Insurers more willing to experiment with new tech this year
A majority of insurers plan to significantly increase spending on emerging technologies, such as artificial intelligence, and create separate business units—or innovation labs—to develop and market new products.
That's according to a new report from Celent, “Insurance Innovation Outlook 2018,” which surveyed 39 insurance innovation practitioners on current tech strategies and approaches for the next calendar year. Insurance companies expect that insurtech disruption and customer expectations will continue to rise in concert this year. Carriers are responding with ramped-up investments in newer platforms to keep pace, the report found.
“This next year will see the launch of stand-alone entities offering products using a digital platform through an existing or new distribution scheme,” said Mike Fitzgerald, senior analyst at Celent, and the study’s author. “It is expected that such approaches will increase the number of new products and services available to insurance consumers.”
Coordination of such activities requires the right skill set, which insurers regularly attest is getting harder to find. Successful innovators have expertise in project management, product design, and financial modeling, Fitzgerald says. The market for hiring experienced innovators will continue to be a challenge in 2018.
Willing to experiment
Looking back at the past 12 months, respondents noted much progress in innovation, but also called for broadened support of experimentation from their organizations. Most industry efforts today concentrate on incremental changes that offer little risk, according to Celent. More than 40% of those surveyed report their organizations spend 90% of their resources on incremental change, and only 10% on “disruptive” initiatives that can more quickly create new business models and markets for carriers.
Market analysis does show that trend is shifting, however, with 24% of insurers in 2017 allocating up to 40% of innovation budgets on more aggressive projects, up from four percent in 2015. In fact, three-quarters of insurers expect challenges related to innovation will become easier or at least stay the same in 2018. An increasing number of insurers are also looking to partner with insurtechs in order to remain in touch with newer application being introduced to financial services.
Finally, Celent finds that traditional reliance on C-suite level staff is also not essential to innovation as it has been in recent years. The hiring rate of designated chief innovation officers is at a particularly low frequency. Instead, more carriers are turning to innovation labs, insurtech partnerships and venture capital initiatives to modernize. Another common tactic used by insurers to spur innovation is participation in startup accelerators.
“It is not necessary to centralize innovation investment, but a firm with the goal of increasing [innovation] needs to know what is being spent and where,” Fitzgerald concluded. “Mature programs have devolved efforts to numerous areas of the business, but they also have effective tracking and measurement processes.”