It is the rare insurance executive who would argue that innovation will drive a company’s competitive advantage and growth, yet most labor to spark innovation within their organizations. A new KPMG International report states that 48% say they are already being disrupted by new, more nimble, competitors.

Based on a survey of 280 insurance executives from around the world and a series of one-on-one interviews with insurance leaders and new entrants from the world of FinTech, the report, entitled “A new world of opportunity: The insurance innovation imperative,” finds that the need to innovate is already creating heavy pressures for the insurance sector. Most survey respondents see innovation as a significant opportunity, with 83 percent saying that their organization’s future success is closely tied to its ability to innovate.

“Insurance customers, shareholders and employees demand innovation,” noted Mary Trussell, KPMG International’s Insurance Innovation and High Growth Markets Global Lead, and author of the report. “Indeed, they expect it, not only from technology providers and device manufacturers, but also from their insurance providers. Insurance organizations can no longer do ‘more of the same’ and expect to grow.” It’s not just up-starts that are creating innovation challenges for the insurance sector. Four-in-ten respondents to the KPMG International survey say that increased competition from their existing competitors would create significant challenges over the next two years.

However, the report also finds that while insurers clearly recognize the innovation imperative, most are struggling to catalyze innovation within their own organizations. More than three-quarters (79 percent) say that they are already running just to keep up with their day-to-day requirements. Slightly fewer (74 percent) say they lack the internal core skills needed to drive innovation. “Insurers and intermediaries are increasingly finding that there is no ‘silver bullet’ to create a more innovative organization; no ‘off the shelf ’ package that drives new ideas,” noted Gary Reader, Head of Global Insurance, KPMG International. “Instead, organizations will need to navigate their own path through this new world of opportunity, developing new business and operating models and new partnerships in order to out-compete and out-innovate their peers and bold new entrants.” The KPMG International report – which contains insights, articles and quotes from top executives, board members and CEOs at both traditional insurance organizations and new entrants – identifies a number of key focus areas for those insurers seeking to enhance the results from investment in innovation. From cultural transformation through to rethinking business models, the report leverages the KPMG network’s experience to provide practical advice and valuable viewpoints to help the insurance sector innovate.

With two-thirds of survey respondents saying they already look to other industries for inspiration and innovation models, the KPMG International report also includes leading insights from other fast-moving industries and sectors such as automotive, retail, healthcare, and technology, as well as functional viewpoints on areas such as customer focus, people and change, and models to encourage innovation.

“Striking your own path for innovation does not mean starting from scratch,” added Mary Trussell. “Instead, it is about leveraging experiences and successes including the ideas of others to create new propositions and approaches to delight customers and create value. It’s about learning from both traditional competitors and new disruptors. And it’s about shamelessly borrowing best practices and new ideas from outside the insurance sector and its traditional allies.”

KPMG International conducted an online poll in April 2015 with 280 insurance industry executives across 20 countries. Sector profiles include: 25 percent Life and Health, 23 percent Property and Casualty, 29 percent Composite and 23 percent other. Of the organizations surveyed, 32 percent indicated their global revenues exceed $5B USD; 33 percent said they have between $500M and $4.9B in global revenue, and 36 said their global revenue is less than $500M. The full report can be downloaded at www.kpmg.com/ insuranceinnovates.

The International Insurance Society (IIS) deserves credit for supporting the effort. IIS brings together key decision makers from the industry to combine their knowledge of regulatory issues, finance, and governance, utilizing world class research as a force to drive global industry growth and innovation. The IIS’s signature annual event, the Global Insurance Forum, is considered to be among the premier industry conferences attended by 500+ insurance leaders from around the globe.

The fact that technology and innovation have created a new world of opportunity for individuals, businesses and society is obvious. Only slightly less obvious is that the future will be shaped by those who are innovating today. For the insurance sector, this is not just a fact, it’s an imperative.

