By Jenny Sutton
Life insurance innovation has often been labelled an oxymoron! By design, life insurance companies are more concerned about stability over the long-term. All decisions are considered from an underwriter’s goal of understanding and mitigating risk. This does not naturally create an environment for agility, a prerequisite to innovation. In addition, legacy systems, high hurdle rates, and too many “must do” projects make it very hard to get a speculative project out of the gate.
| How to APPEAR Innovative 1. Hire a Chef 2. Invent New Titles 3. Kill the cubicles 4. Adopt the Jargon 5. Do the Pilgrimage 6. Accelerate Something 7. Go Casual 8. Get some Xooglers From CB Insights Corporate Innovation Theatre |
Most insurance companies, however, have recognised that the world is changing and they need to change with it. Unfortunately, the very first attempts to appear, if not be, innovative only underline how big the challenge is.
Over the past year, one after another, as if on cue, insurance companies announced incubators, accelerators, labs and other business units focused on innovation. If the very goal of innovation is to come up with unique and differentiating ideas, this “me too” behaviour was not a very good start. Not surprisingly, to date, no significant results have emerged from any of these investments in innovation.
This phenomenon, trying to appear innovative without actually being innovative, is not unique to insurance, and is what has been dubbed “Corporate Innovation Theatre” by CBInsights (a startup/VC data analysis platform) – see Sidebar.
You have to want it
Hunger is what drives startups – literally. Doing more with less. Shipping a minimum viable product to be able to get through the pre-revenue stage as quickly as possible.
Motivation for the founders and early staff is found at the lower levels of Maslow’s hierarchy. But this is one of the key missing ingredients for insurers. The intent and drive is missing. Innovation is just another business activity, and salaried employees will earn their pay cheque whether their idea has a viable possibility of growing DAU (daily active user) count, or any other measure, or not.
Necessity, the mother of invention, has to be part of the innovation equation. Mr Cleyton Christensen refers to this more benignly as “CEO Commitment” – see Sidebar 2.
Gambling on innovation
Venture capitalists look for investments that will give them extraordinary rates of returns because most of the startups they fund will not become the next Facebook or Google. Most will fail quickly, or become zombies – either way there is no exit strategy, and no payoff for the VC. VCs are gamblers. They place bets, albeit informed bets.
Insurers, on the other hand, are looking for a dead cert. A guaranteed return. Gambling is a sin to insurers.
| How to BE Innovative 1. CEO Commitment 2. Autonomous Business Unit 3. A seperate funding pool 4. Leaders with experience in the problem domain 5. Independent Sales Channel 6. A new profit model Adapted from The Innovator’s Solution – Clayton M Christensen |
This aversion to risk has a massive implication on how, within insurers, ideas are evaluated, funding is justified, and the speed at which ideas are tested and implemented. Insurers do not have the organisational DNA to foster startup-like innovation that VC’s do. That is why they need (among other things) a “separate funding pool”, with a completely different assessment approach.
To drive innovation, fresh ideas should battle against each other for funding, rather than being consigned to spreadsheets and templates to compete against internal “must do” projects for budget and resources. Seed funding should be released to promising projects to build prototypes and road-test ideas. Financial metrics such as projected payback period and IRR should be less important than Burn Rate and early operational success indicators such as MRR (monthly recurring revenue), DAU, MAU (monthly active users) and DAU/MAU.
Innovation is not a process
Creative people do not want to be shoehorned into an insurance company’s policies and procedures. If they have an idea that they think is great, they would rather be free to pursue it on their own, albeit with limited funds, and ultimately reap the rewards if the idea is successful.
People with really game-changing ideas are just not going to go and work for a paycheck, and give up the opportunity to control and design something that they are passionate about. It may be possible for insurers to offer trendy office environments and gimmicky benefits (unlimited vacation anyone?), but these are no substitutes for having the title “Founder” on a business card, and the autonomy that goes with it.
Traditional job descriptions. Traditional hiring approaches. Traditional rewards systems. All of these have to be thrown out the window. Create a feast or famine environment. Reward success. Move on quickly from failure. Foster multiple standalone, self-organised innovation teams. Allow them to work on their own terms – including selecting what office productivity tools, communications tools and work locations they use. Leave them outside the firewall. Let them come up with their own brands. Stop trying to control innovation!
Advantages of internal innovation
The one advantage that embedded innovation teams have, is access to specialised insurance knowledge. This includes access to deep expertise on insurance product design and pricing, market research and legal expertise.
These skills can be difficult for startups, particularly those founded by industry-outsiders, to source, never mind attract and afford. Preliminary ideas can be tested with customers, product ideas can quickly be modelled by actuaries, and legal experts can weigh in on regulatory grey areas. However, as these functions also present the hazard of stifling innovation, they have to be treated as arms-length service providers to the innovation team, who are free to take or leave their input. They can have no veto right, or ability to impose constraints on innovation.
In addition, there is a massive untapped pipeline of ideas that general staff typically have no forum for tabling, or interest in pursuing themselves. Most innovation initiatives have focused on building a siloed innovation team, and have telegraphed to the rest of the organisation that their ideas are not wanted. Apart from the obvious change management implications of this – it seems incredible for insurers not to crowdsource ideas from within their own organisations. And this does not mean just having a popularity contest for ideas, but a proper process for evaluating ideas and rewarding the proposer.
Acid test
If you are not seriously worried that your innovation programme is going to disrupt your existing business, draw fire from your current channels, or confuse your existing customers, then you probably do not have a serious innovation programme.
Originally Published in Asia Insurance Review 1 Oct 2016
