3 ways insurers can better target innovation
Innovation and constant change are not only business buzzwords of the current era, they are fast becoming the best way to stay in the game. In the financial services industry, what we’re seeing play out is something like "Invasion Of The Insurtechs," which readers of this space well know is about matching user-friendly apps to new market needs and demands. And while these tech start-ups generally win consumer approval on the basis of a slam-dunk user experience and higher value per dollar spent, large incumbent insurance companies rank markedly higher in customer trust. In short, incumbents are (understandably) perceived to be the more reliable custodians of consumer dollars.
That’s the good news. However, the problem for large corporations is that their ability to adapt their legacy structures to the tsunami of new technologies and inverted business models is limited. Big companies might try to adapt by placing big bets they believe are a sure win, and miscalculate big time. Or they may choose to do nothing, leading to an equally certain, if slower demise. But in the face of ceaseless disruption and in order not to miss out, many companies are pursuing a third way, a strategy I call “trying to make a thousand flowers bloom.” This scattershot approach to innovation and new technology results in companies lacking a clear view on how to reinvent themselves. Generally, this approach is also fruitless and wasteful.
The way Steve Jobs saw it, innovation is more often than not about saying ‘no’ to thousands of things. Apple did this very well—every year, they placed their bets on one thing they were going to do incredibly well. One year it was the iPod; the next year it was iTunes; the next year it was the iPhone. They had a single-minded focus, ignoring everything else other than that one odds-on favorite.
Most organizations go wrong by missing that focus. Here I want to discuss a few ways insurance companies can become more targeted in placing their innovation bets, thus giving themselves a clearer view of the field. Once a company knows what’s coming their way, and understands their value chain, they make fewer mistakes and take better-informed risks.
1. Partnering: Share a Common Vision
Though a case could be made that an incumbent manufacturing company such as Toyota can become a disruptive innovator on its own, the reality for incumbent insurance companies is that they need to connect with other, smaller companies to keep pace. Small insurtech start-ups are offering everything from auto insurance that bills by the mile driven to case-by-case homeowners insurance for AirBNB hosts to “instant,” app-based insurance for your apartment, your pets, or yourself. As there’s no way large companies could offer these increasingly in-demand products themselves, it has become almost a necessity to acquire these capabilities and marketing know-how through acquisitions and partnerships with start-ups.
Too often, however, incumbents do not have the digital maturity to form meaningful partnerships, and merely engage with start-ups in a fashion that I call "technology tourism." What I mean by that is that they don’t want to engage collaboratively—their primary purpose of connecting with start-ups is to drive publicity for themselves, rather than to actually collaborate with the start-ups. Clearly, this does not help the start-ups, either.
For these partnerships to work effectively for both David and Goliath, they need to share a common understanding and vision, and put that in writing right up front. In my company, which is a large insurance and financial services organization, we often map this out over a press release, which articulates what both parties would like to see published in the press when we do launch the new product or service. This really focuses both parties—even more so when they both commit to the actuality described in the announcement to be issued in however many months’ time.
2. What Is the Partnership Solving?
Like most other companies, large or small, we cannot afford ourselves the luxury of letting a thousand flowers bloom. Instead, we believe in fewer but much more informed bets. Therefore, it’s critical to determine whether the partnership is intended to strengthen an existing strength, bolster an existing weakness, or simply bridge a gap.
What this requires is an articulation of the disruption that is likely to happen, how the organization intends to respond to it, and how it will instigate this innovation. By clarifying the challenge, the organization can then choose an innovation portfolio, which is based on a list of highly specific business problems that they want to remedy through innovation. Being highly specific about these problems can point the way toward where to invest in technology—but also where not to, which is even more important.
On a problem-by-problem basis a company can ascertain how to tackle this. They might buy a start-up, invest in one and grow it, seek one for a commercial pilot, co-create a solution, build fully in-house, or keep a watching brief. If a particular problem doesn’t find a solution readily available off the shelf, a company might identify a start-up or a technology house and co-create a solution.
3. Up the Internal Game
This brings up an important innovation alternative, particularly in the tech-heavy insurance industry: building solutions in-house. We recognize that while we have many strengths, we also have areas where we lack expertise or where it may take too long to build it up internally, and partnership is a beautiful model for solving this. An example of one such partner is Slice, with whom we are working to get on-demand home insurance into the UK market.
Another partnership example is Salary Finance, which provides affordable loans in the UK. We’ve invested significantly in this company, and are working very closely with them to optimize their offering. With our Goliath-sized support, they’re about to launch in the U.S.
Overall, in our company we have invested in nearly 250 start-ups, but we also build solutions in-house, which allows us to rapidly pilot, test, validate and build new technology. Even while forging great partnerships, big companies need to make sure they are upping their own game internally.
At the end of the day, a small start-up moves at a different pace, and has a different risk appetite than a large company does. Start-ups—the Davids in this scenario—need to recognize that and be patient, but we, the big guys, need to unlearn a lot of our old behaviors. Whether it’s improving how we onboard start-ups, streamlining our decision-making mechanisms, or cutting through our red tape, we always need to work on improving the internal culture to keep pace with these changes. There is no silver bullet for this, as it often comes down to clashing approaches on how to get the work done, and other factors such as risk appetite. But large insurers looking to stay in the game will do what it takes to evaluate their needs, their business models, and their internal cultures—and adjust accordingly.