COVID-19 has been an urgent push for insurers looking to accelerate the time to market of their products and services. But innovating rapidly and successfully in this highly regulated environment comes with its own set of challenges. Here’s a primer.
The Dutch insurance industry has been hurtling into a perfect storm of converging market threats. One of the responses we see in the market is in the investments in Innovation focused both on customer experience and organisational improvements (e.g. Digitalisation & Operational Excellence. But the buck doesn’t stop there.
Innovation doesn’t stop at digitalisation or operational excellence
Insurers should also be looking to speed up the time to market of their innovations, while staying within the boundaries and limitations imposed by regulators. The impact of COVID 19 provides both the opportunity and the momentum to achieve this.
For incumbents, the apparent contradiction between innovating fast and colouring inside the lines raises the feeling of having to innovate in a regulatory environment which seems as impenetrable as Fort Knox. In this post we will share insights on innovating successfully in a regulated environment.
Several challenges still remain
Previously, we discussed how insurers are defending themselves against a perfect storm of converging market trends. Innovation is an offensive way of responding to the current market trends. It is a particularly useful response to the increasing customer expectations and the threat of new entrants, while taking into account continuously changing regulation.
In order to win in an ever-changing market, innovation efforts should be focused on customer engagement, new propositions, organisational transformation (e.g. Agile), compliancy, empowering employees, connecting front, middle and back offices and leveraging ecosystems (as we discussed here). Most insurers use Innovation Units(a) to create value , or do so from within the business. However, a number of important challenges remain in the area of data (particularly its quality and availability), scaling innovation and getting innovations from incubator to business whilst having to deal with regulatory pressure.
Resolve data quality and availability issues
One of the main issues in innovation efforts for insurers is data quality and availability. New businessmodels – focusing on hyper personalization, prevention, solidarity etc – heavily rely on data availability and quality.
On the one hand, the data reside inside the insurer’s (legacy) systems. On the other hand, other data sources are of importance (e.g. weather data, traffic data). The challenge for Innovation Units is that often they are not responsible for the company’s internal data although they do rely on them heavily. Having to wait for the data department to deliver the desired data could lead to missing valuable business opportunities.
However, there is a method for innovation to get data needs higher up on the executive agenda. An interesting way of achieving this is by experimenting using public, anonymous or even fictitious data that may be created especially for the Innovation Unit. It can then use those data to simulate how innovative initiatives would perform and forecast learnings and business opportunities. This can encourage executives to ramp up their efforts to get the right data in place as soon as possible. If done successfully, innovation can pave the way for data transformation in the ‘regular’ business.
Scaling your innovation from incubator to business
A frequently discussed question is whether the Innovation Unit should develop spin-ins, spin-outs or a combination thereof. Knowing that there is no right answer to this question, we believe that the Innovation Unit should in some way have a positive effect on the incumbent as a whole (see the data example above).
A vast number of Innovation Units aim to get innovations implemented within their existing business. In our work, we have seen Innovation Units developing MVPs rapidly, which subsequently stay on the backlog for longer than it took to develop the MVP. The main reasons we see this are:
1. Limited business sponsorship/alignment at the start of the innovation process from the adopting Business Unit
2. Security, regulatory, risk and compliancy issues as a result of limited involvement of the firm’s according departments and the regulators.
3. Unclear and unvalidated business cases
So how can innovators align risk and regulation, internally as well as with the regulators?