Why Innovation in Insurance Deserves Recognition
In an age of rapid technological progress and disruption and driven by the need to collaborate within consumer-focused ecosystems, innovation is becoming more and more critical for insurers. This new business environment, requires that insurance companies and their business partners exchange information openly, understand the latest trends and explore opportunities to learn from the cutting-edge practices of their peers. Accenture and Efma—a global non-profit consortium of over 3,300 retail financial services companies from over 130 countries—jointly created the Innovation in Insurance Awards, now in its fourth year, to support this transformation imperative.
One of the Awards’ key objectives is to exchange innovative ideas about insurance products and services, and leverage those as driving force for the future growth of the insurance industry. This goal is particularly important for Japanese insurers that face rapid depopulation and a shrinking market. These companies must acquire firsthand knowledge about offshore markets and global best practice so they can expand and compete head to head with the multinational giants.
Tech disruption and changing business models
Recognizing and rewarding innovation is also important as the insurance industry faces a potentially fundamental challenge. When we reach the “age of singularity” (when artificial intelligence exceeds human intelligence—something that could happen within the next 30 years) the definition of insurance and its role in society may be completely different. Insurance, after all, is a form of risk management, primarily used to hedge against a contingent or uncertain loss. Yet with ever more sophisticated artificial intelligence to process ever more data, contingent events will become more and more predictable, and the incidence of “accidents” drastically reduced.
Take car accidents for example: when autonomous vehicles become the norm, the number of traffic accidents could be cut almost to zero. By the same token, we may be able to predict the timing and location of crimes or natural disasters far more accurately with the use of artificial intelligence and big data. It is entirely possible that risks will be drastically reduced in many areas to the extent that there is no demand for insurance products—at least in their current form.
But you don’t need to look so far ahead to see the need for innovation in insurance. The application of AI and big data has already led to fundamental changes in the way insurance products, services and operations are structured, and the industry has started to see some disruptive players, based on new business models that were beyond imagination several years ago. Lemonade, a New York-based insurtech firm, is a case in point. The company has a unique business model, even among startups in the sector: taking a fixed fee from monthly premiums up front and distributing any money left (after claims and expenses) to charities.
It remains to be seen whether this type of business model suggests the road ahead for many existing insurance firms, or whether it will stay an exceptional case. Yet it is certain that all insurance players will need to embrace the benefits of advanced technologies even more, as well as accelerate their efforts to improve operational efficiencies and customer experience, especially in terms of speeding up customer-facing processes like claims payouts, to adapt to the rapidly changing business environment. Many companies are already making the effort. For instance, Tokio Marine & Nichido Fire Insurance will start same-day insurance payouts for automobile claims in 2020.
Social dynamics also drive innovation
This brings us back to the Innovation in Insurance Awards, and the important point that technology itself, while disruptive, is a means to an end, not the end in itself. Last year Tokio Marine & Nichido Fire won the top prize and was named 2018 Global Innovator. One of the primary reasons the company was recognized was its innovation to address challenges arising from changing social dynamics. Efma highlighted the four products that impacted its decision, of which three are products or initiatives designed to meet consumer needs arising from evolving social trends: for instance “telework insurance” that supports flexible working practices, and the company’s initiative to include same-sex domestic partners as spouses for coverage in relevant policies.
Needless to say, technological advances play an important role to foster innovation. Yet, ultimately, what matters to consumers is how particular innovations can make products more useful for them or how much empathy they can feel with those products, rather than how novel they are. It will continue to be one of the most important considerations for insurance companies to drive innovation moving forward.
Reaping the reward
Success breeds success. Tokio Marine’s being recognized as a Global Innovator—as well as with the silver award in the “Connected Insurance & Ecosystems” category—has helped the company establish its name as a global brand, and as one of the most innovative insurance firms in the world. The award directly impacts employee wellbeing as they are rightfully proud of working for a forward-looking insurance firm, and the achievement has helped the firm foster a more positive atmosphere that encourages taking risks and exploring innovative ideas and products without fearing failure.
As we move closer towards the “age of singularity”, and as customers’ needs and demands continue to evolve, it is this type of innovative environment that all Japanese firms need to emulate. They will have to learn from the best: which is why they should all pay close attention to the Efma-Accenture Innovation in Insurance Awards winners 2019 when they are announced in Amsterdam on June 24. And most importantly, they are encouraged to participate in the competition, share information with their peers, and work towards establishing themselves as global innovators.