The management consultancy sees disruptive innovation as the key to insurers staying profitable into the future — and its new report explains why
Insurance companies must devote more resources towards disruptive innovation if they are to differentiate themselves to consumers in the market, says Deloitte.
The management consultancy giant claimed in a new report that insurers tend to view innovation as a way to improve legacy systems, rather than a route to adding much-needed value to their businesses in an increasingly customer-centric economy.
Deloitte’s comments come after fellow consultancy Accenture reported the global insurtech industry experienced $4.4bn in investment in 2018 — the highest figure since its genesis.
The report said: “Many insurers are devoting most of their attention and resources to maintaining or enhancing the status quo rather than differentiating their value proposition for the long-haul.
“Both competitive priorities should be addressed, yet insurers are finding it difficult to strike a balance between the two for a variety of reasons.”
Reasons given by Deloitte include innovation leaders within firms not having enough control of their budget, and the segmented nature of in-house departments not giving way to the discussion of new ideas.
Insurer ratings agencies have raised the bar for innovation
Global ratings agency AM Best announced plans to integrate an innovation score into its overall rating framework for measuring the financial strength of insurers at the start of this year.
Although the company is the only one of its kind planning to include this criteria — all of its major competitors have confirmed it is a “high priority” when they rate a business.
AM Best is currently consulting industry personnel on how it might rate insurers’ innovation efforts — but it has released a draft guide covering how it plans to do so.
The document suggests that while companies will gain points if their plans involve back-office improvements such as digitising files, they will ultimately receive lower scores if overall strategy doesn’t increase profit or lower expenses.
It said: “Based on survey results and observations of the insurance industry, AM Best would expect that most companies would generally score in the lower range in the components of the input score, with only the very strongest scoring at the higher ranges.
“This reflects challenges in process and structure, as well as the relatively recent acceptance of innovation by many industry participants as part of a company-wide corporate culture.”
Insurers need to think of start-up innovators as partners rather than vendors, says Deloitte
A 2018 McKinsey survey found that rather than being the disruptive force initially imagined, most insurtechs want to collaborate with insurers.
The survey found 63% of insurtechs were creating technology that enabled and refined the existing insurance value chain to cut costs, while 28% planned to act as an intermediary presenting new propositions to customers.
Although the latter group aimed to disrupt certain areas of insurance with lower premium prices — cutting margins for their underwriting partners — just 9% expressed the ambition to capture customers for themselves.
In its report, Deloitte urged insurance companies to change their perspectives on the value of insurtechs going forward.
It said: “To help accelerate innovation, insurers — which account for only one in four dollars invested in the maturing insurtech market this year — should start dealing with start-ups more as an ecosystem of co-developers and partners, rather than just another vendor with a point-solution.”