Attributes of effective innovation teams

The founding members of corporate innovation units often face an identity crisis without understanding what they are experiencing.  The reason for this crisis is quite easy to understand, though, once they take a step back and reflect.

New business units generally will rely on traditional corporate governance structures and behaviors to define the rules by which that new unit will operate.  Innovation teams, by the very nature of their charter, must define their own rules, but they face a daunting task as they try to get traditional corporate governance structures to support those new rules. 

The core challenge innovation teams face is that most large organizations don’t recognize, much less deeply understand, how the skills and behaviors that make a corporate executive successful differ from those that let startup founders thrive.  This challenge of understanding these differences becomes a compounding problem when the innovation team becomes responsible for selecting and managing the talent needed to successfully launch the new concepts that emerge from innovation units. 

To assist corporations with innovation talent management, many tools have been used, such as 360-degree feedback questionnaires that include a self-assessment component.  Over the course of many engagements and years of innovation consulting, I have seen the results highlight the most common attributes among corporate-based innovation leadership and how they differ from those of highly successful early-stage founders.  Understanding the behavior of a successful innovation team will translate into greater success in talent selection, especially when it comes to scaling an initiative. 

It’s also crucial to understand the differences in how startup founding teams work together vs.  how corporate new venture teams function. 

Most successful startup teams are composed of three to five founders who have known each other on a personal or professional basis for more than a year, share a passion for the problem they are solving, spend more time together than with anyone else in their lives and become bound by the risk they are sharing.  In other words, successful founding teams choose each other, and scaled success comes from filling roles that offset each other’s skill gaps.  When a member of the team gets in the way, he or she walks away or is voted out. 

The corporate innovation team most likely came together via a selection process and shares a passion for making an impact, which is broadly defined.  They initially become bound by creating an innovation process, but often without recognizing that these processes are a solution to a problem. 

The more that corporate leadership encourages adoption of a founding team mindset, the greater the odds of success at innovation within a corporate environment.  The deeper the team members understand both themselves and their “co-founders,” the more they will achieve. 

How the 360-degree study was done

A study of client company corporate executives, utilizing 360-degree assessment illustrates the talent characteristics of an innovation team.  The specific tool used is based on several studies on the traits of successful entrepreneurs.  This assessment process was designed to guide incumbent companies as they put teams together expressly for the purpose of advancing innovation based growth strategies.  Some of these studies are cited below.  

Dan Bricklin, co-founder of VisiCalc and inventor of the computer spreadsheet, has provided thousands of entrepreneurs with the same advice:

  1. Understand your true talent and value so you can appreciate the talents in others on your team, and what is needed by your team.
  2. Don’t wait to act. The longer you wait, the more you will hesitate over the sacrifices required for success. 
  3. Success as an entrepreneur is tricky, requiring all involved with a new venture to operate confidently even though you are both in control and not in control at the same time.

Anthony Tjan, CEO of the venture capital firm Cue Ball, looks for founding teams that fill three basic roles.  In his New York Times best seller, “Heart, Smarts, Guts, and Luck,” he defines these roles as:

  1. An Architect (Planning)
  2. The Storyteller (Selling)
  3. The Disciplinarian (Execution)

Target Training International CEO Bill J.  Bonnstetter goes into greater segmentation of the key traits of entrepreneurs after completing in-depth research of 17,000 working adults and serial entrepreneurs.  After establishing a baseline average, he established that successful entrepreneurs score above and below the average as indicated in Figure 1. 

Figure 1

Finally, Walter Kuemmerle, president of Kuemmerle Research Group in Boston, has developed a significant body of research on risk-taking by successful entrepreneurs and found the following traits:

  • Non-conformity with rules that hinder,
  • Committed enough to take significant risks and disrupt others,
  • Willing to start small and hustle for each deal,
  • Able to shift strategies quickly and learn on the fly,
  • Co-develop continuously with customers to win their confidence.

Results from the cre8tfutures™ 360-degree assessment process

Based on well-established literature and accepted practices, the results from the instrument utilized resulted in 5 overarching categories seen in Figure 2.  These 5 categories represent personality traits and skill based attributes that are consistent whether one is assessing early stage founders or corporate based innovators.  This consistency is essential for comparative purposes. 

Figure 2

The innovation team may well be considered risk takers within the corporate culture of ABC Insurance Co.  but generally don’t measure up to the risk-taking attributes of successful startup founders.  Among corporate innovation teams, the need to increase risk-taking is essential and applies more broadly than just in the products and services developed. 

