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17 Feb 14 15:26

Innovation is certainly a buzz word, not only within the insurance industry. So let's not produce more hot air. Let's go back to basics:

1. Do we actually need innovation in insurance?
After all, insurance is not like the fashion industry where a new collection has to be brought to the market every season. And aren't insurance products always just reactions to exposures from the outside world? Isn't the "innovation" always coming from the outside with the insurance industry just reacting to it?

2. Given you want to differentiate yourself from the pack with new solutions, where do the hurdles for innovation in insurance come from?
Is it only outside factors such as the tight regulations, the legal environment, or lacking customer acceptance? Couldn't it be worthwhile to have a look at the inside of our companies as well?

My colleague Claudia Scherer and I were very excited to host the dialogue session about insurance and innovation at the celebration of Swiss Re's 150 Years Anniversary on 6 February in Munich. And the above are just two of the questions we had controversial discussions about with our guests.

My takeaway was that a majority of participants clearly voted pro innovation. However, it also became clear that the self-perception of our industry is still not very innovation friendly. At the same time, a vast majority of our discussion partners did in fact participate in innovation projects in the recent past. For me a clear sign that innovation affects all of us and that the insurance industry is not too bad at it after all.

What is your take on insurance and innovation? Is innovation an empty phrase spouted during strategy meetings? Is it overrated or underrated? Where do the hurdles for innovation in insurance come from? What do you think about the topic?

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Location: Munich, Germany


11 Comments

Oliver Werneyer - 18 Feb 2014, 2:49 p.m.

For me it is a question of culture. Innovation is not an MBO or a goal you can just set yourself. Innovation without delivery is just day-dreaming. The most critical thing is a culture around innovation.

Currently we see that the insurance industry is an old and traditional industry and acts like it too. There is a view around "things have always worked like this", "that is just a fad", "that won't really boost the numbers" blah blah blah. There is an inherent and strong resistance to innovation in our industry.

I am not saying we should support every idea that people come up with but find the right time when to be supportive (in the beginning, building the idea) and when to be testing (determining the commercial narrative and building a project).

We also need to look at new relationships. There are so many startups out there with great ideas and new ways of doing things. The insurance industry loves "new ideas" that have been tested, proven and fully integrated into society, i.e. 10 years old. Insurers also love thinking that they can and will (eventually) come up with the solution themselves and don't need anyone else.

Why are insurers not buying start-ups to get access to that special feature that they could develop and integrate into their processes? Where is the hunger to get and build IP that comes form outside the insurance industry and get fresh ideas and eyes on? Where is the hunger to set trends rather than trying to catch up to them.

In the end, for me, it's the culture. If we want to see more innovation then we need to accept that we need to create an environment and culture that promotes innovation and not think we can enhance innovation and just keep everything else the way it is.

Alan Brasunas - 23 Feb 2014, 10:31 p.m.

While there are exceptions, the track record and inability of the industry to attract the best young talent leads one to ask why. Is lack of innovation why the industry’s knee jerk response to unexpected losses oftentimes is to simply exclude them with the result that these lines of business seek alternatives means of protection oftentimes never to return?

That is not to suggest that other industries have a monopoly on innovation since a great deal of the activity is merely product enhancement or process improvement, not true innovation. Yes, innovation is management’s buzz word du jour and stating it during earnings calls and in annual reports surely leads to an uptick in EPS, or at least, that is what is hoped for, no?

I completely agree with Oliver Werneyer that culture is paramount in order to foster an environment conducive to innovation. Changing corporate culture is exceedingly challenging requiring commitment from the senior most level of the organization and the buy-in of employees down the line. It needs to be constantly reinforced and all relevant parties need to be evaluated upon their ability to grasp innovation. Most importantly, the attitude towards failure needs to be changed as not innovation will succeed and there are lessons to be learned from failures, as long as these failures are within the range of tolerance.

With the continued influx of capital in re/insurance and the increasing changes brought about by technology, companies increasingly will need to innovate, or at least adapt, since business as usual can only guarantee one thing, and that is one’s own demise.

Humayun - 24 Feb 2014, 11:25 a.m.

It’s general perception and experience that Innovation leads to competitiveness and profitability. Moreover, Innovation comes from a good research as well, start from conducting research of goldmine of database available with any insurance company (research through virtual and physical means) ........and integrating with identified gaps in what consumers want versus what is available in the market. Then move skillfully to create an innovation that addresses the need.

An interesting take from IBM's report of 2007 title 'Insurance 2020' Innovating means 'taking controlled risks' – something insurance is supposed to be
good at; insurance professionals are trained for taking risks. I believe that we must talk to and deeply understand our consumers in order to build products, services and experiences that will work in today's dynamic consumer-driven market. Can't say about other external hurdles/ resistance, it will surely not come from policyholders and the regulator. The regulators will support Innovation subject to its compliance of established criteria for sound and prudent management of innovations by the insurers and protection of the rights of policy holders.

