Heard At IASA, In Insurance Innovation, Fast Followers Also Have Work To Do
I had many conversations at #IASA2013 about how insurers can improve their innovation capability. As insurers prepare their 2014 plans, this is an area of particular focus. An increasingly commoditized market requires new approaches in order to build a sustainable advantage.
A few of these discussions included a comment like “we have decided to be fast followers”. That comment implied that, by making that strategic choice, those companies don’t need to concentrate on innovation.
Based on Celent’s work over the past year, fast following is not the same as just following. It is an innovation strategy that requires specific actions in order to be successful. Choosing this approach still means you build skills in innovation. Some of these are the same as the first adopters and some are different.
For example, successful fast followers have mature innovation processes in place for activities such as:
• Scanning the market to identify new innovations – “what is going on out there”: you can’t be late if you are going to be fast
• Establishing decision criteria to select which solutions should be “followed fast”: not everything can or should be followed quickly
• Employing metrics around the acceptable length of time fast adoption: how “fast is fast”?
For those insurers which have chosen the fast follower approach, here are some situations they might find themselves if they do not have these processes in place:
• If a personal lines insurer does not have predictive pricing in place, they aren’t fast following, just following
• If a heavily intermediated insurer hasn’t established their digital strategy — what it means for their business, what initiatives will be needed over the next two years, it is not fast
• If any insurer does not have a mobile platform in place, they cannot claim to be a fast follower
• For lines of business where fraud affects loss results, an insurer settling claims in those LOBs now has several automated detection schemes in place if they are following fast
Just to make sure that the company is not chasing the latest buzzword, realize that just following is an option too, but be prepared for the consequences. Following in innovation is a passive strategy of adoption without focus, measures or timetables. As technology continues to change insurance, following will increasingly result in reverting to the mean — average to sub average ROE or return on surplus and increasing adverse selection.
Most recently, predictive pricing has given the industry the best example of what happens with a passive following approach. Innovator and fast follower insurers have used this technology to refine their pricing and leave follower insurers with the worst risks. Making a conscious decision to end up in such a situation is not good, but is better than ending up there as the result of randomness and a lack of focus.