Dealing with Adversity and Creating Opportunity Kevin Mason, Chief Strategy Officer | Dec 01, 2020

Millennial Insurance

Back in April, I wrote a post about how insurers were dealing with COVID-19. I made three recommendations to help insurers cope in the short term and emerge stronger when the crisis subsides:

  1. Automate rote tasks.
  2. Take advantage of new opportunities.
  3. Replace weak components in core systems.

As time has progressed and the leaves are turning, I see something else emerging from the pandemic that will pay dividends in the long run: business model innovation or BMI.*

What is BMI and How is it Being Done?

Business Model Innovation means different things to different people. The simplest definition is that BMI is the process of changing your underlying business model to either enhance a competitive advantage or change the way you create, capture, and deliver value. In short, you do things differently.  So how are things being done differently these days? At Instec, we are fortunate to play in the most dynamic part of the insurance market –  Program Business. Here, we see three clear arenas where insurers are innovating: value chain, advanced analytics, and pricing and fees. Let’s look at each one in turn.

Value Chain Innovation

The predominant arena where we are witnessing innovation is the value chain. This should not be a surprise to anyone. Instec has long contended that in the Darwinian Economy, capital and technology are flattening barriers to entry and causing value chain disruption. What is interesting is how complex these innovations are.

With carriers cautiously picking up new programs, and reinsurance rates increasing due to the pandemic and fires, we see an increased use of fronting carriers and captives. To ensure that businesses get the insurance they need to remain viable, insurers are creating their own pieces of the insurance value chain and snapping them together, like printing additional Lego pieces on a 3-D printer.

MGAs in particular are becoming master coordinators and negotiators as they assemble custom value chains to fit the business they are going after. One example is insuretech Hippo’s recent acquisition of its fronting carrier partner Spinnaker. Hippo gains expanded geographic reach while Spinnaker maintains the flexibility to pursue other program administrators.

Pricing and Fees Innovation

Closely related to value chain innovation are the innovations around pricing and fees. MGAs are on the front lines of this effort, negotiating unique fee structures dependent on circumstances.

One evolving trend is for MGAs to bring systems such as Instec’s in-house. Many carriers encourage this move as it offloads the burden of supporting the MGA’s system. The MGA, meanwhile, can negotiate more favorable commissions to support the system cost and the new value-add made possible by direct access to the data. The MGA also gains the flexibility to match the right paper to the right product and to find a new market when a carrier partner exits a program.

MGAs are also experimenting with different broker and agent fees, usually tied to overall program performance.

Advanced Analytics Innovation

Closely related to pricing and fees innovation is advanced analytics innovation. Insurers are using advanced data and analytics techniques (think of machine learning) to create new pricing models that determine premium.

Similar in concept to the good driver discounts you see in the personal lines, we see an increasing use of models in which premium goes down as a means to influence and ultimately change behavior. This results in the transformation of standard insurance products into something more dynamic. This innovation is increasingly prevalent in commercial fleet insurance aided by technologies that capture detailed data about driver behavior. The Aon Affinity product, created in partnership with Instec and CarrierHQ, is a prime example. 


Long after COVID 19 subsides, the lessons insurers are learning will remain. I see them every day as Instec helps bring new products to market under tight time frames during a pandemic. I am amazed by the persistence, adaptability, and pragmatic problem solving our clients show as they navigate the challenges the environment presents them. The virus will not be with us forever. It will end one day. What won’t end are the skills and experiences insurers are developing to craft and implement new products for the market. It gives me optimism for the long-term future of our industry.

* An excellent article on insurtech innovation can be found here at Insurance Thought

Kevin Mason has worked in many aspects of software development since 1981, including roles as product strategist, software development methodologist, project manager, and technology architect for companies such as Cincinnati Bell Information Systems, SHL Systemhouse (now part of EDS), AGENCY.COM, and GENECA. He joined Instec in 2008 and is responsible for business and product strategies. He holds a BA in Political Science, from the University of Iowa and an AS in Computer Science.