Life and health insurance carriers place a high priority on innovation. In the International Insurance Society’s 2020 Global Concerns Survey, innovation was ranked as even more important than any other issue, including the implications of COVID-19 and cybersecurity. This was true across Asia–Pacific, EMEA (Europe, the Middle East, and Africa), and North America.
Unfortunately, only 35 percent of respondents to the study said they had an actual plan for innovation. Perhaps that’s unsurprising given the nature of the business we’re in – risk averse and methodical – as we carefully plan for long-term, large, and significant commitments. But a lack of planning for innovation is an unhealthy habit that life and health insurers must break if they hope to survive the next decade and beyond.
The Life & Health Insurance Innovation Challenge
As an industry veteran, I’ve been working with life and health insurance carriers for the greater part of my career. There’s no getting around the fact that it’s difficult for traditional carriers to innovate. Many are large, structured organizations that have been doing business fundamentally the same way for decades. This consistency helps ensure they are around to pay benefits when benefits are due.
A decade or so ago, many carriers purposefully avoided focusing too much time and energy on innovation. At the time, their reasoning seemed sound: insurance is a serious business; carriers are legally bound to pay high dollar benefits, so mistakes can be costly; the planning horizon can be 50 years or longer; and innovation in life and health insurance can be a risky bet that runs counter to tolerance levels.
Besides, if no one else in your industry is innovating, do you really need to push the envelope? Carriers were comfortable in their belief that the insurance industry and the market were slow to change. After all, other carriers weren’t much more innovative than they were. But times have changed.
I probably don’t need to dive deeply into the disruptors we now see in the life and health insurance industry. We read the news every day and hear stories about insurance start-ups, large and small, that showcase new ways of doing business. Most of the carriers I work with are aware that we can and should address processes up and down the value chain to find ways to compete and operate more efficiently. These processes include everything from marketing to sales, underwriting, policy issue, and in-force management. The bottom line is that insurance carriers went from competing for every sale with a handful of known names to competing with potentially dozens of companies, from the big tech giants to the small point-of-use insurance solutions, including some they had never heard of and some that were brand new to insurance.
I don’t want our founders, our legacy companies, to see core business slip away. The industry may have to take bigger, faster steps to innovate along the value chain and, in some cases, fundamentally restructure to survive.
Partnering for Innovation in Life & Health Insurance
In my experience, those who welcome outsider participation in innovation can unlock new ideas and solutions without the need to radically reinvent their current businesses. In fact, RGAX, subsidiary of global reinsurer and lifelong innovator RGA, was created to help traditional carriers do just that. But what works for one company doesn’t work for others. While many factors can impact a carrier’s ability to innovate, it is size, talent, and timing that can determine when to jump forward with innovation activities and when to slow down.
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Large, established players: In some ways, it’s hardest for large carriers to innovate. One might argue that they have the most to lose. On the other hand, they may have the most resources to dedicate to innovation.
While a partnering strategy in the past was often met with great hesitation, it’s becoming far more acceptable in large insurance organizations. As noted in NMG Consulting's 2020 U.S. Individual Mortality Reinsurance Study, 40 percent of large carriers said they had launched a partnership in the last twelve months. That’s a significantly higher percentage than the 13 percent who had indicated so in the 2019 US Individual Mortality Reinsurance Study. In the wake of COVID-19, insurance executives seized the opportunity to advance timelines and progress initiatives currently underway or planned, resulting in a sharp lift in partnerships over the prior year.
While collaborating with an external partner can help large carriers break through many of the obstacles to innovation, they can also consider separating large innovation initiatives from the day-to-day operation of the business. A dedicated innovation team can function like a start-up within the business. They have access to funding and strategic resource support (think “parental support”) and also have existing markets available to test their ideas. The setup can help the carrier be more agile and, thus, able to act on immediate market feedback. Innovation teams are a great way for incumbent life insurers to ignite big, bold, new ways of doing business.
Mid-sized carriers: Mid-sized insurers and some larger carriers may elect to focus on a single part of the value chain or one small part thereof, such as market acquisition, underwriting, policy issuance, and claims adjudication. Instead of creating their own division or subsidiary, they can partner with an existing start-up to innovate the existing ways of performing that function.
This approach can be a win/win for both parties. The established carrier can generate and test ideas faster since it doesn’t have to create its own infrastructure and process to execute on them. The start-up has access to a market to test different solutions. Both sides bring knowledge to the table: the carrier knows the market; the start-up can challenge the carrier’s assumptions about what will and will not work. Then, together they can set up test-and-learn trials, which can lead to prototypes and MVPs. If prototypes and MVPs are deemed successful and positioned as ready for scale-up, the carrier may invest more time or resources into the start-up or even choose to acquire it.
Small carriers: Small carriers often don’t have the budgets to invest in innovation, so partnerships become even more important. They may look for more established (lower-risk) insurtech providers to help them test new ideas. Agility is their advantage, as it is often easier to get approval for new projects at small carriers. Also, markets are smaller but often more homogenous, making it easier to pilot initiatives in a direct, targeted way.
Looking Outside the Industry for Life & Health Insurance Innovation
Finding the innovators in your organization and teaming them up with innovators at partner organizations is a great start. But there are other ways to formalize innovation that are truly outside the box, and these can be doable for the traditional carrier.
Some of the best examples of truly innovative thinking have happened when a carrier invites product, technology, and marketing associates from outside the industry to the table, for example, astronauts, scientists, academics, and manufacturing experts. They give them a “moonshot” idea, such as, “What if we offered free insurance? What would that look like?” and then let them generate ideas.
An even broader approach is to crowdsource innovation. For example, RGAX holds a Big Ideas Contest (most recently in 2019), inviting innovators from outside the insurance industry to compete for a 10,000€ prize for the most promising ideas.
Fostering Innovation while Managing Risk
No matter how you structure your innovation initiative, it’s important to remember that companies don’t innovate. People do. Even if you partner with a start-up, you need someone inside your organization to manage the relationship without stifling creativity. The individual(s) will need to be focused on your objectives and priorities, but they should also place a high value on the relationship with the partner, allow some freedom of expression in how they work together, and be willing to have fun.
Finally, a partner’s urgency may sometimes be stronger than the carrier’s, especially if it’s a young start-up without inherent risk aversion or the need to adhere to set processes. A relationship manager must have a proper sense of pacing to keep the creativity flowing without overwhelming the core business.
If nothing else, 2020 has shown us to expect the unexpected. The insurance industry is rapidly evolving, and to keep pace, your organization will either innovate or be left behind. Choosing an innovation path can be intimidating. We invite you to dip your toe in the water by thinking about how your team can incrementally invite innovation and new concepts into your more traditional business opportunities. If you’re ever stumped on how to get started, our team has a range of creative minds from both inside the industry and out. And we’re always excited to have a conversation about building the future of insurance together.