The Insurance Industry and Innovation
Words like innovative and nimble aren't what immediately come to mind when describing the insurance industry. Perhaps, that's because the business of insurance runs on a very basic premise: An army of actuaries utilize algorithms to determine rates for policyholders. If something such as a natural disaster occurs and the companies must pay out on some policies, those companies simply adjust the rates they charge to everyone else. So insurers typically take very highly risk-measured decisions.
In a business as predictable as this one, you wouldn't imagine that bold, imaginative thinking could ever be a part of the corporate fabric. Yet a group from had an extremely enlightening series of meetings with insurance company executives lately. We spoke of how they can use digital tools that ultimately will aid their customers and enrich their bottom lines. Not surprisingly, they listened to what we had to say.
For one, insurers are faced with wafer-thin operating margins despite all the work their actuaries do to re-adjust rates. That's where technology comes into the picture and gives companies advantages that they never knew existed. Not only can insurers use technological solutions to understand risks better; they can price products more competitively in an effort to connect with customers. Add to this situation the advent of Big Data in the insurance sector and these staid companies are making more impactful decisions than ever before.
For centuries the insurance world has been dominated by agencies. But an alternate, low-touch digital channel is evolving and so is the ability of insurers to create an optimal sales mix. Sometimes that mix calls for a balance between the traditional agencies and contemporary digital channels. The digital agenda is so important for certain insurance companies that you now see it as a line item in most annual reports.
Of course, these developments benefit consumers, many of whom are in emerging markets and are not yet policyholders. The emerging markets are an exciting opportunity for Western insurance companies. Extending their reach globally means they must leverage mobile devices and scale existing legacy systems and processes to cope with the scale and volumes of the emerging markets. There's another consideration: Emerging markets are susceptible to high risk and there is naturally going to be an extensive focus on fraud management and analytics. So compliance in a highly regulated Insurance market will continue to have its usual budget allocations.
Nobody ever said expansion beyond North America and Western Europe would be easy, however. The muted investment returns and high penetration levels in those two Western markets are forcing insurers to look beyond them into the emerging Asian-Pacific markets. That kind of expansion will lead insurers to spend heavily on CRM systems because the focus shifts to acquiring customers in under-penetrated markets.
After we met with those insurance company executives, I came away impressed with their clarity of thought and the focus around transforming their corporations. Not only do they understand global issues. They all share a sense of humility and penchant for hard work. These are the kind of qualities that businesses - no matter how old and predictable - exhibit when they begin an exciting innovation journey.