The Insurance Industry’s Disparate Disruptors (and How Leaders Should Embrace Them)

Introduction

As someone who’s been an active participant and observer in the insurance industry for well over 20 years, I can say that insurance has often been considered a conservative industry with a resistance to change. But that resistance has now become unsustainable, with wider and more powerful forces afoot that are disrupting the industry from all sides, from new insurance software to different business models, and external industry evaluators, to name a few. From my standpoint, there are three disparate, disruptive forces in particular, which include:

• Structural and industry trends;
• Emerging and evolving outside risks; and
• Criteria imposed by external evaluators.

These forces are creating new challenges and opportunities for insurance providers, which will have profound implications for the industry’s long-term future.

The Disparate Disruptors

There are a variety of structural and industry trends that are reshaping the insurance industry, which pressure it to innovate smarter and faster. These include outside capital from Silicon Valley and Wall Street to fund new business models and technology-driven strategies that disrupt the status quo. Technology capabilities that enable new business models include enhanced self-service and customer experience across the entire customer life cycle. Financial innovations such as securitization supported by sophisticated predictive modeling, which leverages deep learning and big data, take the industry even farther and crowd out stagnation. Therefore, prior reasons to justify the industry’s “status quo” attitude, such as legacy systems and regulatory oversight, are no longer legitimate. The pandemic has shown that companies can move and move fast, if and when necessary. As a recent example, we’ve seen group insurance companies swiftly upgrade their digital user experience to keep up with increased online customer and broker demand. This has smashed the previous industry mindset and provided learning experiences for leaders and innovation practitioners which, like a pebble thrown into a pond, is propelling further ripples of change. The companies that move faster not only deliver more solutions sooner, but also gain experience and capabilities that help them iterate faster and more effectively.

The second force, emerging and evolving outside risk, has never been static and always required the industry to adapt and evolve. Think about current risk issues like the pandemic, changes in work related to the gig economy, cyberattacks, climate change, and the aging of the workforce. The scope and nature of these risks and the speed at which they are evolving is accelerating. They also must be matched by industry risk management efforts; standing still or moving slow is merely falling behind and cannot be an acceptable response.

In terms of external evaluators, the most obvious is AM Best, an industry financial ratings agency, who has begun to explicitly score carriers on their ability to innovate effectively. According to AM Best, only 1% of insurance companies scored achieved their highest score as an Innovation Leader.

Moody’s also now includes a cyber risk evaluation as part of their overall credit analysis for insurance companies. In addition, ESG (environmental, social and governance) criteria are now of significant interest to investors and other external stakeholders to help them evaluate the performance of insurance providers and other corporates. ESG issues are being used as proxies for how well an enterprise is being managed, with the logic (backed by a plethora of academic and investment research) that companies with diverse workforces and robust environmental programs also possess a variety of new ideas, higher leadership levels, and operational expertise that helps them compete and innovate more effectively. But the ultimate external evaluator is public opinion. The habits of the digital-native Millennial and Generation Y cohorts that are coming of age have no patience for “business as usual,” either as insurance buyers or prospective industry employees. They expect and demand premium digital customer experiences, similar to those found in other sectors. Winning over these generations is essential to future industry success and expansion.

Collectively, this cadre of external evaluators is pressuring insurance providers to change all aspects of how they operate, including the products and customer experiences that they offer, the employees they hire, and how they add value to the broader world. The results go well beyond new insurance software and technology overall, but almost always have a new technology dimension.

How (and Why) Industry Leaders Should Respond

For insurance industry players to fully partake and thrive in the current, multifaceted transformation, they require leaders who are willing and able to embrace external change, as well as manage strategy and people. To do so, they must develop a shared vision of where an organization wants to be in one, three, and five years, create a culture where innovators can safely experiment, and where external, transformative forces are welcomed. With a shared vision that outlines companies’ ambitions, leaders can align people and resources. Furthermore, creating a culture where employees can test and learn compounds companies’ innovation capabilities over time, and will help enterprises thrive in the long run. 

Conclusion

The current disruptors of the insurance industry are not going away, but are becoming faster and more consequential. Enterprise leaders need to embrace them through their companies’ shared visions on how to enable change, and by welcoming company innovators who can experiment, test, and learn to unlock creativity and value for customers, employees, and shareholders. The pandemic raised industry stakes by accelerating insurance industry disruption; it’s now up to leaders to respond.

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