A second area of stark contrast between startup founders and corporate innovators is in knowing the customer.  Entrepreneurs who launch and scale do so in collaboration with customers.  They see risk in waiting too long, such as holding off on soliciting customer feedback until a solution is fully developed.  This need to collaborate with customers is among the most contrary notions for large, successful financial services organizations. 

Figure 3 highlights the differences and similarities among corporate innovation leadership teams with those of early stage founding teams. 

Figure 3

In many respects, corporate innovation team members do share traits with successful startup founders.  However, as the arrows indicate, the corporate innovation team can fall into a trap of not taking enough risk in managing the constructive conflicts that are typical among early-stage startups.  Secondly, note the difference in measures regarding customer interaction during development and post launch.  Early stage founders do not have access to the same resources as incumbent companies.  The very survival of these new companies relies on direct user/customer feedback.  Corporate innovation teams tend to be overly reliant on internal research functions. 

Figure 4 represents aggregate study results, including an aggregation of the colleagues and peers who completed 360 assessment tools on behalf of the various peers tasked with leading innovation teams.  The significance in this table is not the scores per group, but the difference between them. 

Figure 4

For example, corporate innovation leaders tend to overestimate their persuasive communication skills compared to the assessment of their peers outside of the innovation team, while still underestimating their communication capabilities when compared to early stage founders.  This begs the question, why? Based on follow-up engagements, Innovation Leaders in corporate environments tend to communicate ideals, using terminology that represents a lack of conformity to the existing corporate culture.  In short this finding is an indicator as to how culture trumps strategy. 

Understanding the underlying motivators of innovators

So what drives these behaviors and habits? Hay/McBer co-founder David Clarence McClelland was an American psychologist noted for his work on motivation, which he titled “Need Theory.” McClelland claimed that motivation is “a recurrent concern for a goal which drives, directs and selects the behavior of the individual.”

He focused on three particular motives: Need for Achievement; Need for Affiliation; and Need for Power.  Achievement is the desire to excel in relation to a set of standards.  It is the drive to succeed.  Affiliation is the desire for close personal relationships.  Power is the desire to be influential and have an impact.  McClelland’s three needs, or underlying motivators, are non-sequential, but instead are used in relation to each other. 

According to McClelland, most people possess and portray a mixture of these needs: Those with a high need for achievement have an attraction to situations offering personal accountability; individuals with a dominating need for authority and power have a desire to influence; and finally, those with a great need for affiliation value building strong relationships and belonging to groups or organizations. 

Among his groundbreaking findings was his discovery that a window into these three motivators is our choice of words and phrases.  The methodology he developed in collaboration with others, the story exercise, is still in use today.  In my study group, the story exercise completed by the corporate innovation team members was an abbreviated approach, as a deeply reliable approach requires three to five stories, each with a minimum of 250 words.  However, feedback received following the introduction of the results suggest the results were fairly accurate, not just illustrative. 

The reasons a story exercise was suggested and facilitated in conjunction with the 360-degree entrepreneurial study are:

  1. By having a deeper understanding of our “hardwired” motivators, we can better understand the circumstances and experiences that bring about anxiety and negative reactions as well as the ideal circumstances that result in our best work. For example, if a person has a high achievement drive, but is decidedly not a risk taker, then one of the remaining motivators is probably the source of hitting the brakes.  Does a high affiliation drive create unwarranted anxiety around disrupting co-workers? Conversely, a person who has a high achievement drive, or a high-power drive, and exhibits comfort with risk taking may want to take a step back and get peer input on certain decisions as a way of keeping adversely risky behavior in check. 
  2. These results create an opportunity for team members to better understand their own goals and frustrations by also reflecting upon the potential value that peers can bring while working together.
  3. Finally, as certain concepts are launched into the marketplace with the specific goal of achieving scaled success, additional team members may be needed to nurture that new product. For most of the concepts that undergo focused development, small teams may be formed.  One goal of this exercise is to gain additional clarity about what drives a person that can translate into consistently forming highly effective small teams. 
Figure 5

Figure 5 comes from the work done by both Hay/McBer and Daniel Goldman on “emotional intelligence” in leadership.  Founding CEOs tend to be driven more by achievement and power than relationships.  Those who rise to the top spot in large corporations have a higher affiliation drive, which plays out as success among polite corporate cultures as these execs tend to be known for their people skills. 

