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Deb Smallwood, founder, SMA
Deb Smallwood, founder, SMA
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Is Insurance Innovation Really Happening?

SMA's Deb Smallwood breaks down how the various replacement efforts at insurance companies tie into true technological innovation.

Is innovation really happening in the insurance industry? Is the pace of innovation picking up? What role do next generation technologies play? A new SMA research study tackles these questions for the insurance marketplace in North America. The research will be published later this month and showcased at the SMA Summit in Boston on September 24.

Early results indicate that a small percentage of insurers are making technology investments that are taking them beyond modernizing and optimizing to a level of real innovation and transformation – one that ultimately creates differentiation and competitive advantage.

The vast majority of insurers are investing in technology across the board. However, it is the mindset and goals of the investment that deliver differentiation and competitive advantage – especially as it relates to innovation. SMA has developed a Business Value Maturity Matrix which describes various levels for IT investments and shows how they are tied to attitudes and approaches. The matrix has four levels:

  • Replace Plus: 15% of insurers are investing at this level. Insurers at the Replace Plus level are replacing all current functional capabilities as well as some on the laundry list of missing/not-working capabilities in existing systems or software. This usually involves the implementation of first-release software. Time to market for maintenance changes is improved. There are minimal gains in operational efficiencies; however, most of the critical pain points are addressed. Operational expenses align to the rest of the industry, but no real differentiation and innovation result from the investment.

  • Modernize: 49% of insurers are investing at this level, representing the majority of insurers. They are leveraging software capabilities for business process improvements such as straight-through processing (STP) or paperless customer communications. A modernization approach usually involves implementing the next set of software releases that deliver real operational shifts to drive greater efficiency and effectiveness. Insurers that are modernizing are beginning to move away from the "pack" – they are one step ahead of mainstreamers and one step behind the movers.

  • Optimize: 23% of insurers are investing at this level. Insurers that are the market movers are using advanced technologies and leveraging the software or technology asset as a tool for growth of both top and bottom lines – through both retention and acquisition. Once optimized, operations are ready to scale for growth. Being positioned to increase policy counts, quotes, premiums, and associated servicing without adding resource or expense is a key sign of operational effectiveness – the hallmark of market movers.

  • Innovate: 15% of insurers are investing at this level. These are the true innovators, leveraging next-gen technologies and capitalizing fully on their software assets. They are extending capabilities to exceed the original purpose, to drive innovation that enables growth beyond just volumes, and to facilitate growth in the type and complexity of offerings and services. Through innovation, operational excellence and a market leader position are achieved. Innovation involves the use of software/technology assets that are conjoined with other technology assets across the business value chain.

    The insurers that are leading the charge for innovation are going way beyond employee suggestion boxes in their quest for new ideas. These insurers are taking an enterprise view and encouraging all employees to rethink the business at every level. Technologies such as social media, mobile technologies, and collaboration are enlisted in the innovation effort. Successful innovators are unleashing creativity and infusing it with information – especially the new insights that can be gained from sophisticated analytics. These next-gen technologies (mobile, collaboration, analytics & big data, social, and cloud) not only become catalysts for the innovation process itself, they become part of the new processes and systems.

    SMA's emphatic view is that insurance innovation is indeed happening, the pace is picking up, and next-gen technologies are an important part of the whole picture. Exciting things are happening, things that are stirring up the industry as a whole and transforming individual companies. Insurers that are investing in the replace plus, modernize, or optimize approaches will continue to improve their operations as long as their execution is careful and diligent. But, the opportunity to grab market share and leapfrog the competition will go primarily to the 15% of insurers that are investing and leveraging technologies for innovation.

    [Read why insurers deserve more credit for innovating.]

    To learn more about the state of innovation, future possibilities, and the role of next-gen technologies, look for the SMA research brief, Innovation in Insurance, to be published in the near future. Or, join the conversation by participating in the SMA Summit. Find out more at the event site. Seating is limited, so act now to join your industry colleagues for a productive exploration of innovation opportunities for the industry.

    About the Author: Deb Smallwood, the Founder of SMA, is recognized for her expertise in investing in technology to influence competitive advantage in the insurance industry. She offers a fresh perspective on how business capabilities can be enabled to meet strategic goals. Exclusively serving the insurance industry, Strategy Meets Action blends unbiased research findings with expertise and experience to deliver business and technology insights, research, and advice to insurers and IT solution providers. Deb can be reached at dsmallwood@strategymeetsaction.com.

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