With the advent of the COVID pandemic in early 2020, many industries were forced to confront an array of unprecedented challenges. For the insurance industry, these ranged from a sudden wave of life insurance claims through to adopting a remote model to operate what was historically an ‘onsite’ business involving in-person agent/advisory support and claim investigations.
Things insurers had previously been viewed as ‘potential risks’ or in some cases ‘aspirations’ for evolving their operating models, were elevated almost overnight by the pandemic to urgent priorities they had to address or else risk losing business.
This unleashed a dam of pent-up innovation, with ideas that had for years been languishing as ‘pilots’ were rapidly elevated to production ready status. Insurers that executed on this ‘pilot to production’ pivot and successfully delivered on their service commitments to policyholders, soon began taking market share from the competition. The outcomes of this sudden and very steep spike in innovation seem to have greatly enhanced the operational landscape of the insurance industry for years to come.
As we look ahead further into 2023, with the current macroeconomic headwinds and the shadow of recession looming, the question arises whether insurance companies will be able to maintain this innovation momentum. Innovation requires investments of both time and capital. Given the combination of post-pandemic ‘return to normal’ and an uncertain economic environment, will insurers as in the past adopt a defensive posture when it comes to spend, thus threatening the momentum of continuous improvement and modernization?
Since the third quarter of 2022, insurance manufacturers and some distributors have begun to ‘slide right’ in respect of their ongoing evolution due to their concern about economic headwinds in 2023. This is due to the rise in the cost of claims, inflation and interest rates all combining to create a challenging buying market and drive compression in bottom line financials.
How, then, do manufacturers maintain innovation momentum in the months ahead? To excel and compete in the marketplace, surgical innovation is required with a laser-focus on extracting the highest return in new business effectiveness with a corresponding reduction in post-issue costs. This focus will need to reflect the voice of the customer, key business imperatives and projected economic trends as they keep the flame of innovation alive.
Those manufacturers that excelled in innovation through the pandemic have an opportunity to build upon their good work – albeit more selectively – in the coming year. However, there is also a risk some will call a halt altogether. During the height of COVID, carriers leveraged agile techniques to deliver innovation quickly and with flexibility, upskilling or augmenting resources within the firm. As the world returns to normality and discretionary spend slows or stops, these resources are now asked to blend project work with business as usual (BAU) activities.
This presents challenges for new projects in terms of over-stretched talent and drained energy levels. It is accordingly critical that manufacturers focus on hardening agile principles into their organizations at a sufficient breadth and depth to maintain innovation and bring energy to BAU activities. Thinly spread talent, especially when that atomisation manifests quickly, will only see organizations devolve back to waterfall/scrummerfall types of implementation models. The augmentation of teams now is critical to ensure depth and prevent a loss of agile thinking.
As mentioned, a laser focus should be applied to deliver results in key functions such as automation in underwriting, claims management/adjudication, and policy/application issuance. There has been a shift in the amount of face-time that is required to conduct insurance business. In an industry that long relied on in-person human interactions, it has become clear that digital engagement is both effective and indeed desired across the industry, albeit depending on product and market.
For example, in-car sensors that track consumer driving tendencies are becoming increasingly popular by rewarding ‘good’ drivers with lower premiums. If the data from the policyholder’s car sensor is directly fed into a telematics model, the need for an underwriter is reduced when assessing risk. For claims management, instead of sending a claims adjuster into the field to evaluate vehicles post-accident, remote investigation of damage can be sent directly to the carrier. The automation of such processes makes the overall customer experience more efficient while reducing costs for insurance companies.
The previously stated ‘surgical innovation’ and the strong belief that the innovation energy of an organization must be maintained even in a downturn in increasingly prevalent. Insurers should consider building an Innovation Incubator in which a team works to overcome the product, distribution or operational milestones the organization needs to hit post-recession. This keeps creativity and energy alive and produces pilots and prototypes that will be ready for prime time when clearer conditions prevail. Supporting and strengthening practitioners and triaging business maintenance activities to ensure innovative minds are kept engaged is also critical to maintaining an innovation culture.
With challenging times looming, it is vital for insurance companies to understand how best to acclimate to their current environment and to sustain their presence in the context of both their customers and competitors. Tremendous progress has been made within our industry over recent years – and maintaining that innovation momentum, despite potential headwinds, will be key to the ensuring success in the longer term.