation? Admittedly, sector challenges such as increasing competition and complex regulation show no signs of waning, but how can you ensure that innovation no longer plays second fiddle to all that?
By challenging your talent to think differently, and looking outwards to strategic partners and new alliances, your company could begin to redress the gap between insurance and innovation.