Insurers need to raise their innovation game
Innovation and disruption are the two current buzzwords of business. Those who don’t innovate tend now to be disrupted. And the insurance sector is a prime example of this.
KPMG’s new global survey A new world of opportunity: the insurance innovation imperative, reveals a faintly alarming picture. 280 insurers were surveyed including 10 percent from Australia. Yet despite most saying their future success is closely tied to an ability to innovate, the practice failed to match the rhetoric.
Less than half of insurance companies have a formal innovation strategy – and just 43 percent had a budget. These findings alone are enough to set alarm bells ringing. So it was not surprising to find that half of respondents’ business models were now being affected by disruption.
The disconnect between talk and action was also illustrated by the fact that while an overwhelming 83 percent of insurance executives acknowledge that innovation will drive future competitive advantage and growth, just one-third even try to be ‘first-movers’, which is key to successful innovation.
Most insurers admitted struggling to catalyse innovation within their own organisations. More than three-quarters (79 percent) said they are already running just to keep up with their day-to-day requirements. Almost as many (74 percent) say they lack the internal core skills needed to drive innovation.
The findings for the Australian respondents almost exactly mirrored their global counterparts in all these key respects. There were however some noteworthy points of difference.
While European insurers put their biggest problem as regulation, this was far less of a problem in Australia, a finding which may be of interest to local regulators when deciding how much global regulation to bring into the Australian market. Here, by contrast, the biggest challenge was seen to be ‘Increased competition from known competitors’, rather than from start-ups or other new entrants.
Australian respondents’ growth strategies were noticeably more centred on “enhancing existing products and services” and selling them to new customers. Our insurers were notably less focused on creating new products than their overseas counterparts.
This is rather worrying. It suggests a lack of real commitment to innovation. Fewer than 25 percent of insurers had a specific individual accountable for innovation, yet collective responsibility is not proven best practice for developing and implementing a stream of innovation.
Even before KPMG commissioned this survey, I believed insurers were particularly vulnerable to disruption. Unless there is a claim, many insurers only deal with their customers once a year – at renewal time. This means their knowledge of their customers – especially of their ‘pain points’ – are typically lower than other sectors like banking.
They are also failing to use social media properly to increase that engagement. This was brought home starkly to us earlier this year when huge storms hit Sydney, and triggered a flood of claims which then saw Twitter pictures of huge damage to homes uploaded by customers irate at the lack of insurers’ response.
Insurers really do need to become more agile, to learn from other sectors, and to leverage technology more effectively in areas like policy administration and claims systems. They also need to disrupt their own business models – before they find others doing it for them.
Australian insurers reported that they tended to use internal crowd-sourcing or employee competitions as a source of ideas. While these can certainly be important, they really need to consider forming alliances with organisations outside the insurance industry to increase the flow of new ideas.
There is no ‘silver bullet’ to create a more innovative organisation; no ‘off the shelf’ package that drives new ideas. Instead, insurers will need to navigate their own path through a new world of opportunity, developing new business and operating models and new partnerships in order to out-compete and out-innovate their peers and bold new entrants.