At Novarica, we talk a lot about innovation. It’s always been a hot topic, and interest has heightened since AM Best announced plans to update its scoring methodology to measure it. AM Best recognizes (like most of the industry) that a carrier’s ability to innovate effectively will be a significant factor separating the industry’s winners from the “also rans.”
The most widespread approach to innovation is the dedicated innovation group. This is a centralized model where a group is created with a mission to innovate. Often, the group has its own executive (the chief innovation officer), different values and operating model, distinct KPIs to measure performance, and different rules for funding. In many cases, this group is even housed in its own facility.
There are good reasons for this separation. Innovation is a different kind of activity that may disrupt business as usual activities. There’s also the “cool kids” syndrome—where a perception that the innovation team gets the best work negatively affects the morale of everyone else. Separation serves to insulate innovation from the “organizational antibodies” who, like their biological namesakes, seek to attack and destroy anything that is seen as foreign to the organization.
Another advantage of the innovation group approach is that it’s easy to execute. Hire an innovative leader (often from outside insurance), draft in hotshots and evangelists from IT and the business, gift them a pile of cash, and your innovation group is up and running.
It’s so easy, in fact, that many organizations stop there. But when you look at innovators outside insurance, this isn’t what you’ll see. At least, it isn’t all that you will see. Innovative companies like Amazon, Apple, Facebook, and Netflix have institutionalized innovation. It’s in their DNA and is a part of what defines them.
Transforming to a culture that can deliver innovation effectively at a grassroots level is hard; much harder than building an innovation group. But it may be necessary for long-term survival in this industry, especially for large carriers that are struggling to deal with more nimble competition.
One blueprint for this kind of cultural change is simple old Agile. If done properly, Agile is innovation. It is a recipe that allows teams to collaboratively and creatively solve hard problems. Good Agile requires a tolerance for failure, a willingness to experiment, psychological safety, high degrees of collaboration, and a lack of hierarchy. Not surprisingly, all these are defining characteristics of the world’s most innovative organizations. These companies were born Agile and live Agile in every sense of the word.
Can traditional carriers use Agile to accelerate a shift to an innovative culture? Several seem to think so and have executed bold “all-in” plans to restructure their organizations, redefining roles and management, transforming governance, and adjusting KPIs to drive the desired behaviors. It takes longer and is more painful than standing up an innovation group, but early adopters are demonstrating that it can be done and are seeing payback for their efforts. Walking through their facilities, these companies feel different. Not exactly like the companies they are aiming to emulate, but much closer than traditional insurers. Time will tell if this translates into sustainable business results.
This is not to say that grassroots innovation can or should replace a dedicated innovation team. The approaches are complementary, and both are likely necessary for the long-term success in an industry that is changing as rapidly as ours is.
For more on Novarica’s research and services on innovation, see https://dev-novarica.pantheonsite.io/emerging-tech-innovation/.
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