Believe it or not there was once a time when Apple was not the globally dominant force it is today. In a period when they were close to bankruptcy, Co-Founder Steve Jobs included the following nugget of wisdom in one of his company addresses: “The cure for Apple is not cost-cutting. The cure for Apple is to innovate its way out of its current predicament.”
It’s a piece of advice that the insurance and reinsurance industries should pay attention to, particularly in the current environment. Insurers and reinsurers have been told time and time again in recent times that they need to embrace the modern trend of Insurtech as technological innovation has the potential to completely reshape how business is transacted in the future.
However, in the cold light of commercial day, chief financial officers (CFOs) throughout the industry are faced with a dilemma. On the one hand, insurers and reinsurers should be looking to build strong strategic technology partnerships and combine our industry’s strengths in analytics and solid customer relationships with the compelling visions of Insurtech firms. On the other, they are faced with shareholder expectation around sustained growth, alongside the current market dynamics of challenging operating margins and stubbornly low rates. Which CFO hasn’t looked at the R&D/innovation budget and been tempted to trim it back a little or even cut it completely?
Return on innovation may seem like jam tomorrow, but in truth we are at a point where without that investment in innovation the future for many in our industry will look very different indeed.
I was fortunate enough to attend this year’s Insurance Insider Honours event in London a few weeks back and witnessed market luminary, CEO and Chairman of Sompo International John Charman make an important observation in his acceptance speech for International Lifetime Achiever. He said: "The pace of change will continue to accelerate…. it really is as simple as change or be changed."
Mr. Charman was, of course right. We have seen the impact of disrupters in the personal lines market and we are seeing that innovation applying itself more and more to the commercial space as IoT sensor data proliferates and artificial intelligence as well as robotic process automation becomes more readily available and more accepted.
However, successful innovation requires more than just clever ideas and powerful technology. The question therefore must be how do carriers balance the obvious need to invest in technology and innovation with the requirement to grow their top line, remain competitive and pay attractive dividends?
Most important is a willingness and ability to collaborate; without this, as new business models gain traction, many carriers will find themselves irrelevant. There are ways for us to make the chain stronger, by efficiently organising the risk transfer between policyholder, insurers, reinsurers and even capital markets. But, as an industry we must be willing to change and innovate perhaps making it harder for those outside the industry to disrupt! It’s not all bad news and thankfully there are some good examples of this type of pioneering collaboration including the beta test blockchain initiative B3i announced at this year’s Monte Carlo Rendezvous'; a collaboration of fifteen insurers, reinsurers and technologists.
As it’s the duty of insurance carriers to provide innovative new products as the nature of risk evolves it’s the duty of technology providers to explore the latest technologies and present the possibilities to their carrier customers. Marrying these business and technology skillsets will lead to improvements in the way the industry operates, retains business and will ultimately deliver higher transactional efficiencies.
Innovation need not be prohibitively expensive and it doesn’t matter if it’s done through equity investment, partnerships or acquisitions, the key is that it’s done with collaboration. We stand at the gateway of disruptive change in the commercial insurance industry and we need forward-thinking market leaders to step over the threshold.