Successful Innovation - What Does It Really Take?
One sure sign of a softening market is the increased frequency in the use of the term innovation. Market chatter suggests that the insurance industry has to be more innovative to remain relevant, and some have recommended that insurers should “run to risk.” In fact, the number of companies putting out large limits on cyber in the past year is an example of “running to risk.” Recently, several companies pulled back their cyber products after very poor claims experience. Innovation must be sustainable, which is the real challenge with respect to new insurance product development, and sustainable innovation requires discipline particularly on emerging risks where the uncertainty can be significant.
When Steve Jobs returned to Apple, his “first task in getting Apple back on track was not iTunes, not the iPhone, not the iPad - i.e., not an act of innovative brilliance. He increased discipline. Without discipline there would be no chance to do creative work.”1 This is a remarkable quote given the impression many have of Silicon Valley, but one can certainly see the discipline in many facets of the Apple story. I think it is a good road map for the insurance industry.
Many people equate innovation with new product development when in fact new product development is just one element of innovation. In its book “Ten Types of Innovation,” the consulting team at Doblin describes an innovation framework that goes beyond product development: “Innovation almost never fails due to a lack of creativity. It’s almost always because of a lack of discipline.”2 The team has defined three categories of innovation: configuration, offering and experience. Configuration is the business model and the structure, while offering is the product - representing features of functionality. Experience is client service and engagement - the value proposition.
Viewed from this perspective, the insurance industry has many examples of innovation - think of direct distribution, predictive analytics and user-based automobile insurance. But we also have opportunities to change the way we interact with our customers and at the same time drive down transaction expenses. At Gen Re we have been transforming and investing in our direct reinsurance business model, improving the client experience and offering an alternative to the pure broker market placement.
We provide our clients a full suite of risk transfer solutions from bundled to individual risk. Like our clients, we are in the risk assumption business, creating a natural alignment as regards both gross pricing and underwriting. At Gen Re we don’t take an opportunistic approach. We aspire to be consistent and have no “exit strategy.” We also aspire to be a thought partner across a wide range of evolving underwriting and claims issues.
While we are innovating the direct client experience, one thing will not change - our ongoing commitment that we will be here to promptly pay our claims and honor our promises.
1. Jim Collins, “Great By Choice.”
2. Doblin, http://www.doblin.com/tentypes/