Innovation in a Time of Disruption

Last week, Novarica hosted its first ever virtual Special Interest Group on the topic of innovation. These sessions, which were only conducted once or twice each year pre-pandemic, can now be delivered much more frequently in a video conference format. In a time of significant change and disruption, the ability to deliver these sessions on an accelerated basis can allow for much more dynamic dialogue than we would have considered possible in the not-so-distant past.

The high level of participation in this virtual event illustrates the importance and impact that innovation may have on insurers as they prepare for the back half of 2020 and the emerging economic recession, which has become another unfortunate feature of the COVID-19 pandemic. This medical and economic contagion has created the most significant disruption that any of us have had the “opportunity” to experience.

As unfortunate and potentially dire as that is, one of the great lessons from significant disruptions in the past, including the two World Wars, is that technological advancements can be dramatically accelerated. The resulting New Normal may look very little like the period preceding seismic events such as this one.

Innovating by Necessity

One of the commonly asked questions was, in effect, will this pandemic put an end to innovation efforts and have companies hunkered down to focus on business-as-usual activities. While it remains one possibility for some carriers, that strategy is fraught with a different kind of risk; the pandemic has taught an entire generation of customers, distribution partners, employees, and senior leaders what is possible when there is an appropriate level of urgency, dedication of resources, commitment of talent—and no practical alternative.

Digital transactions, virtualization of events, and a focus on getting things done in what might have seemed like a completely unrealistic timeline at the start of the year are all part of how companies have responded. Innovation and creativity have gotten companies to this point in remarkably good shape overall. That sense of achievement is something many organizations are reluctant to turn their backs on now.

Historically, some of the largest impediments to innovation were general inertia in organizations and corporate “immune systems,” which functioned to protect corporate bureaucracies from ideas outside the mainstream of approved process and practice. The irony of discussing a corporate immune system during a pandemic was not lost on the group; the key point was that the only effective mechanism for immunization in companies is effective leadership to ensure change initiatives have a chance to survive and potentially thrive.

Changing Innovation Efforts

One notable lesson from the ongoing pandemic is that there could be a reconsideration of how innovation should be fostered to support a dynamic business climate where competition is likely to be stiffer and margins thinner. That last point is a significant one, since many insurance carriers were already facing notable headwinds before the pandemic hit, principally from the persistently low interest rate environment.

Another consideration for carriers may, however, be a change in how innovation efforts are considered. In prior Novarica research, we’ve categorized innovation as being either tactical in nature (i.e., focused on fixing broken processes) or strategic (i.e., focused on addressing the needs of broken business models). In our discussion, it seems that innovation efforts in the near term will be much more focused on tactical items, which can produce quicker payback on investment and can be incorporated into a dynamic business climate more quickly. Pure play, “R&D” innovation projects that are more likely to be considered “moon shot” type efforts are much more likely to be shelved based on near-term economic pressures.

Like any good investment strategy, of course, innovation efforts can fit into a portfolio of activities, and diversification can be a key element to support both short- and long-term objectives. While the appetite for exploratory efforts may have dissipated for now, there is now room and a need for use-case-driven innovations.

A Shared Mission

In this time of disruption, insurers have an opportunity to take a look at everything they do, understand why it is done a particular way, and apply innovative technology to broken processes. This is different than looking at potentially interesting technologies (e.g., blockchain) to see if there is some potential fit. One of the key points COVID-19 has forced insurers to realize is the possibilities of the technology they may have possessed for some time but not fully leveraged. Data-driven underwriting capabilities are hardly new for life insurance carriers, for example, but it wasn’t until the pandemic made it a practical impossibility for paramedics to collect body fluids that some carriers ramped up efforts to look for better alternatives.

One positive element noted was that the pandemic has given insurers and their employees a clearer sense of a shared mission—keep operating and serving policyholders. This direction can become a powerful tool when considering innovation. Does a project get a company closer to the overall goal? Does this project lower operating costs, help manage risk better, or sell more? While there is no denying the dark clouds hovering because of COVID-19, the potential for a set of positive outcomes to emerge became very clear through the course of this discussion.

The next virtual/video Special Interest Group session focused on innovation will be on Thursday, July 30th at 1pm ET. Registration for that event can be found here.