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Insurance innovation needs a bold new annual planning process

As I look out my window and drive around my hometown of Omaha, it's obvious that Fall is approaching. Technically, it started last Tuesday according to meteorologists. It's my favorite time of year. I love the colors, sounds and scents of autumn – burning wood from fire pits, corn harvest and the smell of pumpkin everywhere! The blade change is a signal that we all recognize. We still have only about 20% of the autumn colors, but the transition to a bright, luminous 100% maximum is inevitable, as it always has been.

It reminds me of the old maxim, "the only constant is change." But the funny thing about most things that change is that they were expected and predictable, according to at least some common pattern. Even ancient civilizations knew this for thousands of years ago, they could look at the stars and predict with incredible accuracy when the seasons would change, thus improving their odds of a successful harvest.Today, there are many other "changes" that we have expected as autumn approaches. Students and teachers go back to school, football once again dominates television on Saturdays and Sundays, the hurricane season replaces calm conditions in the Gulf and the Atlantic, and in the insurance industry, leadership teams shift their focus to their annual strategic planning process.

This year, however, to red and yellow be the only change that happens as expected. pair to find the right balance between virtual and personal instruction while keeping everyone safe (as many companies do too). Football is back, but the stands are empty and audience noise is pumped digitally through stadium speakers, not organically through the lungs of thousands of fans. The hurricane season is like no one we have seen because most people remember. We have already gone through all 26 letters of the alphabet and have had to move on to the Greek alphabet to name the storms.

And insurance industry leaders are still getting ready to do their annual strategic planning. But with all the changes of the "expected change" we see, the traditional annual planning process must change.

It's time to be bold

I first did this in my blog last week and emphasized that the traditional planning process must exhibit much bolder thinking ̵

1; and action. The unparalleled conditions created by the COVID crisis have accelerated to the speed of light many changes that were already moving rapidly before the pandemic. Most notably … absolutely necessary to transform into a digital insurance business model that utilizes an API-enabled, micro-service-based cloud platform and ecosystem with partner service and capacity. Digital has been in the top 3-5 strategic priorities for insurance companies in recent years. We expect it to be a top priority now.

Last week, I highlighted McKinsey's research on the economic profit gap that has widened between 23 industries that they have tracked since 2010 and noted that those with future-ready digital business models were at the top level [i]. Unfortunately, insurance was one of six industries at the bottom level. And more importantly, I emphasized that COVID is increasing the gaps between the top and bottom levels, as the effects of the pre-pandemic trends have become even more acute with the massive changes that COVID has created. It is a similar gap that we have seen growing between Leaders, Follower and Laggards from our research on strategic priorities over the past five years.

The McKinsey survey showed that the companies that generate the most economic profit strive for five bold moves. And with the rapid acceleration of change taking place right now, it's more important than ever to consider bold moves like the ones McKinsey proposed in your strategic planning:

  1. Dynamically move resources between companies: Redistribute at least 60 percent of the surplus generated over a decade. It means investing in your own business – both for today's and tomorrow's business to ensure you have a future.
  2. Reinvest a significant portion of capital in organic growth opportunities: Be in the top 20 percent of the industry through strategic reinvestment in relation to new corporate premiums. Usually, that means spending 1.7 times the industry median. Based on most assessments by industry analysts, the average investment in IT by insurance companies has been 3-4% — which only holds you back in the best case. Look at increasing this to 5-9% or more to jump ahead.
  3. Continued thematic and programmatic M&A: No single transaction is greater than 30 percent of the market capitalization, but the total value of offers over a ten-year period is more than 30 percent of the market capitalization. State Farm's acquisition of GAINSCO is a prime example of this bold move … something completely new to this nearly 100 – year – old company known for its steady, conservative nature. We expect more acquisitions over the next 12-24 months.
  4. Make improved productivity changes: Reduce costs in line with the top 30 in the insurance industry. This is where the next generation of cloud-enabled core platforms that adopt new technologies have a positive impact on operational efficiency and effectiveness – especially with a salary as you grow model.
  5. Increase insurance margins positively: Improve insurance functions to be in the top 30 percent of the industry with a gross insurance margin. Insurers need to search for new data sources and advanced analytics to create dynamic, real-time, continuous and floating guarantees that are more automated, so that your valuable insurers can focus on the complex.

This bold strategy for strategic planning is something We have emphasized in recent years in our research on strategic priorities. The two-speed strategy we derived from this research is in line with McKinsey's five bold moves:

  • Bold moves 1 and 2 are in line with Innovation speed – Build a new business model to meet the demands of the next generation of customers, introduce new products and services and channels.
  • Bold features 3, 4 and 5 adapted to Operating speed – Modernizing and optimizing existing operations by replacing older systems with next generation clouds, APIs and microservices made it possible for core systems in the cloud to engage customers and channels more efficiently to maintain and grow today's business.

Our research highlighted the growing gaps between leaders, who are more boldly positioned for the future of insurance, and followers and laggards whose chances of becoming irrelevant are real. Leaders continue to differ from the other two segments with their stronger focus on strategic initiatives that support the two-speed strategy. As shown in Figure 1, all three segments are focused on the basic aspects of modernizing and optimizing the existing business – which is good. Although there are gaps, they are relatively small and can be fixed.

