Ignited by Pandemic Changes, Insurers Embraced Innovation
The pandemic kickstarted the new wave of accepting and using innovative systems and methods in the insurance industry. It opened eyes to the ways that innovations and technology could do more than just efficiently get the work done.
While the pandemic presented more than its fair share of challenges, it also created opportunity and gave the insurance industry the jolt it needed to embrace innovation. With ever-changing technologies, increasing resources, more informed leadership, and a more skilled and engaged workforce, innovation will no doubt continue to impact how the insurance industry operates, according to AM Best’s new report, Special Report: Insurers Continue to Innovate, Albeit to Varying Degrees.
Using a rubric outlined in the rating agency’s March 2020 “Scoring and Assessing Innovation” criteria, AM Best graded companies on a scale of 1 to 4, and compared scores from March 2021 to those from January 2023.
While there were more 3 and 4 scores overall in January 2023 over March 2021, the real story may be in the decrease in scores of 1 as those falling furthest behind in 2021 were thrust into change during the pandemic.
AM Best said it defines innovation as a multistage process in which an organization transforms or develops ideas into new or significantly improved products, processes, services, or business models that have a measurable impact over time and enable the organization to be successful. The evaluation of a company’s innovation level is based on innovation input—the components of a company’s innovation process and innovation outputs.
Shortly after AM Best released its criteria to measure innovation, the pandemic hit full force, changing the way the insurance industry did business. In 2021, the pandemic dragged on, and low yields and stagnant growth pressured the industry to innovate to remain profitable. Inflation, rising interest rates, and increasingly tech-savvy consumers also helped ignite the transition.
The process of full adoption and gaining measurable results can be slow. To fully optimize what new technologies can do for an insurer – or an industry – it takes more than just buying software. It takes a culture shift. Before the pandemic, it was challenging to get the necessary buy-in, especially from leadership. As teams were forced into remote work, the industry had to act quickly to accommodate changes. This ability to kick off the constraints of the industry’s typically conservative and methodic way of doing business bled into other areas of operation, making leadership and teams more receptive to learning innovative technologies, AM Best said.
That trend will likely continue as insurance companies increasingly seek out new hires with innovative skills, creating a new generation of tech-adept employees.
Due to more significant resources, systems and technology improvement scores increased for many previously low-scoring companies. Those resources can include technology but can also encompass bigger budgets and more team hours put toward implementing and learning about the technology.
However, while adaption is on the rise, most companies still need to develop a replicable innovation process rather than reacting ad hoc, the rating agency reported. The pandemic brought out the sharp contrast between companies that were on the leading edge of innovation and those that were lagging. For better or worse, leadership had to examine what systems were in place for assessing and instituting innovation. And with that comes the need for criteria to create goals and evaluate measurable outcomes.
In the report’s Level of Transformation category, less than 1% of companies included in the report earned the highest score of four, while only 5% earned a 3. That puts about 94% of those surveyed in need of improvement when it comes to transformative initiatives. Transformative initiatives are defined as those that create value, improve customer engagement and experience, help create superior business models, or significantly enhance growth opportunities.