Few disagree that the industry needs to innovate, but blue sky thinking is quickly clouded by conundrums around outsourcing, unwieldy legacy systems and the short-term need to turn a profit
Innovation is increasingly a watchword for firms across the insurance sector, with many hoping digital and technological solutions hold the key to future profitability.
However, while progress has been made, many have concerns that the lip service and good intentions around innovation has not yet materialised into serious, large-scale practice.
Post brought together figures from around the industry who are grappling with the question of innovation to discuss what the challenges are at a roundtable, in association with Endava.
The discussion began on the topic of how firms go about identifying opportunities for innovation, and how those are then put into development.
“The innovation opportunities don’t normally present themselves obviously. You have to start with a customer need,” said one delegate from a major insurer.
He explained that once they have arrived on an initiative they want to pursue, a team “representing all different corners of the business” is assembled to guide the project through a series of pilots: first, one lasting a day, followed by a two-week one.
“The ultimate aim is to get to a three-month pilot. Through the course of steps one and two, we test the idea for desirability, feasibility and viability. The reality is we don’t know until we put it into the market.
“We look at emerging social trends to try and work out where new demand might come from, for instance the gig economy, the ageing population and the sheer explosion of data.”
The attendee spoke about his own firm’s recent trajectory, which reflects how the need to innovate has been sharpened in minds across the industry in recent years.
“A couple of years ago, everyone would’ve said we were a relative dinosaur, that we didn’t do innovation and weren’t good it.
“What I’ve found in the last couple of years is it’s not that people are lacking ideas. More often than not, it’s the implementation of those ideas that’s more difficult.”
Another attendee succinctly summed up what their firm looks for in innovation opportunities: “For customers, it’s about speed and efficiency: anything that will give them a quicker and faster response with the greatest certainty of outcome.”
When it comes to putting an idea into development and, eventually, operation, scale emerged as a key stumbling block, be it scale of the company in question or of the project itself.
“Our big strength in the early days was we could move so quickly, and we still move quickly, but, comparatively, now it just feels like we’re at snail’s pace,” said an attendee from a managing general agent.
Another attendee from an insurer agreed: “It’s a real challenge to combine speed and scale. I see small innovations going fast and being successful but transitioning from an innovation that is being bought in a relatively unstructured way by someone who believes in it to a position where we’re able to scale it and apply it throughout the rest of the organisation and get it adopted is a critical shift.”
Expanding on this point, the attendee stressed the importance of taking a plunge on large-scale projects for which the immediate business cases aren’t crystal clear.
“If we believe that our industry is going to be increasingly data-driven, then we have to massively invest in setting the foundations. For cloud capabilities and so on, there is not one single business case, but there is a future promise. It’s a long, heavy, costly process that will enable the speed of tomorrow.”
The jewels of innovation
For one attendee, opportunities could be broken down into categories, some of which are more pressing than others, perhaps to the detriment of the overall innovation agenda. “There are the projects that are going to grow revenue, like a new product, which tend to follow fairly predictable trends. Then there are initiatives that will reduce operating cost or things that have to be done, which is influenced by the regulator or the environment in which we work,” they explained.
“All the things that sit in that other box of the matrix, those are the jewels of innovation, where someone on the shop floor has noticed the process doesn’t really work in this way, or if we did it this way, then it would speed it up or take a step out. Those deliver the most client or customer satisfaction and value, but they are the ones we’re least good at putting into operation.”
The attitude towards change in the market at large was also flagged as an impediment to innovation. One delegate said: “We’re bogged down by what the brokers expect and what all the other insurance companies are offering. If we offer something really different, people are going to say no.
“Even if our execs said ‘do it’, we would still have trouble making it work. We’d have to go and change the market. It’s not going to be an instant change, it’s going to be a three-year turnaround. It’s a tanker that you have to turn around.”
Would-be innovators at insurers also face resistance from within, explained another attendee: “Underwriters are not people that make quick decisions and they’re also creatures of comfort. That means if somebody gives them a rating guide and it’s the first rating guide they learn from, that’s the one to which they will always go back.
“You can put it onto a machine and they won’t use the machine even though it’s way more advanced. There are other industries out there that constantly reinvent themselves – take retail – and the staff just accept that they are going to change and advance.”
The solution to this intransigence, for one attendee, was to ensure people developed cross-disciplinary expertise.
“We need to make sure that people are moving around,” he said. “We should have more data, pricing and legal people feeding into underwriting and we need to blend the culture with other companies and other sectors otherwise we’ll never get out of this culture.”
Taking a fresh look
Another delegate explained how his firm had started an ‘entrepreneurship programme’ in an attempt to shift attitudes.
“Our innovation team has a very limited background in insurance, which allowed us to take a fresh look at how the processes work,” he said.
