Insurance is not typically regarded as a leader when it comes to innovation, despite a long track record of creating new and exciting markets around emerging risks and consumer demands. According to recent market research and, the relatively new cyber insurance market is expected to grow at a rate of up to 25% per year until 2026. Many insurers quickly digitalized their customer and agent experiences in response to the COVID-19 pandemic’s lockdowns, permanently shifting away from the traditional face-to-face service model. Other carriers are using customer engagement programs such as loyalty and gamification to respond to consumer demand for more meaningful interactions.
The C-suite is already recognizing the critical role that innovation will play in delivering long-term value: while executive teams were focused on short-term cash management and the welfare of their workforce at the height of the pandemic, innovation now ranks as one of their top two priorities, according to recent data.
While the industry has produced pockets of innovation, few carriers have pursued systemic innovation. Today, carriers are under pressure to be more systematic due to new customer expectations, low interest rates, and new sources of competition (such as leading tech companies, insurtechs, and third-party capital). Long-term growth requires innovation to be embedded in the company’s growth model and fully integrated across the organization, bringing together cross-functional teams to solve problems in novel ways.
That is not an easy task. Profiting from innovation is a complex, company-wide endeavor that few insurers have cracked—at least not consistently. In fact, only a small percentage of life and annuity executives believe they have a process in place that produces strong product innovation, according to a recent survey. Furthermore, only about 25% of financial-services executives believe they have the expertise, resources, and commitment to successfully pursue new sources of growth.
Fortunately, there are methods for developing and implementing cross-cutting practices and processes to structure, organize, and encourage innovation for long-term growth. Here are five steps to incorporating innovation into the way a business operates, competes, and grows.
Resources should be diverted away from core business tasks and toward breakthrough innovation initiatives. Being creative and coming up with novel ideas are not enough to define innovation. It entails identifying unmet needs and underserved markets and filling them, sometimes with unproven solutions and business models. However, too many leaders embrace these risks without relocating enough people, assets, or management attention to make these ideas a reality. Simply put, nothing comes from nothing; if a company wants to innovate, it must invest in the effort.
Indeed, a lack of capacity—both physical and human capital, as well as executive mindshare—is one of the most significant barriers to insurers’ ability to innovate. The priority of traditional incumbents has remained business as usual, particularly as they have attempted to provide stability to customers in the midst of the disruption and uncertainty of a global pandemic. The majority of insurers’ time, attention, and effort has been devoted to updating existing products, maintaining existing systems, and implementing incremental changes. These short-term initiatives appear to be more secure, especially given the recent pressures on insurers. However, insurers who modify their valuation criteria and free up capacity for more daring moves will find robust opportunities.
Insurers can rebalance their product portfolios by reallocating resources from core business tasks to potentially disruptive initiatives, shifting away from near-term product improvements and toward potential breakthroughs or new business models—forms of innovation that often have a higher potential to generate long-term growth and outsized returns.