Over the last few months, I have been having increasing conversations with CEOs and their direct reports about innovation. Innovation has been happening for hundreds of years. Why has it become such a hot topic now? The short answer is that AM Best released a draft Innovation Framework earlier this year, which indicated that innovation will become a factor in determining the rating for an insurance carrier. That’s a big deal; the cost of doing business and the people you can do business with are often determined by that rating. Nothing gets senior executive (and board member) attention like ratings.
However, there is something even more fundamental going on. The way we achieve the three levers of value (selling more, managing risk better, and costing less to operate) is starting to radically change. While technology is NOT the focus, it is the enabler of change. CEOs and their directs need to start making numerous choices. These choices impact the core functions of the carrier: distribution, underwriting, claims, actuarial, product development, and customer service.
When looking at innovation, insurance leaders need to determine if they want their firms to be on the bleeding edge or leading edge, to become a fast follower, or frankly to ignore the changes in the short to medium term. Based on this, they need to consider strategic and tactical innovations.
My recent conversations with CEOs in delivering our Innovation Strategic Roadmap revolve around what innovation really is, why it is good, how will it be measured, what business levers and drivers are achieved, and the types of technologies that could be deployed to achieve the innovation.
After asking these questions, we almost always land with conversations around culture and compensation. How do we reward creating and sustaining innovation? Will the culture support it? Most importantly, will the cultural “antibodies” of the firm kill off the innovation because it is foreign?
These are some of the same questions that savvy CIOs have wanted to discuss with their CEOs for years, but some have had challenges getting their leadership to focus on these questions. But one CEO I talked to recently said it best, “It is no longer a choice…it is about survival!”
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