How small insurers fight innovation headwinds

Register now

While many companies and leaders in the insurance industry understand that innovation is critical to the industry’s survival and success, many smaller insurers continue to struggle with how to identify opportunities, align their needs with new technologies, generate quality ideas and embrace their innovation goals.

Are these companies at a disadvantage? Yes and no, say experts. The demand for innovation and related digital initiatives affects companies of all sizes. Consider that the global digital transformation market is growing at a CAGR of more than 18%, according to Neil Ferguson of, noting that IDC research on global spending reveals that "digital experiences" spending will reach $1.7 trillion globally by the end of this year.

While smaller insurers share many of the same challenges as do their larger competitors, their smaller size requires them to be more nimble and to pivot quickly when needed, largely because they are limited in both budget and resources, meaning employees wear “many hats” to get the job done.

However, because smaller carriers don’t have the same level of resources as their larger counterparts, they often find themselves at a disadvantage in being able to move their products quickly. “They often need help from their tech vendors to provide support, make product changes, do analysis and see insights required for further enhancements,” says Karlyn Carnahan, Head of the Americas at research and consulting firm Celent. “Sometimes that’s great because these partnerships lead to skill-sharing, but sometimes it’s difficult because timeframes can be sluggish, especially when they are competing with larger companies that have plenty of financial, technology and staffing resources.”

Laura Drabik, Group VP of Innovation at Guidewire, agrees, adding that budget restrictions should not stop a smaller carrier from innovating. “As just one example, small property and casualty carriers can act like big ones by being able to leverage an on-demand workforce such as WeGoLook,” she says, referring to the upstart third-party insurance claims information gathering/reporting service.

Outside-In Changes
Disruptors such as WeGoLook and other insurtech entrants may sound unrealistic for smaller insurers, but their entry into the insurance technology marketplace is nonetheless prompting them to recognize both potential changes in the way insurance is purchased as well as customer expectations and demands that are arguably evolving at a faster pace than technology itself.

“Carriers used to rely more heavily on distribution channels, their brokerages, to get it done,” notes Jim Leftwich, founder and CEO of CHSI Technologies. “Brokerages no longer have the same relationships with clients, because clients now want to buy online. So smaller carriers, captives, and risk pools now have to develop competitive products and also price them competitively. The only way to do that is to embrace innovations that help expose efficiencies that lower costs and provide the customer with what they need when they need it.”

The business model for one category of smaller insurers, self-insured groups and public entities, is less about organic growth and more about retention and measurable returns for their policyholders/members, which means their competition is around back-office efficiencies that fuel front-office efforts.

One example is NGU Risk Management, a Tennessee program administrator for public school systems, local government, a utility district and other public entities, which in 1999 began its program with 13 school district members and now covers 206 public entities.

“We reached capacity more than 10 years ago, and typically see 100% retention and so we are saturated,” says Kyle Greenup, VP of Information Technology. “But innovation is clearly part of our goals going forward, because they are related to further efficiencies and cost savings that support better customer service.”

Covering general liability, property, casualty and other insurance and risk management needs for all 206 members (including large schools, counties, and some small entities where only once-a-year changes are needed), the organization provided its membership with access to a portal where they can access, change, edit and delete records.

“They can change the status of vehicles, get reports on property listings, mobile equipment, and even order auto IDs,” Greenup says. “In the last couple of months, it’s taken a load off our CSRs—members are doing it themselves, getting reports when they want --- and they can tailor it to what they need.”

Case in Point
Synergy Comp, a Sharon, Pa., provider of workers’ compensation insurance, established a technology innovation strategy that would tie to the organization’s continuous improvement philosophy, enable it to keep pace, and enhance its services to its more than 85 policyholders.

“One of our most important goals is to create long-term relationships with our customers and we saw a way to do this with unique deliverables in the form of customized loss reports,” notes Kaitlyn Hockenberry, Synergy Comp’s director of IT. “If we had continued on our legacy (spreadsheet) path, which meant challenges related to paper trails, error-prone and inconsistent manual input of policyholder data for quotes and more, we would have had to add staff in order to accommodate the initiative we had put into play.”

