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Accelerating insurance innovation in the age of InsurTech

Insurers of the future will need to evolve and transform

Insurance companies value modernising systems, improving policyholder experience and developing new products, platforms and services. However, many insurers focus more on enhancing legacy systems than true innovation. This report explores what’s keeping insurers from innovating and how to view InsurTechs as innovation partners, not vendors to set the stage in becoming an insurer of the future.

Key findings: Innovation in the insurance industry

Explore the top findings about insurance innovation in today’s market:

  • Most insurers remain focussed on enhancing legacy systems, products and business models, while neglecting to devote enough resources to more disruptive innovations that might differentiate them in an increasingly customer-centric economy.
  • To help accelerate insurance innovation, insurers—which account for only one in four dollars invested in the maturing InsurTech market this year—should start dealing with startups more as an ecosystem of co-developers and partners, rather than just another vendor with a point solution.
  • Insurers face increasing scrutiny by rating agencies that are now examining how effectively they initiate and manage innovation and, more importantly, how they demonstrate a measurable impact.
  • Improved technology alone can’t foster sustainable innovation unless accompanied by fundamental changes in insurance company strategy and operating models.
  • Carriers will likely need to expand upon core innovations to jump-start adjacent and transformational efforts, which could be facilitated by a dedicated team created to pursue new business models and seek alternate revenue streams in parallel with current system improvements.

For the insurer of the future, increasing innovation today is critical

Innovation covers a wide gamut of insurance company efforts, from upgrading and digitising legacy operations; to enhancing the experience of policyholders, distributors and employees; and, ultimately, to more disruptive changes in products, platforms and services. All three elements are valuable in assuring the industry’s long-term competitiveness in an increasingly customer-centric economy.

To gauge the state of the industry in terms of innovation, we spoke with insurance carriers, InsurTech facilitators and rating agencies. Without prompting, most estimated no more than 10 per cent of innovation resources are going towards fundamentally changing how insurers do business, versus 90 per cent to keep them running as they always have—only hopefully better, faster and cheaper. The resource gap between maintaining and evolving how insurers do business will need to be narrowed to fuel bigger picture innovation.

How can insurers innovate more effectively?

Most of the emphasis in insurance innovation these days is placed on patching and shoring up its plumbing—upgrading and digitising core systems or making small changes under the banner of innovation to demonstrate that something is being done. Far less is generally being spent on bolder innovations to enhance stakeholder experience—for customers, distributors and employees. And even fewer resources are usually dedicated to what one rating agency referred to as “innovation with a capital ‘I’”—thinking and acting differently to develop new products, markets, services and business models.

Look to InsurTechs as insurance innovation partners

InsurTech startups over the past decade have drawn $16.51 billion in investments to spur innovation in an industry that historically has been slow to change. At first, many insurers may have considered InsurTechs a threat. But as we enter the second wave of the InsurTech boom, the reality is most startups have been launched to support, rather than displace, incumbent carriers.

The positive is that insurers can tap into a much more diverse and entrepreneurial ecosystem for innovative ideas and solutions. The negative is that too often InsurTechs are serving incumbent carriers as any traditional tech supplier would, helping make incremental upgrades to bolster the status quo rather than working in tandem to reinvent insurance for the long term.2

What’s more, InsurTechs shouldn’t be viewed as a silver bullet. Instead, carriers can start thinking about adding together the capabilities of multiple InsurTechs to solve important business challenges, such as policyholder engagement or agent enablement.

Customers’ connections to a professional agent remain strong, especially in commercial lines, where independent agents and brokers command 83 per cent of premiums written.3 Indeed, a study by the Deloitte Center for Financial Services4 found that about half of small business insurance buyers surveyed would not purchase coverage directly from a carrier without an agent or broker to shop for them and advise them.

