Insurer innovation still ad hoc, AM Best says

Innovation in insurance is still an “ad hoc endeavour,” and most insurers continue to score at the lower end despite improvement, AM Best says.

AM Best found the vast majority of insurers still lack a replicable innovation process.

More than three quarters of insurers it rates scored at the lower end in that category – even after the covid pandemic highlighted the vast contrast between “seamless, well-planned innovation processes and structures on the one hand, and disjointed innovation efforts on the other”.

AM Best found innovation initiatives had accelerated but says whether they will result in sustainable results over the long term “remains to be seen”.

“There has been improvement. Leadership at more companies was able to … develop a more comprehensive yet focused innovation strategy,” its third innovation assessment report says. “Many companies view data governance and management as integral.”

Examples of innovation moving the insurance industry forward were maximising data quality to improve efficiency and profitability, and leadership teams understanding the critical role of system and IT infrastructure upgrades.

Only around 6% of insurers earned the two highest scores for “Level of Transformation,” with 94% scoring just 1 or 2 for initiatives that create value, improve customer engagement and experience, lead to superior business models, or significantly enhance growth opportunities.

“Most companies scored at the lower end of this category. The more innovative insurers are in a position to leverage their capabilities and capitalise on offering solutions to organisations that haven’t yet significantly advanced.”

There was only a “marginal shift” versus two years ago in insurers accelerating the transition to digital technology and intensifying their focus on product innovation and policy language modifications.

Leadership scores were stronger, and AM Best observed clearer vision, more chief innovation officer positions and frequent discussions at board meetings, and a greater emphasis on innovation throughout insurers.

“Systems and technology improvements have helped drive the more favourable scores. Budgets and personnel resources have also grown. More companies are focusing on data quality to help improve efficiency and profitability, and leadership teams understand that system and IT infrastructure upgrades are critical,” the report said.

AM Best says more insurers are implementing training, investing in or partnering with technology, fintech, and insurtech startups, while others engaged external consultants to upgrade risk management systems in underwriting, credit, reputation, operations, and liquidity.