After a formal review, the decision was made to implement the CHSI Connections cloud-based policy administration system, which includes a rules-based, multi-state underwriting module that automates the collection of information and the creation of quotes, endorsements, cancellations, audits and renewals. Automating underwriting was a critical decision, adds Hockenberry, because it created back-end efficiencies that enabled the company to look at other ways to preserve customer loyalty and retention.

Synergy Comp has since taken on new clients, but, notes Hockenberry, the focus is on employing the right innovation to create and maintain long-term relationships with their customers. “For us, accuracy, consistency and automation are innovation enablers, especially for our unique deliverables,” she says. “We want them to renew with us and remain long-term clients.”

Culture and Core Competencies
Regardless of the reasons why smaller carriers embark on an innovation path, for many, the path to innovation includes a hard look at company culture and the rediscovery of core competencies.

Drabik notes that smaller carriers are typically regional and have an ingrained process and culture. “While a smaller carrier recognizes their core competency, their culture and systems are sometimes at odds with their older-aged workforce and dated legacy systems, so, no matter how much money is appropriated toward shiny tech, if their culture and process has not embraced innovation, they will not move forward.”

Carnahan adds that being able to improve productivity without scaling costs is an absolute must. “Tech innovation is absolutely an accelerator, because it allows you to do thinks like automate workflow and deliver improved customer experience without needing extra people,” she says.

From a culture standpoint, technology also enables management to provide their employees with the air cover needed to succeed at levels not otherwise possible, she adds. “When you rely solely on human beings to do things, it’s customized, but error prone, which results in a negative. The employment of technology innovation opens up opportunities for different lines of business, products and different levels of interaction with the distribution channel.”

Steve Wozniak, Silicon Valley icon, co-founder of Apple, said in a fireside chat at Digital Insurance's Dig|In conference in Austin, noted that insurance, like many industries, has room for improvement. “Innovation often comes from a couple of young people working on an idea they believe in, but don't always get the support they need.”

Wozniak’s example is a familiar one: “Companies still do spreadsheets and say this is not going anywhere,” he told the audience. “I worked for HP and I wanted them to build a personal computer and I got turned down five times. It wasn’t obvious that it was going to be as huge as it became. At the time, people thought little computers couldn’t do the jobs that people need computers for. But the low cost and some applications came out that made the market.”

The bottom line? Insurers should listen to employees’ ideas and encourage skunkworks projects, he said. “Then, if they come up with something big, even if it doesn’t apply to your company and your culture, you’ll own a part of it.”

Where to Start
As NGU Risk Management evaluates additional technologies to meet its organizational objectives, the company’s innovation efforts are building on themselves. “Without a framework or process, many innovation efforts would otherwise stall,” he says. “So, we are pretty focused on continuous evaluation and idea-sharing.”

After establishing corporate objectives that will serve as the drivers for innovation, smaller carriers and risk pools should also consider conducting their own risk analysis, notes Leftwich. “Every business is built on philosophy of repeatable processes. Where are the risks with these processes? Operational errors, all sorts of things can happen that can create loss within your own organization, so you must determine that first. Then, it’s important to bring in knowledge workers, because apprenticeships are no longer an option for insurers of all sizes.”

In his talk, Wozniak mentioned a maneuver that ties directly to the operational capabilities—and culture—of smaller insurers: the willingness to pivot. “If you spot something that’s better, go the better direction,” he said. “Don’t be afraid to change because you’ve already been working on one thing. If you’ve been working toward a new type of product for maybe six months but it’s in your head, you can still wipe it out, and redo with a clean piece of code in a week or two because it’s still in your head.”

Celent’s Carnahan notes that their consulting arm has built an entire practice on how to think through the process of innovation, which includes conducting an assessment, identifying gaps and maximizing the advice you are getting concerning specific applications, processes and more. “When you are a smaller company, it’s important to find help to help you make sense of your innovation path,” she says.

For reprint and licensing requests for this article, click here.
Digital transformation