Figure 6 is a summary chart of selected innovation teams from multiple incumbent companies.  The main take-away from this chart is the diversity of core motivational drivers across team.  This can help align people with role and tasks.  The team would certainly benefit from a more in-depth discussion about how this information can improve effectiveness among team members. 

Figure 6

Figure 7 is an aggregate comparison of where corporate innovation teams, corporate executives and successful early-stage founders across the three needs.

Figure 7

Again, corporate innovation teams are often constructed using traditional corporate hiring and team building methods.  Successful founding teams are bound by the diversity of motivations and experiences plus a shared deep belief in the solution they have created together. 

Pulling it all together for your team

In conclusion, ask any experienced venture capital partner which carries the greater weight in the investment decision: the solution or the team of founders? Most responses will be along the lines of, “it’s the team first and foremost—it takes people to grow a company no matter how innovative the solution may be.”

As corporate innovation teams move into taking new products and services to market, the ability to dedicate small teams to launching and nurturing additional development through direct contact with customers is a defining success factor – even though the innovation team will continue to be challenged by the tug-of-war with the traditional corporate way of doing business. 

Defining the goal of the innovation process as a product or service will lead to greater internal branding as a start-up.  This will, in turn, create the conditions needed for a highly effective team to set their own rules for success. 

Guy Fraker
Chief Innovation Officer

Innovation Best Practices – Embracing a New Approach

There is a story about a great warrior fitted for battle. Armored head-to-toe, spear and sword in hand. He was feared and dominant in hand-to-hand combat. His opponent, with no armor, carrying a light weapon—with which he was incredibly efficient—approached. The heavily equipped warrior didn’t know what to make of his seemingly ill-equipped opponent. The battle took only seconds: The young ill-equipped opponent, with speed, focus and accuracy, placed a blow between the eyes of the warrior. It is unknown if the blow to the head killed or dazed the warrior; it does not matter, because the ill-equipped opponent ran up to the warrior and with the warrior’s own sword, cut off his head.

The warrior expected, assumed he would engage in one battle, but he got an entirely different one. Do not let the old ways condition you for a battle that is being waged completely differently. Prepare for a battle marked by speed, focus and accuracy. Embrace a new approach.

Throughout the past 300 years, many technologies proved to be transformational for their time when mavericks in managing risks embraced them as opportunities despite a lack of quantifiable data to rely upon. This cycle of an emerging break-through capability being enabled by insurance innovators—which then allowed society to benefit from breakthroughs—has repeated itself several times since the 17th century. The most notable case studies include the opening of the spice shipping lanes, the ability to acquire dwellings and property in the earliest days of the 13 U.S. colonies, and the advent of personally owned motorized vehicles following the dawn of the 20th century. 

In today’s era of unprecedented innovation, the pace of new technological capabilities conjures images of a chaotic global storm. Think driverless cars, genome-based protocols, nanotechnology, materials science and the privatization of near-Earth space.

The question to be asked now is: How will today’s insurers respond?

Will insurers tap into their risk-taking DNA and leverage the proliferation of tech as a growth strategy while also serving the historic mission of enabling economies? Will they cede the role of insurance innovation to non-insurance enterprises? Or will it be some combination of insurance and non-insurance entities playing critical roles to support the growth of transformational technologies?  

As these scenarios continue to evolve, three incontrovertible realities are impacting the insurance industry:

  • Unlike prior historic experiences, the scope and scale of benefits from many breakthrough technologies, combined with the pace of adoption will result in accelerated impacts whether the contemporary incumbent industry opts in or not.
  • The ability to discover specific growth opportunities in this era of sea change is open to all incumbents, regardless of their product mix and premium volume. To believe otherwise is to embrace false assumptions about innovation as opposed to actual best practices.
  • The window of opportunity in which an insurer can clarify its specific innovation strategy is far from closed. In other words, incumbent insurers have the means, the time, and the resources to gain clarity about what their innovation goals will require. 

