KPMG’s recent report, A New World of Opportunity: The insurance innovation imperative, goes deep into the issue of a true lack of innovation on the part of global and Australian insurers, and how to go about fixing it.
The survey examines the tendencies for insurers to be overly focused on ‘operational innovation’ rather than strategy and growth innovations, with the latter argued to be the more important of the options. It is trendy now for large (often tech) corporations to have an innovation department completely set up to try to get the competitive edge. Instead of having people charged with nuts and bolts operations on the case while doing their regular jobs, innovators are set up for the specific task that puts 'new and interesting and better' on the shelf.
The survey found that the more money coming into a business (especially revenue over US$5 billion), the higher the likelihood that that business would invest in innovation. Those in the Property and Casualty (P&C) sector (the sector focused on insurance cover for damage to property and person) were more interested in getting creative than Life & Health insurance compadres. One of the main areas that businesses are able to develop is using technology, which has expanded rapidly in the past two decades, but typically an area that insurers are very slow in compared to most other industries.
When asked, what are your organisation’s biggest opportunities in the next 2 years? the answers were:
- 26 per cent said cost reduction initiatives
- 60 per cent said digital technology and integration into business objectives
- 52 per cent said customer data analytics to improve underwriting, pricing and marketing
- 48 per cent said strengthening customer loyalty
- 44 per cent said better use of capital and management of risk
- 26 per cent said improving operational processes and the use of technology
- 3 per cent said biometrics for claims management and/or cyber security
- 6 per cent said wearables and the ‘internet of things’ including telematics
- 18 per cent said changing consumer needs
- 18 per cent said mergers and acquisitions to improve market position and economies of scale
Other interesting findings include:
Internationally, Australia fared well compared to some other countries for recognising the importance of innovations in technology – less than 40 per cent of North American survey respondents said they see opportunities in digital, whereas over 60 per cent of Australian and 55 per cent of European participants said the same.
Sixty per cent of all survey respondents listed an improvement in the use of technology as one of their top three opportunities, with mid-sized companies (US$500 million and US$5 billion in revenue) most likely to see technology improvement opportunities, which the report says may suggest that these companies are only just jumping on the technology train, hence why they see the most opportunities.
When asked what their organisation’s primary growth strategy was for the next two years, the answers were mixed.
- Acquisition, merger or other inorganic growth - 8 per cent
- Offering customers and intermediaries wholly new products and propositions unrelated to existing services - 2 per cent
- Developing new products and services related to existing service offerings - 26 per cent
- Enhancing existing products and services - 31 per cent
- Entering new geographies organically - 7 per cent
- Offering wholly new products and services to wholly new customer segments - 4 per cent
- Introducing existing products and services to new customer segments - 19 per cent
- Not sure- 3 per cent
How to innovate
Delighting customers, the report states, remains the objective of innovation, achieved by being efficient, providing better products and services, or using new channels and approaches. The report offers a series of tips for optimising growth outside of how most people responded to the above question: with a third saying they are going to improve current products and services, there is a lot of innovating simply not happening. Martin Mueller, head of group strategy and development at Swiss Re, is quote in the report as saying: ‘I don’t see incremental changes to products as ‘innovation’ per se. To me, innovation is about making larger changes – new products, new ways to interact with customers, new channels and agile responses to new technologies and advances – that’s real innovation.’
Competition is getting stiffer
This lack of innovation makes it easy for new players to step right up and dive into these markets, stealing customers out from under the noses of established insurance companies. While big business is now calling this ‘disruption’, it is actually just a serious case of slowness on the part of big insurers, and the influx of new ideas – and faster action – on the part of interested entrepreneurs, great teams of innovators in big insurers themselves, and other interested parties. It is not a disruption, but an interruption to the long, profitable sleep of insurance companies around the world, who still primarily sell their products in face-to-face meetings with brokers/advisers, and have baulked at the idea that their systems must change after the GFC found the whole thing unsustainable and sometimes unconscionable. The system is antiquated and could use a shake-up, which seems to be happening (still rather cumbersomely), as evidenced by competition being a very challenging area for risk insurers globally, though it seems less so in Australia due to the smaller marketplace. This challenge to the status quo only means good things for consumers: more interesting products, better prices, and better service, as everyone ups their game to compete.
Australian insurers were most concerned about current competitors overtaking them, not new entrants into the game, with current and legacy systems causing issues with agility. The larger the company, the less flexible systems are to change, and adapting can be difficult in any short time-frame. Additionally Australian businesses have the added disadvantage of having a limited customer base, making huge investments into new products, infrastructure or innovation teams less viable both short- and long-term. Regulations on the finance industry can also act as an impediment, the report says, narrowing the parameters and resulting in unintended negative consequences, including an abject lack of innovation – compliance and regulatory requirements don’t come cheap in time, expertise or money, making new entrants work very hard for their dollars. It also means that if the Joneses aren’t doing it, then why should we bother? An apathetic industry results in a true lack of innovation.
Innovation as a priority
Another element crippling innovation in insurance is a lack of importance placed on innovation as a concept: there are usually no teams set up, no dedicated person in charge of innovation at the company, and no leadership or real conversation about it. The R&D department isn’t enough, and driving change is different to responding to it. Most business leaders lack this boldness and vision (being instead good at other things), which is why there is a new trend of hiring outside consultants or companies (or in fact buying said companies) to do it for them, and working in partnerships with other organisations to achieve the same end. The beauty of it is, it seems, is that every business doesn’t have to have their own innovation team to succeed at innovation.