How Disruption Paves The Path To Innovation For Insurers

Pat Saporito

There’s a phrase currently floating around that’s relevant to all business, but especially to insurers, which are risk-averse by nature: disrupt or be disrupted.

We’ve seen other industries rocked to their cores by disruptors like Uber, Netflix, and Airbnb. We also know that the insurance industry, which essentially operates as it has since the dawn of “cargo” insurance during the camel trade in Babylonia c. 2100 BCE, is poised for a disruptive technological shift over the next few years.

So as insurance companies look to the future, they know the time for digital transformation is now. But what does the road to disruption look like for the insurance industry?

Where to start

To begin, we need to examine what fosters disruption and innovation. Most companies have access to the same set of tools and technologies, like Big Data, advanced analytics, and IoT devices. But these are just platforms for innovation. What really enables innovation is culture. Culture beats strategy every time! The reason small startups are able to disrupt large companies is because they are small and nimble, rather than mired in legacy technology and, more importantly, legacy thinking.

Few industries are more conservative or resistant to change than insurance, so how can we become nimble and flexible enough to foster a culture of innovation? We need to disrupt ourselves before new startup competitors do.

There are three main options for doing this. The first is to develop or use venture capital funds to support innovation. Insurers can use their funds to incentivize and even have a competitive advantage in earlier adoption of new technologies or applications. The second is to form innovation centers that serve as internal learning labs; they are “skunk works” within an organization designed to think like a startup. These centers can be accelerated by incorporating interns from Big Data and data science academic programs with hopes of retaining these scarce resources after graduation. Finally, a company can look to partner with or acquire new digital startups –people who are already innovating and disrupting. This tactic complements internal innovation. All of these tactics will help change culture, but the secret isn’t just to make one-off innovations. It’s to embed the innovations in new or redesigned business processes.

The right technology—and people

Whether your company decides to innovate internally or through startups, there is one principle that is almost universal: Today’s innovations are happening faster with cloud applications. Cloud technology provides agility that on-premise applications can’t. For digital vendors, cloud applications allow faster ramp-up thanks to lower capital requirements. Similarly, insurers can make their investment dollars go further by funding new capabilities using operating expense (OPEX) budgets, as opposed to capital expense (CAPEX) budgets. Lastly, cloud applications are less costly to maintain and support and can be implemented more rapidly for external stakeholders like distribution partners and customers.

The types of technologies being employed for innovation can vary based on the goals of your transformation projects. Personal lines and individual business insurers have been using drones for underwriting and loss inspections, and gamification for customer engagement for new products or driving customer behavior like wellness management. More advanced analytics are being employed to gain relevance from ever-growing data, especially unstructured and external data.

Human resources are also crucial. While insurance has always had a great mathematics bench with actuaries, data scientists also have a lot to offer the insurance industry, and we need to hire more of them to address Big Data and digital transformation. Innovation requires a combination of people, process, technology, data, and culture.

The bottom line is this: Start disrupting now. You can use cloud technology, you can innovate in house or externally, and you can use all of the newest innovations that you now have at your fingertips. And don’t limit your innovation partners to the insurance industry. Look to academia and the broader ecosystem. The more diverse the innovators are, the more diverse the innovation.

Learn more about how SAP can help you disrupt the insurance industry.


Pat Saporito

About Pat Saporito

Pat Saporito is a senior director, Global Center of Excellence for Analytics and Analytics Strategy Program Leader at SAP.  She helps customers across industries develop a business and value-driven analytics strategy. Pat has 20+ years in data warehousing and analytics. She is an insurance industry analytics expert and author of the book, Applied Insurance Analytics (FT Press/Pearson). She is on advisory board for Stevens Institute of Technology’s Big Data and Analytics Masters Program and a mentor with the Global Insurance Accelerator an incubator for Insure Tech startups.