The reality is that customers, investors and employees demand innovation. Indeed they expect it, not only from technology providers and device manufacturers, but also from insurance organizations. Insurance providers can no longer do ‘more of the same’ and expect to grow.

This innovation imperative is not a simple equation. There is no ‘silver bullet’ to create a more innovative organization; no ‘off the shelf’ package that drives new ideas. Instead, insurers and intermediaries will need to navigate their own path through this new world of opportunity, developing new business and operating models and new partnerships in order to out-compete and out-innovate their peers and bold new entrants.

Striking a path for innovation needn’t mean starting from scratch. Instead, it is about leveraging wins and experiences, including the ideas of others, to create new propositions and approaches to delight customers and create value. It is about learning from both traditional competitors and new disruptors. And it is about shamelessly borrowing best practices and new ideas from outside the insurance sector and its traditional allies.

“New technologies are reducing losses and costs while saving lives and increasing customer satisfaction, increasing risks and driving new business models and consolidation within the industry. New advances such as driverless cars, machine learning, home sensors and ‘robo-agents’ empowered with artificial intelligence offer a world of opportunity for insurers,” added Gary Reader. However, our data suggests that North American organizations lag behind their European and Australian peers when it comes to digital. Just 38 percent of North American respondents say they see opportunity in digital, versus 61 percent of Australian respondents and 55 percent of those from Europe. As well as an enabler of growth, most see technology as an enabler of better service and greater efficiency. Sixty percent of all respondents said that improving the use of technology was a top-three opportunity for their organization. Perhaps not surprisingly, mid-sized firms (those with between US$500 million and US$5 billion in revenues) were most likely to see opportunity in the improved use of technology, suggesting that many are only now starting to get their technology house in order.

What is your organization’s primary growth strategy in the next 2 years?

However, our research and experience suggests that some respondents may be overly focused on incremental, operational innovation rather than more strategic, market shaping innovation. Just six percent of respondents said their growth strategy over the next two years focused on offering wholly new products and services to existing or new customer segments. Instead, 31 percent said their primary focus was on enhancing existing products and services. “I don’t see incremental changes to products as ‘innovation’ per se,” argued Martin Mueller, Head of Group Strategy and Development at Swiss Re, one of the largest global reinsurers. “To me, innovation is about making larger changes – new products, new ways to interact with customers, new channels and agile responses to new technologies and advances – that’s real innovation.” A number of insurers and intermediaries have, however, recognized that they need to evolve more radically to defend against new competitors and continue to grow their business. Slightly more than a quarter (26 percent) of respondents globally said their primary growth strategy focused on developing new products and services, albeit related to existing service offerings.

KPMG insights:

The objective of innovation should be to drive growth by delighting customers, either through improved efficiency, more customer- centric products and services or through new channels and approaches.
Advances that improve operational efficiency are ‘table stakes.’ To create true competitive advantage through innovation, insurers and intermediaries need to rethink – from sales channels and marketing to business models and partnerships.
Today’s digitally-enabled customers (both B2C and B2B) demand continuous innovation and improved access and service. Those unable (or unwilling) to meet shifting customer demands will quickly be surpassed by more nimble and innovative competitors.
Digital channels are challenging existing value propositions, resulting in new battles to retain existing customers and attract new ones.

Actions:

Think carefully about what you hope to achieve from innovation. Then plan how to combine resources, data, technology and capabilities to achieve those objectives.
Go beyond operational improvements to focus on growth. Often the two go hand-in-hand, enhancing online applications for example, can improve efficiency.
Consider how best to combine longer-term and higher-risk projects with shorter-term initiatives that deliver quicker wins.
Think about how you can make insurance simple for your customers (however sophisticated) and make your organization easy to do business with.
Stay ahead of trends in the markets and with customers you serve. This can enable better use of new technologies which, in turn, can help enable the development of new products and services.

DISRUPTION Insurers Face Radical Innovators…and Need to be Among Them

Insurance Advocate