The future of insurance: innovation
Manjit Rana is an InsurTech and Insurance Innovation thought-leader, Board Advisor and Insurance Expert, and Managing Director of Corporate Innovation (InsurTech).
Manjit Rana, InsurTech and Insurance Innovation thought-leader and Managing Director of Corporate Innovation, discusses how the insurance industry can better approach innovation, and how innovative technology-based solutions can be used to better serve today’s constantly connected customer.
The HR department of any large corporate has responsibility for performing human resource management, overseeing various aspects of employment and dealing with activities relating to employees – they provide the expertise and knowledge to help managers manage their teams, rather than managing the staff themselves. Innovation is the same. As corporates start to advance in their innovative thinking, innovation labs become like the HR department – a centre of expertise that provides support services to every manager within the business to enable them to innovate more effectively; innovation needs to be treated as a core competency of the business, not something that is tagged onto the edge.
Innovation needs to be treated as a core competency of the business, not something that is tagged onto the end.
While many executives recognise and talk about the value of innovation, few are bold enough to admit a true understanding of the process of implementing it into a business model, fewer still who have successfully done it. However, committing to innovation is a risk that will affect the existing business, one way or another. But as we enter a world of big data and rapid technology changes, can the industry risk not being innovative enough?
A starting point
More and more organisations are finding themselves having to exploit new ideas and opportunities in order to respond to growing competition and evolving customer needs. Over the last couple of years, virtually every insurer has launched an innovation programme and created an internal innovation team. Although this may seem like an effective strategy, it is no winning formula. Innovation needs to be taken seriously and this starts by recruiting an innovation team that has relevant innovation experience and can offer comprehensive operational support.
If you look at most industries that have been disrupted to date, whether its taxi’s, entertainment, retail or the motor industry, the biggest disruption has come from outside the industry itself. Uber was not founded by taxi drivers; Tesla was not founded by someone with a motor manufacturing background, and Amazon was not a high street retailer. Innovative solutions typically stem from people being frustrated by an existing proposition or process – that’s why most innovation that comes from within insurance is categorised as incremental innovation, i.e. improvements to existing processes often referred to by innovation professionals as H1 or Horizon 1 type solutions.
Innovation is typically categorised into three bands or Horizons, ranging from H1 to H3. H1 typically provides quick wins and is the easiest place to start. It usually involves partnering with start-ups and scale-ups to solve existing challenges. H3 is the opposite end, the ‘blue sky’ thinking end, the ‘what if you could do …’ type of projects. H2 and H3 projects typically involve businesses creating their own internal start-ups, and partnering with other corporates such as mobility companies, home security providers or telcos, to develop eco-systems through sharing data.
The industry of the future
A recent PwC survey discovered that 44% of insurance directors think that “most existing insurers will not survive, at least in their current form”. Transformation and new initiatives are inevitable. Customers’ behaviours are rapidly changing as they become more connected through the availability of smart devices providing the industry a much-needed push to explore new digital capabilities and IoT (Internet of Things) devices. The availability of new data and the way consumers and businesses want to access and utilise services is changing thereby disrupting whole industries. FinTech and InsurTech start-ups are generally seen as being potentially disruptive because of their technology. In most cases it’s their approach to solving a problem that is the disruptive element of their proposition, they are often seeing the challenge through a different lens or just ‘connecting the dots’ differently, and the technology is just an enabler.
In order to stay relevant, we must rethink what the insurance company of the future will look like.
In order to stay relevant, we must rethink what the insurance company of the future will look like. Consumers are questioning why they pay for an annual motor policy when most cars spend 80% of their time on drives or parked up (I’m sure the underwriters will be screaming that they’ve taken that into account when they calculated the premium but the consumer does not see it that way); when their car is parked in the car park, why are they paying for personal injury cover, or windscreen cover or 3rd party liability? This kind of thinking is challenging the industry to create ‘on-demand’ products and these are not just limited to motor insurance, we are seeing these types of products appearing across a whole range of insurance lines, from marine to home, to gadget, travel and commercial hire (taxi), and it is not constrained to insurance – Rolls Royce bills it’s airline customers for the ‘active hours’ that its engines are operating rather than selling them the engine.
Most people think innovation is all about technology and whilst technology is playing an increasingly significant part, we also need to consider how consumer behaviour and expectations are changing. New business models are emerging from other industries and new types of propositions can be created once we have access to new data – this will inevitably create new opportunities as well as new threats to the incumbent players.
The on-demand approach is not just restricted to the insurance industry, car manufacturers recognise that in the future most of us are unlikely to want to own a car, particularly if we live in a big city – we are already seeing subscription models where for a monthly fee you can swop and change the car for a model that suits your purpose, i.e. you could have a different car during the week to the one you use at the weekend. Car manufacturers have launched car-sharing services and they are investing in broader mobility services; hotel companies are investing in home-sharing services where they can manage the property rental and servicing piece without owning the property. These new propositions also mean that we need to rethink the risk that needs to be covered.
We are starting to see new ‘eco-system’ based business models and insurers will either be a part of an eco-system, i.e. provide the insurance element for a broader eco-system (for example, a mobile operator offering travel cover as soon as I land in Munich for my two-day business trip), or owning the eco-system itself. This will be where an insurer transforms its business into being a home management provider and partners with other organisations to provide the homeowner with a one-stop service that encompasses everything to do with the management of their property.
Take the example of a car manufacturer such as BMW, as I type my destination into the Satnav system, could they provide me with cover for that specific journey? They have access to the route, the road conditions, how busy the roads are at that time, my normal driving style, the time of day that I’m making that journey, etc. Could they influence the route that I take by offering a reduced premium for that specific trip if I took a safer or less busy route, or even suggest that I take the train if it’s likely to be quicker than driving at that particular time of the day? BMW in that instance could create a completely disruptive type of motor policy simply because they have access to data that the insurer does not see. Once we see one motor manufacturer deploying this model the others are sure to follow – just look at the number of Uber competitors that are emerging, and even Grab (an Uber competitor in Asia) has evolved into one of the biggest payment platforms across Asia where you can now also pay for groceries via your Grab app rather than just order a taxi!
The difference between a new InsurTech trying to create this type of product and BMW is that BMW already has trusted relationships with millions of consumers, the capital and resources to create and productionise such a proposition, and access to the required technology and data. Trust and loyalty are two aspects that need to be greatly improved between the insurer and customer if we are to make waves with innovation and offer relevant services that customers will not only want but greatly appreciate.
Trust and loyalty are two aspects that need to be greatly improved between the insurer and customer if we are to make waves with innovation and offer relevant services that customers will not only want but greatly appreciate.
The insurance industry is evolving, and innovative propositions are fuelled by several elements ranging from disruptive technologies, next-gen business models, and customer expectations. If we are going to take innovation within our organisations seriously, we need to focus our approach and understand our starting point better.