If insurers devise ways they already understand — adjusting their underwriting policies, pushing hard on claims or other “superficial” improvements — they will find themselves fighting over the smaller pieces of a shrinking pie.
So what can be done on the innovation front to help the industry maintain long-term viability? These days, the typical industry response to looming threats is to set up a fancy new innovation center or go buy a bunch of startups. But by pouring resources and publicity into innovation, companies are doing themselves a disservice.
It is impossible to predict the future with complete clarity. But it’s also easy to imagine how a warmer planet would affect different asset classes around the world. Insurers need to multiply the innovations that can help them change the game – for example, using artificial intelligence and weather data to predict where disasters will occur, leveraging big data and climate change models to predict changing risk patterns, and building risk mitigation solutions for a “preventive” aspect. growing in the market.
One of the greatest myths in business is that innovation is incredibly structured and meticulously planned for the game. The truth is that many companies are making temporary forays into innovation, often on a number of fronts, creating a tangled web of initiatives and priorities that are often loosely aligned. It is impossible for any mission-critical business function to succeed without a clear and consistent vision that enables a strong operational foundation. Companies across the business spectrum do not have the modern infrastructure needed to drive innovation success at scale.
Other core departments, such as finance and marketing, benefit from experienced leaders, a clear set of modern measurement tools to track performance, and protocols in place for reporting and reviewing progress. However, most insurers have not formalized the central core of their innovation processes. They have no central ability to track projects, coordinate global programs, or assess the likelihood of success at anything but a finger level in the wind. This has undermined the success of innovation and raised skepticism among senior decision makers when it comes to funding priorities. Creating a formal infrastructure for innovation processes can go a long way in fixing problems on both fronts.
The pursuit of large-scale innovation means taking some strategic leaps. This is often where innovation efforts begin to fall apart, as it can be uncomfortable for leaders to commit when the results are speculative. Unlike most executive decisions, investing in strategic innovation cannot be forced into a nifty fund. Time and time again, I have seen that simply adding an innovation team or opening an innovation center without constant coordination between functions leads to failure.
Future scenarios have to be modeled, and innovation risks can (and should) be managed over time—but innovation efforts will not be clearly predictable, nor can they be phased out to “normal” levels of company comfort. But the alternatives to doing nothing are much worse. The executive team must learn to adopt a specific and calibrated type to tolerate ambiguity.
Climate challenges facing insurance companies are very real. But with the right strategies, tools, and leadership discipline, traditional insurers can retool their businesses to better meet market needs, both now and in the future.
Robert Lowe is the CEO of Wellspring Worldwide, a provider of knowledge supply chain software systems. He is a former director of project creation and a professor at Carnegie Mellon University.
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