AM Best’s Innovation scoring methodology is grabbing some headlines, including yesterday’s article in Insurance Business “Insurance companies who fall behind on innovation could see their demise.” This may be a bit dramatic, but the inclusion of an innovation score in the rating methodology is certainly focusing attention on innovation in the C-suite.
AM Best released its initial draft this spring and a revised draft in September. There may be an additional revision based on future comments. There are a few areas that receive stronger emphasis in this new draft:
Evidence: The emphasis has shifted to the ability to demonstrate a track record of successful innovation, knowledge transfer between business units, management commitment to innovation, etc.
Alignment to overall mission or goals: The idea that innovation should occur in support of a company’s overall mission was either added or emphasized in each category.
Demonstrated management commitment, at all levels, to innovation prioritization: This is related to the general shift towards evidence of innovation, but there is also greater emphasis on buy-in from management at all levels and in all categories, not just the leadership category (noting, for example, that culture starts at the top).
In addition, AM Best now explicitly plans to look for employee incentives to innovate and has modified its criteria to provide more flexibility for smaller companies to engage with innovative external partners, rather than having to generate (expensive) innovative technology in-house.
We believe these are positive changes that will make the scoring tool a more useful framework for insurer leaders to consider their innovation capabilities. Our work in innovation focuses on how innovation is tied to the Three Levers of Value (“sell more,” “manage risk better,” and “cost loss to operate”).
As I noted in my keynote at InsureTech Hartford last week, no one pays you to be innovative for its own sake. They pay for business results delivered by innovation. It looks like AM Best is aligning their framework to reduce the potential for box-checking “innovation theater” and increase the focus on driving business results.
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