Here today, gone tomorrow: Innovation is changing the way companies across a multitude of industries stay relevant, meet customer needs and exploit competitive advantages.
Part two of a series.
Many well-known companies no longer exist because a leaner, sleeker and more convenient solution met the needs of their customer. The rate of disruption is only increasing, and insurance companies are not immune.
What does product development success look like? In this series, Centric’s Insurance experts uncover product development challenges. In the first post of the four-part series, we explored the six fundamental components needed for strong strategy development. In this second post, we describe what is driving the need for product innovation, how to create a culture of innovation and considerations for product prioritization.
What is driving the need for change?
The world around us is evolving at a rapid pace. Environmental factors indicate that consumer demand for an evolving set of insurance products will be needed. Below are some of the factors that we know of today. However, the shifting landscape also requires us to think about what might be coming and how we will respond:
- Government and regulatory pressures – The banking and healthcare industries have experienced significant regulatory pressures over the past few years. Although the insurance industry may not see legislation comparable to the Dodd-Frank Act or Affordable Care Act, recent inquiries into agency compensation models could signal the beginning of more scrutiny from Washington, D.C. Monetary policy will continue to garner attention as changes will affect returns, or perceptions of returns, on certain products.
- Changing demographics – Defined benefit plans have been dwindling and the burden of retirement savings is tilting more towards the individual. Meanwhile, millennials carrying an unprecedented level of student debt are entering a workforce that has experienced stagnant wage growth. Their insurance needs during their working years and beyond may be dramatically different.
- Disruptive technologies – Today’s appliance warranty may be tomorrow’s auto policy. Can a driver be at-fault if they were not actively driving a car? Will the manufacturers of driverless cars stand behind their product that has the potential to cause injury, death, or damage to property? And, if the personal lines auto policy market significantly shrinks, what new products might individuals seek out to protect their risk? As new and innovative technologies become commonplace, insurance products will need to provide coverage for a new and evolving set of risks.
- Changing lifestyles – Urban centers are becoming more favored by both younger workers and empty nesters, as opposed to the urban sprawl of decades past. These lifestyle changes will result in changing insurance needs. Insurance companies would be well served to focus on the “lifetime value” of its policyholders – adopting a customer-focused approach in which risk coverage changes as the customer experiences life changes.
Where do the ideas come from?
Often, we are asked our opinion about the innovative approaches used in other industries, such as consumer products, which can be applied to the insurance industry. Many traditional methods, such as agency feedback, are still valued; however, increased competition has prompted deeper understanding and exploration of customer needs. The desire is to not only develop product ideas which will be relevant and competitive for the next few years, but which will address policyholder needs 15 or 20 years down the road.
There are two broadly adopted innovation approaches from which the insurance industry could benefit – human-centered design and collaborative innovation.
Human-Centered Design emphasizes developing insights that reveal opportunities to be addressed with ideas and concepts. As insurance companies seek to better understand its customer segments and their respective insurance needs, human-centered design leverages techniques such as ethnographic research, journey mapping, disruptive thinking events, prototyping and market validation to identify “reusable insights” and a small set of highly valuable ideas. The customer insights become a valuable asset that can be leveraged to ideate on future product concepts. This approach can be extremely valuable in identifying the needs of particular market segments. Successful companies may use this approach to, for instance, tap into the wants and needs of the large millennial generation that has different needs and perspectives as compared to prior generations.
Collaborative Innovation considers leveraging the collective power of a community to crowdsource ideas. Social media or other technologies can be used to create an idea funnel, from which a short list of ideas is defined. In addition to generating ideas, the crowd can be used to refine ideas or solutions and to rank ideas into a small set of viable options. Engagement is reinforced through frequent communication, recognition, material reward and gamification. Carriers can leverage collaboration tools to quickly solicit agency and policyholder feedback; properly executed, feedback can be obtained from a greater number of agencies, in addition to policyholders, in a more structured manner.
How can I adopt a culture of innovation?
Mentioning a “culture of innovation” often conjures up images of technology start-up companies and Silicon Valley. Insurance companies are generally not the first industry that comes to mind. However, there are a number of practices that insurance companies can adapt to get on the path towards being more innovative.
The first practice is to recognize the concept of managed innovation. Companies that are truly innovative have established repeatable practices that enable them to continually generate new product concepts. Managed innovation aligns process and culture to drive a growth strategy. The process focuses on defined and repeatable capabilities that seek to understand customer needs, identify opportunities and define and refine solutions. This is encouraged by a culture which supports and rewards creative and entrepreneurial thinking.
The second major practice is to recognize that innovation requires more than just creative thinkers who can identify the next breakthrough idea. The organizational structure must be aligned to support not only great product ideas, but speed-to-market. Regardless of a centralized or decentralized operating model, research and development will have increased importance. In an insurance context, agency advisory councils will remain an important source for understanding the competitive landscape and consumer feedback. Data scientists will contribute through analysis of trends and correlations. Finance and actuarial resources are necessary to confirm a product’s viability. Solution architects are needed to determine how to get the product established quickly on policy administration platforms. Risk management is required to identify what can go wrong (if a product will be challenged, better to find out early). And, sales and marketing are critical for communicating why the product is superior to what else is available in the marketplace and to create innovative incentive programs that ensure the product has the visibility required to make an impact.
Finally, in many organizations, proper executive support is required to build and support this culture. Without proper funding and clearing of obstacles, innovative cultures can quickly regress to “the way we have always done it”.
The insurance industry will not be immune to technological advancements, demographic changes or regulatory pressures that are impacting all industries in some shape or form. History has taught us that companies that fail to innovate will be replaced by competition that can more readily satisfy customer needs and preferences. Adopting an innovative culture is not simple or easy; however, it is a necessary and worthwhile step in preventing being here today, gone tomorrow.