These three assertions are among the clearest and most consistent findings from our analysis of data from a variety of sources. The data behind the descriptions, observations, questions raised throughout this article and subsequent ones in this series include:

  • A survey of insurance company innovation readiness conducted jointly by The Institutes and Insurance Thought Leadership.
  • Data from our innovation platform Innovator’s Edge.
  • IE Advisory-facilitated innovation workshops.
  • Interviews by IE Advisory of 214 company executives totaling more than 1,000 hours. (See Figure 1)
  • Insurer innovation engagements covering the full spectrum of product lines and premium volume.
Figure 1: IE Advisory Interviews

Insurance industry executives, we believe, have an opportunity to claim a leadership role in choosing to engage in technology-based innovation and move the industry forward.  Being successful, though, will mean committing to behaviors, processes and expertise that are a departure from the status quo.

Embracing a new approach

Achieving success as an innovator will require insurers to seek new resources and advisers. This is critical to both overcome internal innovation hurdles and to avoid the innovation demons that plague their incumbent partners and advisors.

Incumbent companies operate with an organizational hierarchy, key metrics, and governance structures that are focused almost entirely on addressing issues for which they have already formulated answers. This is especially true in the insurance industry because future strategies are grounded in data from the past. Figure 2 is a simplified illustration of an incumbent organization as a starting framework for consideration. Note the clear role of a CEO, with an executive committee of corporate leaders responsible for separate and distinct portfolios. Think for a moment about the significant resources and cultural norms reinforcing this structure. 

Figure 2: Incumbent Structure

Rare are the companies operating on this established and successful model who choose to resource a new venture based on asking questions that begin with “what if…?” unless they already have answers to those questions. Yet insurance innovation requires a willingness to convert the unknown into a known, then convert that known into enterprise growth and scale. 

To innovate faster than an early-stage company can scale, an organization must first commit to different strategies. This means turning to a new set of advisers, methods, and tactics other than those used in traditional strategy development.

Companies that have embraced a fresh approach to innovation quickly discover that the road to success can be far less complex and require fewer resources than initial estimates. Changing the culture through innovation is a long road that rarely crosses the starting line. Innovation is learning by doing, leveraging constraints, and success will take care of the culture. 

The following illustrations show the two most common innovation models that emerged from the ITL/TI innovation readiness survey as well as the extensive interviews and data collected.

Figure 3: Emerging Innovation Model 1

In Model 1, insurers have designated 1-2 people to explore, or lead, some aspect of innovation.  These individuals are tasked to research and follow insurtechs, build out some venture capital capability, or relocate to one of a short list of startup incubators. What the research shows with overwhelming consistency is these small teams typically do not have a clear mission, nor a mandate to act. When they report to a C-level executive, capacity for that corporate leader soon becomes the predominant challenge to innovation progress.

Figure 4: Emerging Innovation Model 2

In Model 2, insurers are taking the same approach typical of large change efforts for scaled organizations. Multiple innovation capabilities might be launched, often simultaneously, each reporting to a different member of the corporate leadership team. For example, membership in an accelerator or incubator often falls into the portfolio of the Chief Technology Officer, or Chief Information Officer. In this illustration, we see individual units being launched for venture investing, idea generation and management, internal modernization, and a team assigned to incubators. This model intuitively fits with existing cultural norms at many insurers.

Model 2 is also the approach most suggested, or facilitated, by the same external advisors that have a long history serving insurers. However, many of these advisors are also large incumbent organizations, who also operate based on scale, and are also fighting the same innovation challenges as insurers. The results from working with these traditional partners has consistently been described in interviews and intervention engagements as, “we have been at this for 2 (often more) years and have yet to deliver anything truly innovative, or meaningful.” Indeed, as many organizations are now reporting, such a model is virtually guaranteed to generate compromised results, lengthy time horizons to a positive ROI, significant internal conflict and disruption. 

Rejecting the status quo

Large organizations too often define a priority in terms of budget size, reporting relationship, and volume of activity. With respect to innovation efforts, this approach translates into the expenditure of significant resources, managed by traditional metrics and reporting relationships.

The ITL/TI survey responses provide more information as to actual practices from within these models that highlight both traditional approaches and expected results. The following graphic takes the survey responses and converts them into an industry-level profile of current innovation beliefs and practices.

Figure 5: Insurance industry survey – innovation practices

Note the significant percentage of companies with an innovation strategy, even though a far smaller percentage see this as a top tier priority. Given that innovation is more about the human side than the technology used, the survey data on workforce involvement is particularly important. Many respondents report they encourage workforce participation in the innovation efforts, while only 30% of the companies reward actual engagement. Finally, only 7% of the companies in the survey are confident they have a select few associates with the skills and experience necessary for success in innovation.

