Lloyd’s underwriter Novae published an interesting thought piece last week. They commissioned some independent researchers to pose a series of questions to a panel of industry leaders and manfully collated the responses into an essay ‘Looking Forward’. Their main conclusion, that innovation and specialisation are the keys to the industry’s future development, may not be ground breaking but is certainly something to reflect on.
These days we hear a lot about London outgunning the opposition via its creativity but invention is not coming easy to a market currently enjoying a rare run of profitable years. Underwriters may have just got too used to peddling the same products in the same style because it makes money and it is easier than doing something different. New lines of business like cyber and reputational harm are growing but remain as tiny corners of the industry.
Not only have the good times fostered inertia but the process of industry consolidation has also contributed to a sluggish approach to innovation. ‘The future is big’ say the contributors to Novae’s research and in an insurance world whittled down to just a few insurers, reinsurers and brokers, undersized players will struggle. Unfortunately it is resourceful and entrepreneurially spirited smaller companies that normally outperform larger and intrinsically risk-adverse corporations when it comes to monetizing new ideas.
Of course scale brings with it advantages, not least financial security, access to capital and commercial leverage; all of which are pretty important too for those aspiring to develop new products and markets. The modern-day challenge, therefore, seems to be for larger organisations to harness the power that their size affords whilst nurturing an internal ethic which encourages and incentivizes small teams to think and act with freedom. The regulators might not be so keen but firms whose structure allows some liberty to those in the business are likely to be the ones who answer Novae’s clarion call for innovation.
Roger Bickmore 
I see innovation in insurance as more about culture and less about size. Small insurers often (but not always) have a culture that is more open, and that openness in turn supports innovative thinking, by encouraging diversity of input, better dialogue, more critical thinking and more honest appraisal and feedback. Big insurers can replicate this, but it requires a big, emphatic example to be set by top and middle management, which can be a challenge in the more complicated settings of big firms.
An important by-product of an open culture for someone like myself, is that it helps support a more ethical view of how business should be done. There was a survey of global insurance CEOs published by PwC just over a year ago, that showed many insurers were wanting to be more innovative, and addressing their ethical culture was one means by which to bring this about.
Good piece Novae and repsonse Roger.
I agree Duncan (and Roger); quality of leadership and culture is a significant barrier to innovation in insurance – the industry needs to focus more on the people and less on the technical. When I facilitate sessions with insurance people the most admired brand is John Lewis…but do any insurers really set out to develop businesses with a big idea like that, where their people display that degree of commitment, trust and belief? What a successful business that would be.
Despite being in the risk business insurers constantly dither over taking risks with developing their brands; the unwillingness to make brave decisions leads to a low competition, one-size-fits all market in which insurers blindly follow each other rather than focusing how to be superior. (if you don’t believe me, check out how many London market business have pictures of the Gherkin on their websites – no-one breaks the mould,). Related to this is that marketing is seen as a cost not an opportunity.
In order to innovate the industry must also address transparency – lack of it and the unwillingess to address it creates a hidden drag on businesses that want to set out on the journey to be great rather than good. Maybe the regulators will actually have a positive influence in this area?
I have to agree that openness is an important key to driving greater creativity; in fact I wonder whether one of the major factors acting as a drag is that organisations like to keep their ideas to themselves – the view being that competitive advantage is gained by being secretive.
From what I have seen a greater market openness has fuelled a lot of capital markets growth over the years (although, of course, that market tripped itself up over complex new structured products). There’s a happy medium, and I wonder whether insurance markets could benefit from greater general transparency when it comes to new ideas.