Melissa Leitner - 26 Feb 2014, 3:47 p.m.

Do we actually need innovation in insurance? This is a great question, and even if the answer is quite clear, it is still important to know the reason(s) why it is a resounding "yes".

To turn the question on its head, let's ask what is implied if the answer was "no, we don't need insurance innovation", and then to question whether those implications are valid. So for example, if innovation was not necessary, this means that the environment is probably quite constant, with few new influences and trends, and that the risks that the insurance industry and consumers face are not changing.

The reality is rather that the industry is exposed to emerging risks like climate change, increasing longevity, regulatory change, social reform, political revolution - the list is long. And so clearly innovation is absolutely necessary to keep up with the times, and indeed to thrive in an ever-changing world.

Of course, there is the commercial aspect as well, that any market participant who resists change will quickly have their market share swallowed up by competitors who do evolve and grow.

Alan Brasunas - 28 Feb 2014, 8:46 p.m.

You might find the posting titled "Four Tips for Walking Your Innovation Talk" located on Booz & Company's blog of interest. It is located at: http://www.strategy-business.com/blog/Four-Tips-for-Walking-Your-Innovation-Talk

Frank Calberg - 1 Mar 2014, 9:39 a.m.

Good posting, Tobias. Thanks for bringing on the important topic. With the use of Twitter, LinkedIn, this interesting open minds platforms as well as the dialogue sessions about innovation that, for example, you and your collaborator initiate, it seems to me that the innovation spirit is going strong. Well done - and keep going. To help test ideas that come forward through, for example, social media / crowdsourcing / dialogue sessions / events, I came across some interesting tips from Scott Cook about trying ideas out. Have a look at this 4 minute video http://youtu.be/XWlv8gvr-qQ

Anish Jacob Vadakkedath - 2 Mar 2014, 6:03 p.m.

Tobias, great topic for discussion.

My take on your queries is given below.

(i) What is your take on insurance and innovation?

Insurance industry is innovating at a pace never seen before. This is driven by IT and ample capital flows in the past two decades.

(ii) Is innovation an empty phrase spouted during strategy meetings? Is it overrated or underrated?

I believe it's not an empty phrase. Its importance may actually be underrated.

(iii) Where do the hurdles for innovation in insurance come from?

(a) Shareholder returns and (b) Balance score cards - as both lay stress on short term over long term.

(iv) What do you think about the topic?

Great topic. Thanks for this.

Roger Bickmore - 2 Mar 2014, 8:33 p.m.

Cultivating an inventive culture is a real challenge in an industry that is currently rewarding scale over individuality and the risk of failure is being regulated out of the system. Judging by the comments here and on my blog this week ( www.rogerbickmore.com ) innovation is a subject that requires greater debate within insurance circles. Well done Tobias for addressing this topic.

Krishna Burli - 3 Mar 2014, 5:17 a.m.

Insurance, after all, is Risk coverage with complex & diverse requirements of different Groups, spread in such a way that the probability aspect of business takes care of the business profits in the long run. There are very many variables & perceptions in this business, which are dynamic & need to be updated with the changing environments & data. I own an IDEA ( Insurance Data Execution Assistance), & assist with the data available to convert it to information, which itself is an innovation. In my humble opinion INNOVATION is an INN wherein OVATION for application & useful information from the existing data can be churned.
With IT enabling us to sort out what we look for, Insurance, a number spreading & documenting with statistical data is definitely an area of lot of inventions.

Bernd Wilke - 11 Mar 2014, 2:36 p.m.

I have a good analogy of why innovation is so hard to come by in today's world:

If you ask for research funding at a university you have to show that:

- what you want to do is based on current know-how- that you are at a reputable institution- that you work with peers in your field of research- that your publication and citations list is long and you published in the right journals- that your previous research was successful

Look quite similar to what we hear when we want to be innovative in insurance - doesn't it?

Just replace

-current know-how with market environment, - the institutions with internal stakeholders, - the peers with right outside partners (if needed),- your publication list with the list of finished products and - how you were successful - I am sure there is a Key Performance Indicator for it.

Now, there once was a guy who wrote something

- which was against everything that everybody else thought- worked at a patent office- had no contact with peers in his field- had nearly no publication record- and no paper trail of successful research.

His name was Albert Einstein and in today's world, he would not get a single cent of research funding.

Lessons here:

- innovation is not what we can imagine but outside- people need room within the companies to be innovative- we must be brave enough to try something because its logic, not because there is a business case- we must listen to the idea, not to the messenger

And last but not least - we must emotionally be willing to take the risk of a failed innovation - which funny enough our risk taking industry is missing:-)

Now think about how the current organizational set-up of where you are is enabling the above - and share with me you thoughts :-)

Tobias Wassmann - 5 Aug 2014, 1:34 p.m.

Hi Anish,
Many thanks for your comment! I agree with your point (i) that a lot is going on, especially driven by IT. However, I also share your feeling (ii) that actually much, much more should be done.
What are the areas you are working on the most in this regards?


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