No matter who you are in insurance, it’s likely that you still pay attention to signals and signs from the economy and other industries when making important decisions. Economic indicators are sometimes very simple. How strong is consumption? How does income hold up against inflation? What does the labor market look like?
In insurance, you may also see signs that force you to make changes. “Where do we need to adjust the premiums? How are our injury rates? Have we invested right? Are we staying compliant? What forces drive us to make movements that we would not normally make?”
The difficulty arises when the trends are not so simple, or we do not understand the full potential impact of trends that may seem unimportant.
For example, what factors are behind the increase in MGA? At first, MGA growth seemed like a no-brainer. New world. New risks. New effective methods for managing risks. Look under the curtain, however, and you̵
7;ll see something completely different. New and complex risks must be managed. Innovation cannot be caged. Insurance innovation is now forced to break out of the seams of insurance tradition. MGA is a result.Recently, I asked two industry experts to join me in a webinar titled Insurance Transformation — Operationally and Strategically — Where are We?
Our goal was to look at innovation in terms of signs and signals. What can we tell about the future of innovation based on what we see today? We divide our interview into two parts. Today we will look at the practice of innovation in four trends that you may or may not have considered.
Our experts on the webinar panel were:
Edin Imsirovicdeputy director, AM Best
Seth RachlinExecutive VP, Global Insurance Industry Leader, Capgemini
And myself, Denise GarthChief Strategy Officer, Majesco
In this part we discuss:
- The present opportunity for mutual insurers to catch up with the innovation levels of the public insurance companies.
- Focus areas for innovation for non-life and L&A insurers.
- The growing idea of innovation is applied holistically over product and experience.
- The growth and innovation within MGA as a signal to the insurance companies
- Focus priorities for 2023
Do mutual insurers currently have a technological edge in the race to innovation?
Denise Garth
I believe there is an opportunity for next-generation cloud technology investments – a potential advantage that mutual insurers could have over publicly traded insurers. Both are sitting on a lot of capital, as they have to from a regulatory point of view, but there is still a lot of money available for investment. Instead of investing in other areas, perhaps these companies should accelerate investment in their own companies.
Edin Imsirovic
From AM Best’s perspective, we see both highly innovative mutuals and highly innovative public companies. The mutual companies have the advantage of not having this pressure to meet their ROA targets on a quarterly basis, so they can focus more on the long term. Public companies tend to move faster in general. They have this increased scrutiny they face from shareholders and the market, so their need for urgency is definitely higher.
Seth Rachlin
There is indeed a sleepy quality to the mutual business. But there is certainly an opportunity, right now, for a mutual to invest the policyholders’ surplus in the future of their business. The possibilities are great. Also, there is an insulation from market pressure, especially when we enter what appears to be a [economic] decline.
I’m a big fan of mutuals in terms of what they’re doing for our industry. I think this is a real opportunity for them to leapfrog and embrace a level of change. We see some of our larger mutual customers doing this. I’m really impressed with what some of the larger mutuals are doing with that surplus, to embrace the change that the market is seeing.
What are the innovation focus areas for P&C and L&A?
Denise Garth
Let’s talk about some innovation focus areas. Which areas do you think are prioritized? Where are companies investing in the most innovative capability? What are some of the differences between P&C and L&A?
Edin Imsirovic
We’re seeing a lot of innovation in both life and the P&C space, with a little more in the P&C space, simply because the P&C space is so diverse. There are so many different risks that non-life insurance companies are trying to address or settle for, so there are many different innovative ways to do it.
Overall, I think the focus is very similar between P&C and L&A. Both focus their innovations on customer engagement and the customer experience. They are also focused on operational efficiency. I think those are the two biggest areas for both.
Seth Rachlin
I agree with that. On the damage side, you will probably see more focus on the damage area. The damage experience is a key factor in customer satisfaction and complaints are also a significant driver of costs and expenses. Claims is one area where I think some of the technological innovation that we’re talking about has a huge potential impact.
Life companies are very much in the innovation game, with both their focus on underwriting and customer acquisition, as well as their attention to wellness topics. When I spoke to people at InsurTech Connect recently, there was definitely an excitement about the life space that probably wasn’t there two or three years ago.
What might it look like when insurance companies holistically apply innovation across product and experience?
Denise Garth
At ITC this year, we also saw the efforts being made to see innovation through the eyes of the customer.
I was moderating a panel and one of the panelists was talking about a new critical illness product they were bringing to market. There is an increasing ability to apply specific cancer treatments based on DNA. So their company will provide access to DNA that can actually help target treatments for cancer within a critical illness product. If you think about this beyond the technology, it’s a case of empathy from the insurer to want to target cancer in a personal way, and of course it improves the customer experience. It is an added value.
