Five Steps to Accelerate Innovation in the Insurance Industry

Five Steps to Accelerate Innovation in the Insurance Industry

The insurance industry is often perceived as traditional, conservative and lacking in innovation. While some insurance leaders recognize the critical role of innovation in delivering long-term value and have made some innovative initiatives, carriers must consider a more systematic approach to pursuing innovation in the face of new customer expectations, low interest rates and new competitors. According to insights from the leading global management consulting firm McKinsey, "For innovation to deliver sustainable growth, it must be embedded in the company's growth model and fully integrated across the organization, bringing together cross-functional teams to address challenges in new ways."

McKinsey also proposed five steps that can help insurers integrate innovation into their organizational work, competition and growth models.

1) Shift resources from core business tasks to breakthrough innovation initiatives

Innovation is not just about coming up with a new idea; it's about identifying unmet needs and untapped markets and providing solutions to them, which requires companies to invest resources to unlock innovation capabilities. However, most insurers currently dedicate most of their resources to businesses as usual - updating existing products, maintaining existing systems, and making incremental changes. So if a company really wants to innovate, it must reallocate the necessary resources away from its core business tasks to potentially disruptive initiatives - rebalancing the product portfolio from improving existing products to new business models that are likely to generate sustainable sources of growth and excess returns.

2) Craft different product development paths

Different innovation initiatives require different approaches, which means that companies need to develop different paths for different types of product development. For example, one carrier has developed different development tracks for different types of products:

• New product development: completely novel products that are not based on an existing product's chassis.
• Existing product revamp: building on an existing product and making substantial changes to the product's features, price and experience to create a distinctive new product experience.
• Simple tweak of current product: making small updates to an existing product, such as repricing or adding small features that already exist in other products.

Creating a distinct product development process for each track allows insurers to maintain market share by tweaking existing products while retaining dedicated capabilities for new products that have the potential to unlock new market potential. Companies can determine product development paths by estimating potential risks and benefits - which products should be redesigned and which should be combined with other products.

3) Design a value proposition that incorporates product, customer engagement, and distribution

Insurers need to design innovative value propositions that incorporate three components: insurance products, customer engagement, and distribution and marketing to deliver a differentiated experience to customers and distribution partners. Especially after the COVID-19, the changing customer landscape requires insurers to generate ideas based on distinct customer needs and develop more granular customer profiles to personalize products and tailor messages to the smallest customer segments.

4) Ensure innovation is a continuous and integrated process

The reason why many companies established innovation labs or teams but failed anyway is that they were not well integrated into the actual business planning cycle, resulting in innovation teams that lacked purpose and did not understand their connection to the business. McKinsey identifies three main phases to help organizations plan their innovation process throughout the year.

• Phase 1: Assessment. In this phase, the team quickly develops a clear understanding of the market and identifies areas of focus for innovation throughout the year.
• Phase 2: Aspire. In this phase, the team develops a vision for new product opportunities based on user testing with customers and distribution partners, which is incorporated into the overall financial plan and individual executive responsibilities and translated into cascading key performance indicators (KPIs) and incentives.
• Phase 3: Design, build and launch. At this point, the team has identified one or more innovation opportunities and is ready to move forward with detailed concepting, product design and build (including pricing and filing of insurance products), and go-to-market planning.

5) Leverage an accelerateor to pursue more significant product innovation

Building a diverse innovation portfolio and developing a differentiated value proposition requires new, cross-functional ways of working. Companies can balance the advantages of existing ways of working with the uncertainty of new approaches by creating an accelerator. An accelerator is an independent entity designed to drive product innovation with clear KPIs and success metrics to measure innovation growth; it can leverage the organization's existing capabilities at scale - such as distribution, underwriting and data - while maintaining the freedom and space to explore opportunities that are more ambitious and less certain.

Facing changing customer expectations, insurers must realize the long-term value of innovation and improve the quality, speed, breadth and priority of innovation to integrate it into the organization's growth.