In the wake of A.M. Best’s announcement that it will include a formal innovation assessment as part of its rating procedure for insurance companies, ITL Chief Innovation Officer Guy Fraker and I attended Best’s “Review and Preview” event in Scottsdale last week. Guy’s session was super well-attended, about twice as many folks as we expected. It’s rare in this type of event for no one in the audience to be looking at their phone or whispering to their neighbor, but everyone was attentive. With good reason: As became clear in all the sessions and in private conversations, the industry is at an inflection point.
You are either growing or dying, according to the adage. Nothing remains constant. If you are trying to maintain the status quo, you are setting simple survival as your "strategy," and mere survival is not a strategy. Given all the change that lies ahead for risk management and insurance businesses, you have to be aggressively innovating – or you are falling behind. You can’t just try to tread water while the world is changing rapidly around you..
As we noted in last week’s Six Things, A.M. Best has done the insurance world a huge favor by announcing a procedure for formally scoring insurance companies on their ability to innovate. Guy Kawasaki opened Best's event with a humorous run down of 10 insights on how to innovate (actually, 11; he threw in a bonus) and included this key: An innovative leader must bring people to the point where they “believe before they see.”
At ITL, we say you cannot do or build what you cannot imagine. But how do you imagine an unrecognizable future? That turns out to be hard for every insurance company. The successful companies will have the ability or willingness to believe in an innovation process before seeing results, because that process can keep you moving toward that future until it becomes possible to visualize it. That process doesn’t take ridiculous amounts of capital or gobs of people or a month of Sundays. We know. We’ve done it.
The call to innovate will divide insurance companies into three categories: those that drive toward growth and success; those that focus on the status quo and survival; and those that choose to sell.
Because technology is making our world safer all the time, the frequency of claims is falling, and our bet is that the severity will also decline. Roughly 90% of companies fight over 10% of gross written premium (GWP), and, in some circles, GWP is expected to drop as much as 20% over the next 10 years. The cost of customer acquisition and retention will remain high, and there will continue to be pressure on profitability as customers demand an experience like they’ve become used to thanks to Google, Amazon, Netflix, etc.
Many companies will want to take a wait-and-see approach, but time is not your friend. If you take a "slow follower" approach to innovation you will land by default in the hoping-for-survival category.
If you are in this survival category, either because of inaction, or a wait-and-see stance, you really are choosing to exit the game, at some point. How fast you exit will depend on a number of factors, but the time won’t be measured in decades, and you might have less control over the timing than you think. Brokers are looking to meet the needs of their customers to spur organic growth in their business, and, if a carrier has not innovated in ways that understand and meet those needs, the broker will recommend a different product from a more innovative company. Voila, you’re gone.
The last category comprises companies that do not have the will or capital to play the innovation game. For some, perhaps many, exit might be the best choice for stakeholders. But do not tarry. The markets will look for the best balance sheets. The longer you wait to hit the eject button, the more likely you are to find there are fewer buyers and lower valuations, if there are buyers at that point at all.
If you want to be in the category of companies that pursue innovation, get a favorable assessment from Best and thrive, ITL can help you to get a handle on whether you have the essential elements in place for innovation success. We have developed a free innovation assessment, which includes about 20 questions that will produce useful insights on the state of your innovation effort. At the end of the assessment, we will provide you with our findings and suggestions so you have a clearer picture of what your innovation future looks like. Click here to learn more and get started.