“We’ve brought people inside to our lab to get domain knowledge and to encourage them to go back out into the business to be cultural champions. We are teaching them to fail fast and this idea of not trying to implement massive, new projects at scale, but instead starting with an acorn and growing and testing it and really understanding whether it works before piling money behind it.”
Another key point of discussion was over when firms should look beyond their internal capabilities and enlist the expertise of external partners.
“If you’re late to the party, then you probably do need to go external because some of this stuff is difficult,” said one attendee representing a major insurer.
“Natural language processing and optical character recognition are good examples. There are lots of external companies offering some amazing stuff and if you don’t have anything in that space, you probably do need to go external, even though there isn’t a massive appetite to go external for much.”
He went on to say that this lack of appetite was at least in part down to widely-held, albeit flawed, belief that people within the company could do it better.
“These guys do it for a living,” he said, referring to external parties.”They’ve got commercial knowledge and massive infrastructure, it’s all they do; you just do it on a Tuesday.
“I speak to our people and ask ‘can you do it?’ and they say ‘yes’, but they can’t and it takes six months to get through that process. I’d rather have started a proof of concept with someone else.”
But it isn’t just a case of surrendering in the face of greater tech know-how and outsourcing digital solutions wholesale. The discussion also threw up a number of caveats.
An attendee from a specialist insurer said: “If you do something externally, it has to be for the right reasons.
“There is sometimes a danger when we’re going external that it’s because we get a rebate up front and because then it’s all being taken care of. If you’re just trying to fix one specific problem, fine.
“But if we are trying learn about the technology and think about how we could reinvent that in different parts of the industry, we want to have some ownership of it in-house, even if it’s developed externally. We need longer-term partnerships.”
Another delegate echoed this caution: “The benefit from working with partners is that you learn from other sectors. But if you have technical capability and entrepreneurial spirit internally, you can create some really good outcomes.
“You’ve got to be targeted about where you do use external support to develop things that may become key intellectual property for you.”
However, it is not always simply a matter of clear strategic preference that determines whether work is done in-house or outsourced.
“One of the things that constrains us with the external route is complexity,” said an attendee from a major broker. “There’s a barrier to engaging with external partners because some of the stuff that we’ve got, partly because of the legacy, is so bloody complicated.”
Whether a digital solution is developed in-house or by an external partner, there remains an issue around misapprehending ongoing long-term demands.
“I’ve met a lot of people who assume that if we start building a new underwriting system, it will be ready in two years and you will have something that you will never need to touch again,” said one attendee.
“That’s ridiculous, but you’d be amazed how many people think that’s what happens. The problem is in two years, if you’re writing for Lloyd’s, it wants to change the rules again, and there’ll be more management information that you’ve got to produce and it’s got to be produced in a different format for different people. It’s ever-changing.
“The problem is you are trying to build a system that has to be constantly updating, adapting and evolving, but everyone thinks there’s a start and an end date.”
Another delegate explained the steps his firm had taken to challenge this kind of thinking: “One of our big cultural changes has been to basically stop funding projects and stop creating teams; we have longstanding teams.
“A lot of my team are very happy to be given a clear scope, budget and time to deliver something because that’s the world they’ve been operating in all their careers, like I have.
“When I suddenly say to them, ‘look at these business outcomes instead and decide what you need to do to meet those business outcomes,’ that’s what they’ve all really struggled with.”
The mindset also presents challenges at a board and budget-setting level, as an attendee from a major insurer explained: “It’s persistent change. ‘How long do you need these people?’ Forever. ‘How long do I need to keep investing in your transformation budget?’ Forever. ‘How much do you need next year?’ Twice as much as I asked for last year.”
Another delegate echoed this frustration with c-suite mindset: “My CEO seriously thinks the budget is going to come down. It isn’t. This is the new normal.”
Pressures from the c-suite don’t just arise from misapprehensions around persistent change, however, but from firms commercial imperatives.
“The chief information officer role is a commercial role now,” explained an attendee. “For the board, it’s all about improving the underwriting result for the business. When you have lots of carried-on legacy, it’s not very easy to turn around to a board and say ‘I just want to innovate’.
“What they’re looking for is how you are going to help to reduce the combined operating ratio and contribute towards the underwriting result this year. Not in future but this year.
“What they’re also looking for is how you are going to deal with stranded legacy so you’re not eroding margins on the general insurance business, so your strategy has to be around how you’re dealing with legacy.”
Possibility for innovation
He explained that while this commercial lens was “stifling”, it did not totally preclude the possibility for innovation. “You can also say ‘I’m going to make one or two bets’,” he said. “For example, the bet I have made for our business is all around pricing, because we can improve our speed and efficiency around pricing.
“I got several people together and I said, ‘how do we sort this problem out for each part of the business? Go away and think about it.’
“No project plan, no products team, no anything; just get together and figure out how we improve our pricing for this particular part of our book.
“They didn’t have a data scientist and it took them nine months because we were learning and making tons of mistakes. It was also partner-led because we had no
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