Innovation is becoming part and parcel of insurance companiesâ€™ strategies to stay competitive. As new technologies open doors for the industry to exchange data seamlessly, reach a new generation of customers, and provide access to useful databases, such as Lloydâ€™s recent launch of an improved wordings repository, the message from one expert is clear: insurance companies should embrace the disruption that comes with innovating, rather than fear it.
â€œI actually think of â€˜disruptâ€™ as a positive word because if we donâ€™t disrupt ourselves, then someone else will do it to us,â€ said Sophia Yen, insurance strategy and innovation leader at EY. â€œInsurance companies need to absolutely stay on the forefront of what these new technologies are and how they can help their business processes.â€
Figuring out how to best approach innovation can be a daunting task. Some companies struggle with the concept because they view it as something thatâ€™s not necessarily structured or rigorous, like the rest of the industry. However, explained Yen, the way EY thinks about innovation is as a process with clear frameworks, goals, and outcomes.
â€œIf you think about how you start to monetize data around insurance, there are clear moments that matter, either from a life or non-life perspective,â€ she said. â€œWe can predict when a human finishes school, goes off to college, falls in love, gets engaged, gets married, gets their first apartment, starts working, rents a car, has a baby, starts a family â€“ all of these are asset-triggering purchases. Every single one of these moments that matter become opportunities for the insurance industry.â€
In commercial insurance, the small and medium enterprise (SME) space is becoming a similar target for innovation, through the analysis of data and pinpointing exactly what insurance customers need.
â€œIf you look at that space, itâ€™s tremendously fragmented. There are no personal lines carriers that hold more than 5% or 6% of the wallet, and a lot of the commercial carriers are thinking of how they serve small business commercial, while the personal lines carriers are trying to serve upstream,â€ said Yen. â€œEveryone forecasts and estimates that this market is worth between $100 billion and $150 billion, so for an industry that is struggling for profitable growth and looking to find the next [opportunity] for growth, this is a great market to segment.â€
Knowing what to provide the customer by using data and analytics as well as the slew of other tools available on the marketplace today for insurers is critical to succeed in the SME marketplace.
â€œThe traditional cost structures of a legacy carrier will not allow you to be profitable in this space if you were not to embed and embody innovative technologies,â€ said Yen. â€œIf you were to do things the old school way of mass paper handoffs and mass manual entries, you couldnâ€™t compete from a cost perspective, which makes things like AI and robotics and data analytics and blockchain, and all the things that we love to talk about as fascinating new technologies, [important]. I actually think of them as pain point problem-solvers, and that will change the game for how these companies compete.â€
Companies that can get very transparent around their unique selling proposition and how they add value to their client base by addressing the needs of the consumer base theyâ€™re looking to serve today and into the future will succeed over the long-term, according to the EY expert.
With innovation a â€˜mustâ€™ today, rather than a â€˜nice to have,â€™ insurance companies are already innovating from the inside out, as well as looking for partners who can bring unique expertise and tools into the fold.
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â€œWhat weâ€™re actually starting to see is a blend of partnerships between traditional and non-traditional carriers,â€ Yen told Insurance Business. â€œThe folks that are really well-versed in this space realize that the costs associated with building something from the ground up may not be worth it and time is not on our side, so the question becomes, how do we target, serve and delight the end customer to the point where that insurance company is then able to drive profitable growth?â€