Raising the bar on insurer innovation efforts

Insurers should consider putting in place a systematic, sustainable approach to initiate, manage, implement and measure the impact of innovation. If not, they’ll likely have to do more work to provide detailed explanations to investors, stock analysts, regulators and especially, rating agencies. One agency said while not all insurers have to be “tech trailblazers,” many still need to learn to use innovation “offensively, not just defensively to stay in the game and stand in place. Most are just trying to keep up, rather than get ahead.”

Innovation has become a major factor in the overall assessment process of the rating agencies with whom we spoke. A.M. Best, for example, is working to formalise draft criteria for quantifying the maturity level and effectiveness of insurer innovation approaches and outcomes.

The credit rating agency, which says it historically has captured innovation indirectly during its rating process, explained that it intends to remain “agnostic” rather than be prescriptive about how insurers innovate. The agency will systematically assess factors contributing to innovation as well as measurable outcomes to determine how advanced insurers are on a five-level scale.5

While the other rating agencies we interviewed aren’t currently considering an approach similar to Best’s, they all emphasised that innovation already ranks very high in their overall assessment criteria. Insurance innovation will also continue to grow in importance as the industry evolves due to technology disruption.

Accelerate innovation for the future of insurance

Reinventing an organisation’s operating model and culture to expedite innovation may be a daunting prospect. Many insurers are understandably focused on making incremental fixes and upgrades necessary to maintain and bolster their aging infrastructure. Yet those we interviewed repeatedly emphasised that insurers also should start thinking and acting in a much bolder and more organised way to achieve the kind of differentiating innovation likely to be required to remain relevant, competitive and profitable in a rapidly changing society and economy.

To get started, insurers should consider the following steps:

1. Create a business architecture that facilitates greater collaboration on sustainable innovation, both internally and externally

2. Manage innovation expectations and incentivise experimentation with measurable goals, benchmarks and rewards

3. Learn fast and shift gears quickly

4. Look beyond technology to transform other essential innovation components, especially talent.

Creating insurers of the future

Long-term competitive threats are looming and these will likely require far more differentiating innovation down the road. Traditional silos between personal and commercial lines are cracking in the face of changing customer behavior and needs. Digitisation is putting pressure on all industries to customise products and services and make them available on demand, in real time, over multiple platforms.

Incremental innovations to maintain status quo systems, distribution options and business models aren’t likely to suffice in the face of such dramatic changes in society and the economy. Fundamentally changing how insurers operate and provide value is becoming a make-or-break necessity. That means most insurers can no longer afford to merely dabble in innovation. They should be reimagining their value propositions to serve consumers for a very different future and start taking more substantial steps to get there before others beat them to the punch, whether from within or outside the industry.

Insurers aren’t victims of circumstance, or at least they don’t have to be. They still have time to raise their game through innovation and disrupt themselves before others disrupt or even displace them.

1 Venture Scanner data, with Deloitte Center for Financial Services analysis, through the first half of 2019.

2 Mark Purowitz, Malika Gandhi, and Sam Friedman, “InsurTech entering its second wave: Investment focus shifting from new start-ups to more established innovators,” Oct. 1, 2018.

3 “2017 Market Share Report,” Independent Insurance Agents & Brokers of America.

4 Sam Friedman, Michelle Canaan, Nikhil Gokhale, “Small business insurance in transition: Agents difficult to displace, but direct sellers challenge status quo,” Deloitte Center for Financial Services, Nov. 2, 2015.

5 “Best’s Methodology and Criteria, Draft: Assessing and Scoring Innovation,” A.M. Best Company, March 14, 2019.

Get in touch

Gary Shaw

Vice chairman and US insurance leader

Deloitte LLP

+1 973 602 6659

Jim Eckenrode

Managing director | Deloitte Services LP

+1 617 585 4877

Sam Friedman

Research leader | Deloitte Services LP

+1 212 436 5521

Malika Gandhi

Principal | Deloitte Consulting LLP

+1 212 313 1806

Mark Purowitz

Principal | Deloitte Consulting LLP

+1 215 606 1983

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