Nearly 90% of re/insurers believe that innovation is critical to the success of their organisation in terms of addressing customers’ needs, gaining a competitive advantage, and realising operational efficiencies, according to the results of a new A.M. Best survey.
The survey, which questioned more than 450 re/insurers across 48 markets, found that over 50% of respondents had allocated between 1% and 5% of their budgets toward innovation, while 17% had allocated more than 5%.
“As the pace of innovation picks up, insurers who do not innovate successfully may have to contend with adverse risk selection,” said James Gillard, Managing Director, Credit Rating Criteria, Research and Analytics at A.M. Best.
“Other challenges owing to significantly higher expense ratios compared with companies’ more innovative competitors, or lower growth because more innovative peers may have access to lower-risk customers, are distinct possibilities as well,” Gillard added.
Out of all the segments surveyed, innovation was found to have the least immediate impact on reinsurers, although reinsurance companies remain actively involved in the innovation process given the longer-term return on their investment and its effect on clients over the medium term.
In contrast, insurers in emerging regions viewed innovation as the most vital, as it can give them an edge in penetrating markets faster and filling new niches, A.M. Best said.
Technology will be the driving force behind the majority of innovative development in the re/insurance industry, A.M. Best said, noting that most respondents saw potential in technologies such as artificial intelligence, big data, Internet of Things, cloud computing and blockchain.
Regulation may also play a role by establishing ground rules to protect both re/insurers and consumers, and by encouraging innovation.
In the primary insurance sector, most property and casualty companies said that the main purpose of innovation would be overcoming system and process inefficiencies, as well as developing products to address new kinds of risks, such as driverless transportation and cyber.
For the life and annuity segment, respondents reported that enhancing the customer experience was their top priority, with innovation expected to facilitate more efficient underwriting decisions that will help them attract the middle market and Millennials, who have new financial priorities.
Finally, A.M. Best found that health insurers valued innovation for both consumers and providers, with technological advancements helping this segment expedite claims and application processes, control costs, and transform areas of medical science and genetic engineering.
The rating agency concluded that it is critical for all stakeholders – re/insurers, consumers, and regulators – to keep pace with the rapid acceleration of technological and societal changes, and claimed that innovation will entail myriad benefits for those that do.
