{"id":58392,"date":"2019-06-13T12:47:03","date_gmt":"2019-06-13T16:47:03","guid":{"rendered":"https:\/\/staging.majesco.com\/?p=58392"},"modified":"2025-04-07T10:13:41","modified_gmt":"2025-04-07T14:13:41","slug":"innovation-regulation-opportunities-to-shape-the-future-of-insurance","status":"publish","type":"post","link":"https:\/\/staging.majesco.com\/?p=58392","title":{"rendered":"Innovation + Regulation = Opportunities to Shape the Future of Insurance"},"content":{"rendered":"

Who would have thought the combination of innovation and regulation<\/a> would join together to accelerate the future of insurance!\u00a0 These two words \u2013 innovation and regulation \u2014 which seem contradictory, are actually working together to ensure that the industry is relevant in a new digital era.\u00a0 We are seeing this in action, with AM Best publishing its draft \u201cScoring and Assessing Innovation Methodology and Criteria\u201d proposal, and with the first state \u2013 Kentucky \u2013 implementing the \u201csandbox\u201d concept that has been discussed by the NAIC the last couple of years.<\/p>\n

These two topics along with InsurTech and technologies like Cloud, AI, machine learning, and more, were front and center at the recent NAIC Insurance Summit in Kansas City, KS, which was attended by over 1,200 state regulators and insurance companies. This made for some exceptionally fascinating conversations!<\/p>\n

Of particular interest was the Innovation Keynote, How AI, ML and Other Innovative Technologies are Disrupting the Insurance Industry<\/em>, by business futurist Patrick Schwerdtfeger. His presentation really drove the point home to the audience.\u00a0 He talked about what is happening across multiple industries with these and other technologies, and highlighted how these are influencing rapid changes in insurance customers\u2019 behaviors, risk needs and expectations, which, in turn, are requiring insurance companies to rapidly change.\u00a0 As we have highlighted in our Future Trends reports<\/a>, the accelerating pace of change and introduction of new technologies, business models, economies (sharing, Gig) have intensified the demands on leaders to be responsive.\u00a0 Change is no longer following a predictable linear path. Its course is now on an exponential growth curve — accelerating and intensifying change and disruption.\u00a0 As Patrick shared, the exponential effect can impact growth, taking an organization from 1% to over 100% additional revenue in 6 \u00bd years or less.<\/p>\n

The Exponential Effect Impact<\/strong><\/h2>\n

This exponential effect is disrupting all industries, including insurance. This is reflected in 2018 study by Innosight on the turnover of the S&P 500. The average company tenure on the list has been rapidly declining, from 33 years in 1965 to an estimated 12 years by 2027 due to market changes and disruption, including new technologies. The study also suggests that 50% of the companies will be replaced in the next 10 years if the churn rate holds. [i]<\/a><\/p>\n

What could this mean for insurance leaders, particularly since most are not publicly traded or on the S&P? It means that change and disruption will shake up the leaders in our industry whether we like it or not \u2026 and at an accelerating rate. As the research notes \u201ca company cannot endure in the long-term without reinventing itself.\u201d<\/p>\n

And this is where innovation and regulation coming together is necessary to help reinvent our industry.<\/p>\n

Opportunities for Insurance to Reinvent Itself <\/strong><\/h2>\n

The first opportunity comes with the proposed scoring on an insurance company\u2019s innovativeness within their overall rating by AM Best, who introduced and opened their draft methodology and criteria for comments from mid-March through mid-May.\u00a0 This additional score, which will shape insurers\u2019 ratings, recognizes the significant change and disruption within the industry, from new technologies to new customer expectations, and the shifting market boundaries that demand investment in innovation \u2013 and their future.<\/p>\n

The innovation scoring and assessment includes two components: innovation input score and innovation output score, both of which have sub-components. The innovation input subcomponents include leadership, culture, resources (allocation, strategy, management), and processes and structure for innovation. \u00a0Innovation output subcomponents include results and level of transformation.<\/p>\n

The report states, \u201cthe sub-components capture both a company\u2019s innovation capacity and its innovation ability.\u201d<\/p>\n

In reading the details for each, what struck me was how the first component reflects what we define in our 2019 Strategic Priorities Report<\/a> as the \u201cKnowing \u2013 Doing Gap.\u201d[ii]<\/a> This links insurers\u2019 awareness or knowing of the internal and external forces of change with the reality of how they are responding, both in terms of planning as well as doing. Insurers\u2019 responses to these forces fall into three categories:\u00a0 modernize the existing business, optimize the existing business, and create a new business for tomorrow. These responses align to the innovation output score because insurers must demonstrate a well-balanced mix of operational and growth-oriented innovation, plus the ability to respond to both internal and external pressures, and also the dexterity to balance short and long-term initiatives.<\/p>\n

In our assessment of this balance in the Strategic Priorities Report, we classified insurers based on their response of knowing, planning and doing as leaders, followers and laggards. Interestingly, we found that<\/strong> Leaders are:<\/strong><\/p>\n