16 October 2017 Insurance

Keep your discipline when innovating

Insurers must be wary of getting carried away by the insurtech revolution that is sweeping the industry and instead embrace a more informed and measured approach to innovation, according to Paul Mang, CEO of analytics at Aon, one of the keynote speakers at this conference.

Partly reflecting on some of the findings of the Global Insurance Market Opportunities Report, published by Aon in September, Mang says that insurers need to find a new model for innovation and to realise that technology companies are less of a threat to the incumbent players than they think.

“People found our views on innovation in the report interesting and I will be expanding on this theme at PCI,” Mang says.

“There is a lot of activity in the insurtech sphere and it can be hard to know whether a strategy is simply chasing a shiny object as opposed to taking a disciplined approach.

“We believe that a lot of innovation in our industry can be very internally focused—the development of new ideas and new products can be developed within the boundaries of an organisation—but the industry also needs to be open to new creative forms of collaboration. Some of the challenges we face as an industry cannot be solved by working alone.”

Mang references the possibility of using ‘open architecture innovation’—described as collaborating in a framework that has standards that enable scalable solutions for clients, and the flexibility that encourages entrepreneurial innovation—to solve some of the most complex risk challenges facing the industry. He admits that the notion of working with tech startups and direct competitors in this way will be alien to some insurers.

“The new model is to approach innovation in different ways. There is a world of knowledge in the industry that we can leverage using open architecture innovation. This form of innovation can be scaled up to tackle the most stubborn problems we face as we look to solve risk issues for our clients,” Mang says.

“This way of innovating will be uncomfortable to some of the bigger companies in particular, but I’m confident that many in our sector will adopt this approach. We already see early signs this is happening, with digital labs partnerships and corporate venture capital activities.”

He gives the example of the B3i initiative to get the industry using blockchain for document management that has been launched as a consortium involving many of the industry’s biggest players, including Swiss Re, Munich Re, Allianz and Zurich.

“Leveraging blockchain technology is a good example of a fundamentally complex issue that one entity on its own would struggle to address fully,” he says. “By collaborating in this way, we are exploring together how this technology might be of use to our industry and ultimately bring value to our clients. Leveraging pools of expertise and bolting on skillsets can be a good way of tackling some of the challenges our sector faces.”

He adds that such examples of collaboration are not always so high-profile or involve rival firms. Many insurers have invested in innovation labs where they work with universities and/or bring many departments together to innovate.

Mang also takes issue with the word ‘disruptive’ being applied to certain technologies. He says the use of such a word has unnecessary negative connotations, and that as insurers embrace technology they will become more able to deal with more complex risks—which is what their clients will ultimately want from them.

“If you consider the risks corporates take in a rapidly changing world when they move into new areas of business or adopt technology—they can be huge,” he says. “Imagine a corporate moving into a new technology such as 3D printing or delivery by drone—the risks are tremendous.

“What they want is reinsurance capital and underwriting skills able to help them handle that. Our industry is expert at managing risks and volatility. In that sense, we can lead from the front, helping the world and our clients adapt.”

He believes that a level of competition will emerge as companies look to embrace innovation and change in the most efficient manner they can and reap the rewards. But, he stresses, there is no one model and technology that will be correct for every insurer—each must work out the best way of moving forward and adopting technologies that will stick.

“My point is that it can be too easy for that process to become undisciplined, and it does not need to be. It is tempting to throw caution to the wind but insurers do not need to do that.

“To invest in a disciplined way may sounds counterintuitive, but there has to be a process in how a company determines where to put its efforts. If insurers do this they are more likely to find a positive outcome,” he concludes.

Paul Mang is the global CEO of analytics at Aon. He can be contacted at: paul.mang@aon.com

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