Figure 1

But when it comes to the speed of innovation and business creation for the future, the significant gap between leaders and followers with laggards is striking. as shown in Figure 2. Leaders and followers are far ahead of Laggards with their plans and active development for channel expansion, entering new markets, adding value-added services and integrating emerging technologies.

Figure 2

Crises create opportunity

Even before the further disruption that COVID has created, we emphasized the possibilities of creating new value that crises create. Last year, we highlighted an article from the Boston Consulting Group (BCG) in December 2018 about creating value from disruption describing how some companies have successfully navigated disruption – earning the title "thrivers." [ii] It is stated that successful reinvention requires making a big investment – one that can overcome the pull of the old way of doing things.

Making the big game requires leadership, confidence and expertise to eliminate the "knowing – to do" gap. We see major investments being made in new business models, products and services from both InsurTech and current insurance managers that are “early responses” that capture the attention of customers and markets.

As mentioned in the BCG article, those who wait must make larger and potentially more risky

investments in order to parity with the "early responders". When "early responders" get growth momentum,

the gap between "knowing" grows and leaving successors and descendants with declining alternatives and

relevance in a rapidly changing market.

With the arrival of COVID-19, McKinsey doubles the urgency to be bold in seizing the opportunity and avoiding the pandemic threats, as highlighted in their July 2020 report, The Great Acceleration:

"In times of crisis, however, the burning platform is clear, leaders are often in military command mode and budgets before the crisis have become obsolete. Resources are easier to reallocate when no one needs to be convinced of the need for a quick response and the individual goals set. before the crisis no longer applies. ”[iii]

Do you need some bold inspiration?

There are many companies that do not need a crisis like COVID to motivate them to reinvent their insurance business model, which can serve as an example. and inspiration for the types of bold moves that the rest of the industry needs to build into this year's annual strategic planning.Think of these nine different business models and some of the companies that play in these u trymmen:

  • Social Good & Transparency: Lemonade, Hedvig
  • Peer-to-Peer: Friendsurance, Guevara
  • Affinity / Program Business: Aon, QBE
  • B2B2C Ecosystems: PingAn, Allianz
  • Embedded Insurance : Nationwide + Toyota, Acko + Amazon
  • Digital Platform: Spire, Generali, Pie Insurance, Trov
  • Parametric: Munich Re and Farmers Edge [19659017] Membership / Subscription: BOXX Insurance, Zipcar

The Innovators Who Create These new business comes from all segments, including traditional insurance companies, greenfields and start-ups, and external players including car manufacturers, "Big Tech" and more.

Car manufacturers are leaders with embedded insurance and subscription models, which our primary research has proven to increase in popularity among insurance customers. Interest in buying insurance from Google, Amazon and other Big Tech is also increasing, as is also evident from our research and other sources. In fact, Capgemini reported that policyholders' willingness to buy from these companies reached 44% in April 2020, from only 17% in 2016. [iv]

These companies leverage an external customer-first strategy with cloud-native digital platforms and ecosystems for to create a real customer experience not just a "machine" for conducting insurance transactions. The rapid rise of these outsiders with their digital business models should be sufficiently motivating for insurers to make bold strategic moves – starting with this year's annual planning.

Make your bold move now

Change, as we have known it, has changed. It is faster, deeper, wider and more powerful than we have ever been used to before. The ways we have analyzed and adapted to change in the past, namely through the annual strategic planning process, will not diminish it in this new environment.

Your strategic planning must be bold enough to match the speed and magnitude of the changes we are facing right now. In this year's annual plan, it is no longer enough to set aside most of your resources to maintain the status quo for your current systems and processes. Look at our Strategic Priorities 2020 report to see where you are compared to others as you prepare plans. Consider speeding up areas that you are behind to reduce the gap.

Solve to boldly allocate your resources to a true two-speed strategy: Modernize and optimize your existing business with next-generation cloud, API, and microservice-enabled core systems; and build a new business model with next-generation technology to meet the demands of next-generation customers.

Are you ready to make a bold change?

[i] DiAmico, Alex, et al., "How to win in insurance: Climbing the power curve," McKinsey & Company, June 18, 2019, https: // www .mckinsey.com/industries / financial services / our insights / how-does-win-in-insurance-climb-the-power-curve

[ii] Farley, Sam, "Facing Disruption? The need to reinvent? Better move fast." Boston Consulting Group, December 4, 2018, https: //www.bcg.com/publications/2018/facing-disruption-need-to-reinvent-better-move-fast

[194459027] Bradley, Chris, et al.., “The Great Acceleration,” McKinsey & Company, July 2020, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-great-acceleration

[iv] Violino, Bob, "Coronavirus Drives More consumers to consider big tech for insurance, "DigitalInsurance, September 22, 2020, https://www.dig-in.com/news/coronavirus-drives-more-consumers-to- consider-big-tech-for-insurance [19659053]
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