The insurance sector has made progress in terms of innovation in recent years, but few operators have pursued it in a systematic way. But now, new customer expectations, low interest rates and new competitors (such as major tech companies and insurtechs) make it necessary.
For innovation to produce sustainable growth, it must be incorporated into the growth model of companies and fully integrated across the organization, bringing together cross-functional teams to address challenges in new ways.
McKinsey & Company recently published "Five steps to improve innovation in the insurance industry", a report that indicates five solutions to make innovation a constant and integrated process within insurance companies.
Finding the right strategy is not easy, but there are ways to identify and implement cross-cutting practices and processes to structure, organize and encourage innovation for sustainable growth. According to McKinsey, it's possible by following these five steps:
Insurers can thus rebalance their product portfolios, moving away from short-term improvements and moving towards potential innovations or new business models - more generally, towards forms of innovation that often have greater potential to generate sustainable sources of growth and high returns. .
For the optimal management of an innovation portfolio it is necessary that operators develop distinct product-development paths. Each strategy has a specific set of characteristics, for example derisking competes with part of the core business and has a high level of ambiguity in terms of delivery.
The derisking and acceleration approach uses technologies and features that are new to the company and therefore requires significant efforts in terms of change management and cross-business unit management. Accelerating involves generally known solutions and use cases, but the cross-BU implications, infrastructure and delivery capabilities are limited. Risk / reward profiles are also used to determine product-development paths. Based on the economic data of each product in the portfolio and analyzing its chances of success, insurers can determine which should be redefined and which should be associated with other products. In this sense, examples include the incorporation of annuities and other guaranteed income options into given target investment funds.
Value proposition innovation is not just about products, but extends to protection and prevention, customer engagement, distribution and marketing. Traditionally, operators have developed new products through actuarial innovation, adding degrees of complexity that are appreciated more by agents than by customers. They also invest in the modernization and digitization of distribution platforms and in strengthening new business and underwriting capabilities. It remains necessary for operators to incorporate all three elements into their innovative value proposition, to offer a diversified experience to customers and distribution partners.
Post-pandemic, operators will have to adapt their products to offer a more personalized user experience. This means developing insights based on the specific needs of customers, developing a more granular profile to customize the offer and adapt your communication to even the most specific user segments.
A common mistake is creating an innovation lab or team without fully integrating it into the business planning cycle. By facilitating ongoing dialogue between innovation and business teams, insurers can foster a shared understanding of the market landscape, identifying potential opportunities. Usually this dialogue involves three main activities during the year, including the evaluation phase, during which the team develops a clear understanding of the market within the strategic planning cycle and identifies the main problems to be solved (eg. opportunities on the side of customers, distributors or competitors). This assessment will inform the operator's annual strategic planning and will determine the areas of interest for innovation during the year. The goal is to have a solid pipeline, constantly updated and refined, to exert continuous and constructive pressure on the initiatives currently underway.
Subsequently, during the inspiration phase, the team develops a vision for new product opportunities based on user testing with customers and distribution partners, establishing a pipeline of targeted opportunities that can be prioritized and reviewed before moving on to detailed product design.
Finally, the moment of development, realization and launch arrives: the team has already identified one or more innovation opportunities to bring to the market and is ready to proceed with detailed concepts, design and realization of the product (this includes pricing and necessary documentation in the case of insurance products) and go-to-market planning.
Developing a diversified innovation portfolio and a differentiated value proposition require new cross-functional ways of working. The right innovation operating model will depend on an insurer's innovation priorities. External partnerships, strategic mergers and acquisitions, venture capital models and traditional R&D can quickly open up opportunities to tap into innovative functions, products and processes. Many companies can balance these approaches by creating an accelerator, which will need to have clear KPIs and measurable success metrics, including defining the precise degree of innovation-driven growth, which will help insurance players fill gaps in growth strategies. existing. This unit must be closely connected to the main strengths of the organization (distribution, underwriting, data processing), so as to benefit from scalable features, while maintaining the freedom and space necessary to explore more ambitious and less certain opportunities.
