Awhile back I wrote about the evolution of social media strategy for insurers. The premise of the blog was how insurers effectively use social media to improve customer service and help agents.

The topic of social media is a microcosm of a bigger question I commonly receive from insurance executives: Can insurers and other financial services firms innovate?
Innovation within insurance is stifled because of the extremely challenging regulatory environment. Individual state legislation, product restrictions and widely varying consumer regulations often deter insurers from investing in new products, pricing, promotions and services.

There is proof, for the naysayers, that innovation remains a myth for insurers and financial services providers. Business Week annually ranks the Top 50 Most Innovative companies around the world. Not a single insurer or financial services firm appears in the ranking (except for Citigroup). I don’t believe the report card tells the entire story though. Yes, insurers may never offer the next iPhone or Dyson vacuum, but the track record for innovation is growing.

Just look at a few examples of innovation from insurers over the past few years:

•    Telematics and pay-as-you-drive insurance. Progressive leads the pack offering an array of innovative products and services. The firm uses telematics to offer customers a novel concept— a car insurance policy based on how well and how much you drive. Progressive’s MyRate pay-as-you-drive product is a behavior-based car insurance policy that lets drivers lower their premiums based on how they drive. Drivers receive a small wireless device that plugs into a port in their car and measures how, how much and when the car is being driven. Cars driven less often, in less risky ways and at less risky times of day can receive a lower premium.

•    Price comparisons and “name your price” solutions. Priceline.com built the business model for name-your-price travel. And Progressive seized the opportunity to innovate within insurance. Progressive currently promotes its Name Your Price service that allows customers to set a budget for auto insurance. Then Progressive builds an auto policy to fit the customer’s needs and wallet. Progressive and Esurance also innovate by offering customers competitive price comparisons at their Web sites. A customer can see a Progressive or Esurance quote along with two to four competitors’ prices. This creates transparency for customers who are seeking the best coverage and lowest possible price.

•    Mobile applications and the iPhone. Apple topped Business Weeks’ list as the most innovative company in the world. The company continues to dominate the MP3 market with the iPod, and is making waves in the mobile category with the iPhone. The iPhone is only used buy a small portion of mobile U.S. customers (around 5%), but the penetration of smart phones continues to grow exponentially. Nationwide jumped on this growing segment, and was the first U.S. auto insurer to develop a claims application for a smart phone. The firm released its new iPhone application, available to Nationwide and non-Nationwide customers, that lets policyholders file a claim, take pictures of accidents and manage the claim process through an iPhone application.

These examples may not grab headlines or put any insurers in Business Week’s most innovative ranking, but I believe innovation is happening right now. I speak every week with leading insurers who are evaluating amazing new innovations.

Most innovations are related to integrated online experiences that give customers the opportunity to build a personal risk and financial inventory. Customers will soon have online, mobile and social applications with rich tools, calculators, real-time pricing and online advice software to help them optimize their insurance and investment portfolios.

These integrated experiences will incorporate budgeting, banking and payment solutions normally found through traditional retail banks or investment brokerages.

Human resources and hiring trends are also improving the odds for innovation within insurance. Insurers are hiring senior IT, eBusiness, marketing and product executives from outside the industry. This hiring trend brings new talent to traditionally conservative insurers and executives with proven innovation performance.

We will continue to see major strides in innovation in the next year as insurers deliver more customized products and services to policyholders. Innovation and insurance is no longer an oxymoron.

Do you agree or disagree?

Chad Mitchell is a senior analyst with Forrester Research. He covers trends in global insurance; eBusiness and channel strategy; emerging Web and call center technologies; consumer trends in researching and buying insurance; and best practices and rankings of leading insurers. He can be reached at cmitchell@forrester.com.

The opinions of bloggers on www.insurancenetworking.com do not necessarily reflect those of Insurance Networking News.

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