Dealing with Disruption

Insurance and Innovation

Baxter Thompson Ltd, Jon Baxter


As disruptive technology sweeps through the insurance industry and start-ups transform the competitive landscape, I suggest how corporate companies can adapt to change with the help of strategic IT partnerships.


Large organisations typically have an operational focus and change incrementally; however the issue today is that disruptive change is happening at a much faster pace than before, externally to the corporate company and specifically in the area of technology. Artificial intelligence, deep learning and block chain technologies are all finding more use-cases in the insurance industry.

According to there are now 535 venture-backed companies globally promoting new innovative services in the insurance industry, of which the largest category is health insurance. These are predominantly small companies, mainly ten people or less, who have pitched an idea, got funding and are developing or have developed a solution to take to market.

These companies are proposing new business models, value propositions all underpinned by new technology. Some examples include PocketDoc, InstaMed, Crowdaura, Dynamis, The Floow, BoughtByMany and Guevara.

The customer need is still the same - provision of insurance - but the fulfilment can be radically different.  The promises of these technology advances, such as faster settlement times, reduced fraud risk and much lower transaction costs, make a compelling case for competitive advantage. However, if smaller start-ups end up taking a dominant market position, then not only would the incumbent suffer cannibalisation of its revenue stream but also a potential long term death sentence given that the company could not compete on a like-for-like basis.

Adapting to Disruption

So how can corporate companies react to disruptive technology? Here are some strategic options:

Compete using existing business model by competing on price, driving down cost to retain market share. With comparison websites, another form of technology disruption, this option has already been played out, whether insurance companies participate with the comparison website or go direct.

Innovate internally:  This can be achieved but is difficult considering culture.  Attitude and beliefs, mind-set, time allocated and incentives would need to be addressed, in addition to applying new ways of working. The cost of change to the existing workforce would need to be compared to other investment options.

Invest externally: Given that insurers have large investment funds, the questions would be: How much of that fund should be diverted to high-risk start-ups? What’s the risk of not investing? According to Aviva, Axa and Allianz, among others, have committed $1bn to investing in technology start-ups.

Collaborate: Aviva, Admiral and Swiss Re, among others, in collaboration with Startupbootcamp InsurTech at their Digital Garage, have held weekend hackathons to solve business problems.

But how can corporate companies adapt in the longer term? If start-ups were invested in and owned by the incumbent insurer, one would have to consider whether the start-ups provide a service to the insurer or compete with an equivalent service. Depending on this position, the corporate company could:

•    Continue to own the equity but keep the start-up at arm’s length, to maintain a strategic position in the market.
•    Benefit from the return on investment through lower transaction costs, better customer service or sell the company entirely to re-start the investment cycle all over again.
•    Incorporate the start-up into its operations, “productionising” and scaling the start-up business model.
•    Incorporate operations into the start-up so that in the new business model, start-up culture becomes the de-facto way of doing business in the longer term.

Whatever the outcome, I believe the insurance industry will be going through significant change and that based on the promises presented by disruptive technology, the challenge for insurance companies will be maintaining share of an eroding revenue stream over time.

Strategic IT Partnerships

The disruptive technology path which we are forced to follow, either as willing participants or not, requires active facilitation at the highest levels in the corporate organisation. Therefore there is a compelling need for strategic IT partnerships within a corporate company to answer the above questions, given that it is technology that is driving change. The discussion on disruptive technology above is an example outcome of that facilitation at a strategic IT partner level.

This facilitation can be achieved in a number of ways:

•    Taking a “horizon scanning” and research-based approach, a study could be initiated to answer the above questions in order to furnish the information required to help identify the scenarios and shortlist potential use-cases and technologies.

•    Value workshops could be used to review  the current customer experience to assess how the potential use-cases could be applied to realise the promise of disruptive technology – how the customer’s “pains” and “gains” are addressed.

•    Business model workshops can be held to understand how cash is generated, profits are made and who in the value chain plays what role.

•    The company could potentially select the top three use-cases and fund an incubation programme to develop and pilot.

As a strategic IT partner, to be party to this facilitation would have to be seen in the broader context of the IT capability. Is the IT function seen as delivering its projects and service commitments? Does it have the resources available and sufficient aptitude to facilitate strategically?  Does IT have the opportunity to succeed in the organisation or is it beset with scope change, legacy systems, a cost centre approach or unaccountable business partners?

In order to facilitate, one would need an understanding of the company’s strategy, strengths and weaknesses, an understanding of the external competitive landscape, an understanding of existing and disruptive technology and its potential impacts, and an understanding of the industry. A focus on asking the right questions can help communicate strategic change.

Achieving strategic IT conversations means being a trusted advisor to the organisation. It’s a status that is earned, not given. Demonstrating delivery is one step on the journey to that status; governance and planning is another. Finally, strategic IT partnership can only be achieved once credibility in the former capabilities have been established.

How Baxter Thompson Associates can help

We help IT understand the opportunity with business partners through our Reconnaissance for IT framework and can help implement a business relationship management capability to ensure that the Value in IT is delivered. The framework includes the criteria mentioned in this post and is applied though a short diagnostic comprising mainly of interviews and workshops. The outcome being a report on recommended changes, options and a business case for implementation. We also provide training, coaching, recruitment and change management.

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