For another company that competed for an innovation award (I was a judge), they are using IoT in the home to drive precision home insurance pricing. But they expanded their service to allow the IoT devices to help seniors who want to stay in their homes. It will remind them to take their medicine, it will notify them of upcoming appointments, and it can also determine if they have fallen so they can send help.
These types of innovations go beyond a risky product perspective and create more of a holistic wellness experience. These insurance companies are moving from product-centric thinking to customer-centric thinking.
Seth Rachlin
I absolutely agree with that. It is relevant to think about silos. We see P&C and life & annuity as silos, which is a natural distinction the industry makes because of how it’s evolved, instead of something that makes sense from a customer perspective. Within those silos, I think there is a good understanding of the need for customer centricity. We insure people, not insure different types of assets and things like that would continue to require a product-centric approach.
Does the growth of MGA tell us anything about insurance’s need for innovation?
Denise Garth
We’ve seen fantastic growth in MGA over the last three or four years as part of the whole InsurTech phenomenon. But now, instead of just MGA startups, we’re seeing existing companies stand up with their own MGAs and drive innovation through that approach. Do we see this trend continuing?
Edin Imsirovic
It has been remarkable, the growth of MGA. Part of the reason is that an MGA can be a very efficient way for capital to access insurance risk. We see all types of program administrators at the forefront of product innovation, especially in difficult areas, such as flooding or cyber. InsurTech’s choice of the MGA route creates growth opportunities for the entire sector. One of the advantages of MGAs is that they can enter and exit the market much faster than a “balance sheet” insurer can. And speed to market can potentially increase the overall level of innovation in the space.
Starting an MGA today is much easier than it was in the past. You can let an InsurTech provide the technology and service needed. So if you have the idea and the support of a capital provider, you can just plug into the ecosystem and hit the ground running faster.
Seth Rachlin
MGA is the laboratory for the future of industry. To Edin’s point, it is so much easier to stand up an MGA than it is a full stack insurance company. And it’s also so much easier to build innovation into an MGA than it is to do all the legacy retrofitting you have to do to do the same work in a full-stack insurer.
On my panel at ITC, we had a company called FloodFlash that has created a parametric product for commercial flood insurance based on an IoT sensor. That’s something that’s hard to do if you’re a full-stack insurer.
Denise Garth
What about the technology? Can an MGA afford all the features of the core systems? Or are they more targeted in their technology investments given their revenue model?
Seth Rachlin
I think it depends on the MGA. Margins in the MGA business are tight, but I also think full-feature technology is really becoming more affordable, and especially in the cloud. The cloud is a great equalizer, as the operational, “modern” core system may have been beyond the reach of an MGA from a purely operational standpoint, these systems are now available and operational in the cloud.
Denise Garth
Right. There are MGAs that really have very strong growth plans, and they have a lot of capital back behind them. They want robust systems that can support and scale their business. Cloud has made it very affordable because it is a “pay as you go” model. A robust cloud system with many features in the box will help them quickly launch their products in weeks, compared to months or years.
Edin Imsirovic
When considering technology as the core competency of an InsurTech startup taking an MGA route, it is important to note that they are developing certain aspects of their own technology infrastructure as a competitive advantage.
Focus for 2023
Denise Garth
What would you recommend for companies as they focus on their 2023 planning?
Edin Imsirovic
The most important thing to focus on is the customers’ needs. I know it’s a simple answer, but consumer demand and behavior is what we’ve found to be the most compelling driver behind innovation. In addition to that, we also found that the leadership and culture of the company is very important. Having the kind of culture that fosters and enables innovation is critical.
Seth Rachlin
I think the culture is at the root of it. Insurance companies typically have a certain risk culture that is very different from the risk culture of technology companies. The risk culture of technology companies is based on the fact that innovation does not come from avoiding mistakes. My hope is that over time, as insurers become technology companies, that their approach to execution risk is such that they tolerate higher levels of experimentation and greater levels of investment in uncertain returns, to create the same change that is needed.
Denise Garth
I would add, “Have a strategy, guys.” A strategy gives you focus and helps you prioritize and execute that strategy. Don’t let things sideline you from that execution, because it’s all about execution. The strategy is only as good as the execution.
And be curious. Changes are constantly happening around us, you need to be flexible in that execution to utilize new types of technologies or adapt to what is happening in the market.
What comes next?
If customer focus is key and creating a culture that meets customer needs is critical, then it pays to learn more about what insurance customers are looking for. Be sure to register for our December 15 webinar, Creating Customer Value, Security and Loyalty in Times of Change by Rethinking Insurance. To see the full conversation of today’s webinar, including Edin’s overview of AM Best’s innovation ratings, be sure to watch Insurance Transformation: Operationally and Strategically, Where are We?
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