Insurance Innovation: Keys to Success

This article is the second installment in a series on how insurers will respond to the biggest challenge that most of us will face in our careers: Now that the gauntlet has been thrown down, and innovation is demanded, will we pick up that gauntlet? Then what? Will insurers cede their role to non-insurance innovators? Will some combination of insurance and non-insurance entities support the growth of transformational technologies?

Throughout the 17th-21st centuries, various models of insurance have enabled many of humanity’s great leaps forward: The core mission of insurance is to enable economies. The core mission of innovation is to enable access, to democratize the availability of humanity’s leaps forward. Combining the two: The core mission of insurance innovation is to enable the creation of new products, services, markets, and even industries that will support unprecedented growth that is available to all.

But will insurers tap into their risk-taking DNA and leverage the proliferation of tech as a growth strategy, while continuing their historic mission of enabling economic progress? If we agree the insurance industry is approaching a precipice of disruptive opportunities, then the legacy decision facing many a C-Suite corporate leader is this:  Will the company be prepared for a drop or have the wings to fly?

To answer these questions, Insurance Thought Leadership partnered with The Institutes to conduct a study of insurance innovation readiness and pulled data from our Innovator’s Edge platform. We have also drawn on a series of innovation workshops and the many engagements in our consulting work, supplemented by more than 1,000 hours of interviews with more than 200 industry executives.

Figure 1: Innovation Practices by Premium Tier

In the first installment of the series, Innovation Best Practices: Embracing a New Approach, we offered a high-level analysis that showed that the traditional approach to innovation isn’t working. Diffuse efforts may fit culturally, but few companies have found success by launching a variety of small projects – with the chief technology officer or CIO managing a membership in an accelerator or incubator while other members of the C-suite oversee their own projects. Instead, visibly successful companies generally have a small team, chartered by corporate leadership and armed with a clear mandate, mission and set of best practices. This installment explores those best practices, broken down by tier – Tier 1 companies being those with more than $10 billion of annual premium, Tier 2 being those with $1 billion to $10 billion and Tier 3 having less than $1 billion in annual premiums.


The difficulties facing insurers are formidable, when it comes to innovation. An iconic venture capital firm said in an interview: “We receive roughly 1,000 business plans, pitch decks, a month. Very often our consideration begins with a question: Can an existing incumbent develop this concept faster than a startup can scale? In our experience, the answer in 99 out of 100 cases is NO—despite the need, the existence of a customer base and substantially greater resources.”

As Figure 1 from the ITL/TI study shows, Tier 1 companies (represented in orange) have the greatest number of innovation teams active within their structures. Tier 2 companies (in green, which shows up as dark yellow when on top of the orange) are more likely to rank innovation as a top priority than either Tier 1 or Tier 3 (in light blue). But additional research found that many of these efforts face difficulties because they operate like large, typical, change management projects—and we’ve all seen those fail, no matter how well-intended or thoroughly pursued.

The efforts lack key organizing principles, resulting in competing priorities, confusion in the workforce and infighting over resources. Really solid concepts suffer through protracted decision making cycles and wind up lingering – the status that companies so want to avoid. Companies often say, “We want to create a more innovative culture,” but culture isn’t a new product or service. A broad focus on an innovative culture is virtually guaranteed to not reach its potential.

To make a measurable impact, especially on any organization with an existing revenue stream of $1 billion or more, innovation efforts require: 

  1. A clear growth mandate shared by all responsible for innovation efforts.

This point cannot be over-emphasized. Too often, organizations decide to move forward with innovation goals that begin as extremely incremental, or internally focused, under the belief that this strategy will yield quick wins and begin a culture shift. This is a nice fairy tale. Too often, the reality is like watching “The Wizard of Oz” in reverse; a bright, dynamic story fades into a tornado in black and white. No matter how many innovation teams, or efforts, are launched, their individual objectives must roll up to an enterprise level set of goals that will bind these efforts together. 

  1. Carefully designed and agreed-upon constraints.

A common myth is that innovation means thinking “outside the box.” In fact, innovation thrives when you think within a box, but one you create based on your own constraints. For example, you combine a corporate leadership mandate, a small team, a focus on one to three technology-based new markets and a clear set of boundaries agreed upon across the corporate leadership team to prevent needless wheel-spinning.

  1. Major emphasis by leadership on the need for participation across the middle of the hierarchy.

Innovation can be launched by corporate leadership and capture ideas from the front lines, but innovation thrives or stalls based on the participation from the middle. Directors, assistant vice presidents, etc. have come far enough in their careers to know firsthand how conformity helps career trajectories and do not contemplate risk taking. They need to join the effort. 

  1. Getting beyond the fascination with technology.

Too often, innovation is seen primarily through the lens of technology. The emphasis on technology is one of the great myths holding innovation efforts back. Fascination with new technological capabilities is human nature. However, the most exciting tech is just a tool if there is no scalable use case and actual adoption.

