Andrew Wibberley, director of Alea Risk, which works with insurers and distributors to improve processes and practices, explains why innovation in insurance can feel like a seminal rock concert or sporting event.
It occurs about once a decade, and for every person who was actually there, another hundred say they were after the event.
Insurance companies are rightly focused on appearing "Stable", "Resilient", "Secure" and "Strong". These are good things to be, but are too often interpreted as reasons to resist rather than embrace change.
Can you be stable and innovative?
Of course the real question is if you can be stable without being innovative.
Most financial services companies are intellectual, logical, conservative and resistant to change.
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Onto this black box is painted one quick glossy coat of innovation – enough to convince a passing dignitary, but not enough to change how things really are.
For most in insurance, innovation is something to do when you have time to do it, rather than being seen as a necessity to succeed as an individual or as a company.
Successful innovation is measured by financial impact – otherwise it’s an idea, or more grandly an invention.
Innovation needs to move the needle on results, not just be an intellectual talking point.
Critically, innovation is needed to ensure that you survive, not just to ensure that you grow – if you do not innovate and others do, then your revenues and profits will reduce.
There are two simple ways to increase your sales volumes: grow your share of the market or grow the market.
There are more ways to increase your profits, but the two main ones are either to improve your risk selection or to reduce your costs.
A recurrent stumbling block often heard is that "in this industry there’s no first mover advantage".
Is this really true? In the UK Financial Adviser market in the short term the answer may often be yes.
This is a market where comparison is important to explain and justify advice both externally to a customer and internally to compliance.
Recommending an entirely new product or process unlike anything else in the market can be difficult.
I was involved in marketing Real Life Cover at Fortis (now AIG) in 2008/9. We presented the customer need and how this met this and highlighted the differences to other products.
Without fail the first question at Adviser roadshows was inevitably "It sounds interesting – what can I compare it to?" And in case you were wondering yes – the second question was normally about commission!
First mover advantage
It is certainly difficult to achieve first mover advantage if your area has one IT slot and one marketing effort a year to deliver "something new".
These companies can easily fall into a cycle along the lines of:
- Year 1: product wins awards but no significant difference to sales
- Year 2: product really good, sales increase. 3 months later others follow with revised products, sales fall below initial volumes.
- Year 3: slot gets taken up by need to make changes to meet regulatory change
- Year 4: another company launches something similar a month before, market share maintained
The only way to break this cycle is to do more, not less. To use resources and technology to become a company of perpetual innovation and redesign, to evolve products and experiences with the feedback you receive.
If you become that company, then you can keep moving ahead and keep meeting customer needs. You can keep the heat on your competitors – and without major change not many around today will be able to keep up.
There are two main areas in the UK where there is increasing focus:
- product innovation around high net worth niches
- process innovation for the mass market
There are more serious efforts to link protection to the world of investments and platforms that are the natural environment of high net worth individuals and their advisers.
Making protection live and breathe in the same areas and with the same rules as these products should bring more relevance to the customer and adviser who may otherwise shun traditional protection offerings.
Niche products around long term care continue to come to market, but there remains a lack of urgency from customers and advisers to engage with these in significant numbers.
It is difficult to persuade to people that they need to make a purchase immediately in order that it may help them in 20 years.
Mass market innovation
In the mass market there continues to be innovation in getting customers efficiently on risk. That has seen the UK move ahead in the global market on straight through processing rates for underwritten products.
Around 3 in 4 applications can now be accepted online immediately, with better questions being asked and more trust in the applicants’ answers critical to this advance.
These changes have reduced costs, but haven’t increased sales for many in the way that would have been hoped. The skills learned here are likely to be carried into other new developments where more radical change could occur. Systems that focus on enabling true comparison across the mass market are increasingly being developed.
I live in hope that one day innovation will be so normal in our industry that we won’t need to boast that we’re doing it, but that we simply fail if we don’t.
For now it is right that we applaud innovation when we see it, and encourage it’s success wherever we can.