Traditionally, insurance business leaders viewed innovation as somewhat of a luxury—positioned at the margins of the business, underfunded, and observed with the anticipation of only minor changes in business operations or performance. Today however, there is growing pressure on the industry to pursue transformative change, as customers are demanding greater choice and enhanced experiences. Additionally, firms are leveraging emerging technologies to offer more appealing products, boost profitability, and expand their markets. Consequently, insurance executives are now viewing innovation as strategic, intentional, and essential for their success.
Over the past eight years,
Combining analysis of this data with interviews with senior industry executives and financial modelling, the goal was to uncover where innovation has been focused, both the financial and non-financial returns it is helping deliver, the challenges confronting innovators and the enablers of value generation. The findings reveal the following insights:
The drivers of innovation
Incumbent insurers are under immense pressure to improve their operating model, offerings and experiences, and financial performance. These aren't new challenges, but they are greatly intensified by emerging technologies that are helping established competitors accelerate both the speed and scale of transformation efforts, and helping newer companies grow and thrive. As a result, innovation—once comfortably a fringe activity in this field—is rapidly becoming critical to their success.
Where is innovation focused?
In recent years, the focus of insurance innovation has shifted towards product development. In 2019, product innovations accounted for 18% of all entries in the Qorus Innovation in Insurance Awards. By 2023, this figure had soared to 57%, significantly outpacing entries for marketing and distribution programs, which made up 15% of submissions, and claims management programs, at 13%.
While most insurance providers have had the capital to invest in innovation, higher interest rates and ongoing inflation could pose obstacles. Several insurers have highlighted a tension between reflexive cut-backs and the desire to harness the cost savings and flexible pricing advantages offered by innovations in automation and cloud technology.
Is innovation paying back?
The draw of innovation is compelling, and insurance innovators are outperforming their peers. Between 2017 and 2023, 72% of P&C carriers that entered the Awards achieved a combined ratio equal to or above their country's average (2019 to 2022). In emerging markets, where the focus is on top-line growth, 80% of innovators achieved premium growth on a par with or above their country's average over five years.
Furthermore, a significant majority (80%) of participants in our study reported that their innovations either met or exceeded their financial expectations. When it comes to non-financial objectives, such as customer engagement and satisfaction, brand strength, and employee loyalty, this number increases to 98%.
Additionally, most innovations are being scaled up. Of the projects submitted to the Awards, 73% have progressed to the scale-up stage.
What are the challenges facing innovators?
Insurance innovators have also identified the following challenges that are stalling efforts to progress:
- Lack of innovation culture: A resistant organizational culture, where people are often incentivized to master rather than question and improve the status quo.
- Rare combination of necessary skills: Difficulty finding individuals who have a clear vision of both how an insurance process or product could be transformed, and how new technologies can be leveraged to achieve this.
- Regulatory complexities: Navigating an often complex web of local and international laws, with regulations either enabling and impeding market disruption.
- Economic volatility: This may both spur and act as an innovation barrier. In most instances, it reduces firms' tolerance for long ROI lead times.
Enablers of value generation
Overall, our analysis showed us that insurers are increasingly recognizing the need for innovation as a strategic imperative to navigate transformative changes. Of the seven enablers of value generation that we uncovered, two rose to the surface. Embracing an innovation-led mindset and leaning on the capabilities of technologies like generative AI shows significant promise for sustained value generation and will be integral in driving product innovation and strengthening customer relationships. However, ensuring senior sponsorship and funding plus addressing roadblocks like talent gaps are also of growing importance to achieving long-term success and resilience in the industry.