Continuing with Figure 1, moving clockwise: The next four categories reinforce the reality that success in innovation efforts depend on the human side, which, in my experience, accounts for roughly 80% of results. Across all three tiers, the data suggests some detrimental disconnects. For example, companies encourage participation among their workforce. Yet few reward employee participation. What is the underlying message received by the workforce when leadership announces a new priority, requiring new skills, but offers no reinforcing incentives for participation? The message received is that the new program must not be a priority after all. (Please understand that compensation should be considered last among the possible incentives.)

The next data point shows a general lack of confidence in the workforce’s innovation capabilities, primarily among Tier 1 and Tier 2 companies. This may be a chicken-and-egg scenario. Maybe companies don’t reward innovation behavior because they aren’t sure employees can contribute, and employees don’t contribute because there aren’t rewarded for doing so.   

The significant interest in an innovation curriculum is a positive indicator because it shows that insurers are interested in embracing new skill sets. (A multimedia, on-demand, innovation curriculum produced in a partnership between The Institutes and ITL will be available beginning in Q4 2018. It will be the first of its kind produced specifically for insurance-based innovation.) 

Figure 2: Profile of Innovation Best Practices

Now turn to Figure 2, which is a visual profile of innovation best practices. Note the alignment of relatively high scores beginning with recognition that technologies are will affect the business of insurance. Moving clockwise, the consistently higher scores reflect that consistency in reinforcing innovation for growth is among the top priorities, including transparency, incentive and education across the workforce. The final three categories, when combined, provide a high-level view of an innovation portfolio. 

In Figure 3, the best practices profile is overlaid with the actual results from the combined research of ITL and The Institutes. This comparison can be used to view where the industry stands for incumbent insurers that want to evaluate their efforts. As you can see, the industry needs to focus much more on innovation as a priority, establishing dedicated teams, rewarding the workforce for innovation efforts and show confidence in those efforts. The industry also needs to step up efforts in the other areas.

Figure 3: Insurance Innovation Practices Combined With Best Practices

Companies across all three tiers consider internal modernization and improvements to be their top innovation priority. Tier 1 and Tier 2 companies are also relatively active with respect to exploring new products and services. The notable drop-off among Tier 3 companies in terms of innovation in product development is understandable, given traditional assumptions about the need for a significant number of resources.

But those assumptions happen to not be true. ITL Advisory Services has worked with Tier 1, Tier 2 and Tier3 companies, all of which launched their innovation efforts with three or fewer full-time employees. All those companies were managing a portfolio of new projects and concepts ranging from the incremental to “moon shot” concepts. The key is employing the organizing principles, already mentioned, to create a pipeline of ideas. Once these processes were in place, the teams expanded their capabilities by embarking on the creation of an innovation ecosystem. The ecosystem improved the quality of the concepts received, created a consistent flow of new concepts and enabled the formation of small teams for developmental sprints.

A select few Tier 2 and Tier 3 companies have set aside assumptions that innovation is comparable to traditional change management projects, long enough to discover that they can create a portfolio of innovation efforts. Those carriers realize that this next era of insurance will belong to the scalable, not those already relying on scale.

Figure 4: Comparison of Innovation Portfolios by Idea Type

Figure 4 compares innovation portfolios across the three tiers of insurance, as well as a number of other industries, using the number of active concepts under consideration/development as the key metric. The single insurer case study comes from an ITL Advisory Services engagement with a Tier 2 insurer. The other data on insurers by tiers comes from ITL interviews and the ITL/The Institutes surveys. The balance of the examples came from a HBR article published in October 2016. 

Companies still show surprisingly low activity pursuing innovation. Even among Tier 2 companies, which showed the highest interest, fewer than 25% said innovation was a top priority.

Figure 5 shows both the enormous forces affecting the insurance industry and massive involvement by somebody, but who? $5.7 billion was invested in insurtech in 2017, not to mention the $146 billion put into risktech. Yet insurer-based venture activity accounts for less than 25% of the total deal flow. This number is corroborated by the survey data in Figure 1.  So, who is making insurance innovators such a high priority, if not the insurers? More importantly is the compelling question, why? Could insurers be the last sector to be investing in the insurance value chain?

Figure 5: Forces of Change on the Insurance Industry

Another essential question may be: Given billion-dollar premium revenues, why bother with venture investments when success will barely make a measurable impact on capital or combined ratios? What are the goals? What is the mandate, for venture capital invested in early-stage firms? 

The insurance industry is now gearing up for fall, and the final round of major events such as InsureTech Connect in Las Vegas and InsureTech North in Gatineau, Quebec. Closing out this series by tracking down answers to these VC-related questions seems appropriately timed.  Keep those seatbelts snug, trays stored and locked, and maintain a firm grip on those small electronics. This industry is entering an era that will favor giant killers as much as the giants, rewrite legacies and reward those who value big questions because they require discovering the solutions.

Guy Fraker
Chief Innovation Officer
gfraker@innovatorsedge.io

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