When these responses are connected to the two predominant models from the interviews and engagements, questions of significance emerge. Does the low percentage of companies rewarding workforce engagement reflect the prioritization of innovation? Are innovation reward systems related to a belief many in the workforce lack “innovation skills?” Are companies engaged in innovation hesitant to set up rewards out of a belief the workforce won’t be motivated until more have received training? Note respondents’ significant interest in the upcoming innovation courses being developed by The Institutes.

What does success look like?

Leveraging data from interviews, workshops, webinar feedback, and client company engagements, ITL Advisory Services has provided a profile of a successful insurance innovator, illustrated in the examples below.

Figure 6: Insurance industry practices vs. best practices

Figure 6 highlights the gap between the ITL/TI survey responses against a set of best practices in insurance innovation. Specifically, innovation holds a high priority and a corresponding strategy. Within that innovation strategy is a plan to both encourage workforce engagement, and reward those who participate. Note also how the best practices profile appears to align with the actual responses for existing workforce skills and training. The responses reflect the status of the workforce at this time.  The best practices profile reflects a strategy that separates broad workforce training and achieving progress into two simultaneous strategies as opposed to sequential.  

Figure 7 illustrates both insurance innovation best practices and a structure capable of driving results. 

Figure 7: Growth-based innovation model 

This model of a small team, chartered by corporate leadership and armed with a clear mandate, mission and set of known best practices, is found within the insurers and reinsurers that are emerging as successful innovators through their results. The key attributes of this structure—leveraging a system aligned with best practices—are organizing principles developed and executed to complete an innovation strategy.

Creating an Innovative Culture

Many organizations identify “creating a more innovative culture” as a goal for their innovation teams and their innovation strategy. Training will move an organization forward, particularly when a workforce has access to the materials on an individual basis via an on-demand delivery platform. However, when organizations decide training must come before action, the resource requirements to achieve that will delay results beyond the current time horizon and prevent desired innovation results from being achieved.  Secondly, when teams responsible for driving out new concepts are also charged with the responsibility of training the workforce, the potential for an optimal ROI suffers.

Another important data point on the profile comparison found in Figure 6 addresses insurers’ responses in the ITL/TI survey about the main issues hindering their innovation efforts. The No. 1 challenge for innovation identified by insurance executives was their existing IT infrastructure. In interviews conducted with 53 insurers throughout 2018, IE captured more detailed information reinforcing these responses. The view that IT systems are a hurdle to innovation is predominantly based on a view that the internal IT infrastructure must undergo change requiring all available resources. This reflects misunderstandings about the requirements and tactics of innovation best practices.

Many innovation teams report to IT leadership, particularly in organizations where more than 80% of the innovation focus is on internal capabilities, according to the survey. Insurers achieving returns on their innovation strategies understand a different approach: innovation results can be achieved simultaneously, in parallel to ongoing IT modernization. Identifying an organization’s technology infrastructure as hindering innovation practices is another example of an incumbent culture trumping the innovation priority. The existing IT infrastructure should be viewed as a boundary that drives innovation rather than a roadblock to a top tier priority.

An inescapable truth

The information contained in this and future articles in this series is not intended to be a criticism of the goals and strategies of insurers active in the work of innovation. Rather, the goal is to convert an enormous volume of data into actionable information for the benefit of the industry. The bottom line of our analysis is an inescapable truth that also is captured in a quote from Albert Einstein: “We can’t solve problems by using the same kind of thinking we used when we created them.”

Innovation requires strategies, expertise and processes that are often new and largely run counter to the project strategies typically used by large incumbents.  Insurers that fully accept this reality, and act rather than research will be the early adopters that successfully create growth markets.

Guy Fraker
Chief Innovation Officer

Note: This article—the first in a series on the status of innovation within the insurance industry—focuses on innovation business models and practices. The next installment focuses on early-stage companies, startups, and technology platforms impacting the insurance industry today and in the future, to be followed by an examination of organizations typically classified as outside of the industry who are migrating to within. Read the second article in the series now: Insurance Innovation: Keys to Success

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

Podcast: Risk Management Opportunities & Challenges

Wayne Allen and Chris Mandel, Senior VP of Strategic Risk for Sedgwick and Director of the Sedgwick Institute, discuss the opportunities and challenges for risk managers to improve the value they provide their organizations, and how many risk managers are not being provided with advice and insight on technology innovation that could improve the management of risk.