Scan any business publication from the last couple of years, and it’s hard not to stumble across an article about innovation. A web search for “innovation in insurance”, for example, returns 238 million results. Why such a focus on innovation? Maybe it’s because the rules of the game are changing, and many of the old approaches just don’t work anymore. Markets that were once a secure source of profit have been transformed into price war battlegrounds.
Insurance is no exception. Our post “Software is Eating the World”, talks about the emerging Darwinian Economy, an environment where adapting to change in the insurance world is critical for survival. In this post, we discuss how innovation can help insurers cope with a world that’s shifting beneath their feet.
Where does innovation start?
A couple of years ago, Steven Johnson wrote a book called Where Good Ideas Come From: The Natural History of Innovation1. You may recognize his name from the PBS series he hosted called How We Got to Now. In the book, he describes the essence of Stuart Kauffman’s concept of the “adjacent possible”, a kind of shadow future, hovering on the edges of the present state of things, a map of all the ways the present can reinvent itself. It includes both the limits and the creative potential of innovation.
Johnson goes on to argue that new technologies arise by combining existing technologies in new ways. Others expand on this notion, suggesting that this “combinatorial innovation” is best achieved through experiments2, a trial and error process for solving problems in a complex world 3.
Experimenting with insurance
The combinatorial method of innovation has a place in the insurance world, too. Through a library of content, insurers can create new products or programs at an exponential rate. Two things in the library can produce four combinations, four things in the library can produce 16 combinations, and so on. Through this approach, product innovation becomes less about creating new assets and more about combining existing ones in new and unique ways. The more things you have in your library of rates, rules, and forms, the more ways you can combine them.
If your library contains bureau content that you combine with your own rates, rules, and forms, you have the advantage of working with a “controlled variable”. Rather than having to design new coverages, you can simply select from bureau content that has already been proven successful. When you build new drone coverage, for example, you need not worry about whether the business interruption coverage you include will derail your program.
In addition to mitigating risk, working with a content library has time and cost benefits. Pulling rates, rules, and forms “off the shelf” accelerates your time to value, and supports the notion that programs are experiments designed to be as cost effective as possible, and to fail as quickly as possible, if they are going to fail.
A technology platform for innovation
When you experiment with combinatorial innovation, it helps to have a platform that allows you to assemble new things quickly. Think of the platform as a workbench that contains all of the tools and raw materials you need to assemble a new product. As you add more tools and materials, you can create more combinations and more new products.
A technology platform for insurance works the same way. It allows your business users to assemble and deliver new programs quickly. You can add new tools, like analytics, to get smarter about how you design new products, and you can add more raw materials by growing your library of rates, rules, and forms.
Is your technology an innovation platform that helps you adapt to the shifting insurance landscape? If not, it’s probably time for a change.
1 Johnson, Steven. Where Good Ideas Come From: The Natural History of Innovation. New York: Riverhead, 2010.
2 Ridley, Matt. The Evolution of Everything: How New Ideas Emerge. New York: Harper, 2015.
3 Harford, Tim. Adapt: Why Success Always Starts with Failure. London: Macmillan, 2011.
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 development associated with all products. He holds a BA in Political Science, from the University of Iowa and an AS in Computer Science.