Innovation can mean a lot of different things, but in insurance, it generally means leveraging new technology capabilities to introduce new products, processes, or capabilities. And recently, AM Best announced that it would be considering innovation capabilities and track record in its rating process, which has focused even more executive attention on the need for innovation.
The AM Best Framework
The AM Best Draft Innovation Framework is currently in a comment period, and Novarica encourages all insurer technology and innovation leaders to review it and provide input. AM Best has designed a capabilities maturity model in six different areas: leadership, culture, resources, process, and structure, results, level of transformation achieved.
Nothing gets executive attention like rating agencies, so for insurer leaders that have been having trouble getting attention for innovation, that may change. However, there is a risk that bad frameworks can lead to bad decisions. Depending on how this framework evolves, it may drive counter-productive behavior. Novarica believes that the development of the framework and the additional attention it will bring to insurers’ innovation efforts is a net positive.
Challenges to Innovation
Insurers face many technical, organizational, and cultural challenges in driving innovation, but one of the biggest inhibitors is identifying and communicating the potential value. It’s very easy for a CFO to question the speculative investments that innovation requires. It’s the first thing that gets cut when things get tight. Making sure that there is a steady and predictable funding source and that the metrics have been agreed upon in advance to demonstrate success even if they aren’t hard or align metrics is vital.
Innovation and the Three Levers of Value
Insurer can frame innovation in terms of Novarica’s Three Levers of Value. Innovation might be focused on selling more, through expanding product sets, expanding markets, or offering better services. It might be focused on managing risk better, leveraging tools like drones, IOT, A.I., and image recognition. It might be focused on cutting operating costs, leveraging new technologies like RPA and chatbots.
Regardless of which lever an insurer focuses on, it’s important to have a goal that business leaders can understand before starting, before securing funding, and before the need to protect that funding in order to have enough runway to actually potentially achieve something arises.
Novarica is currently working with clients to develop Innovation Roadmaps, using the AM Best Draft Framework and our own Three Levers framework to structure these programs. More information is available at https://novarica.com/innovation-strategic-roadmap/
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