Thoughts on Life/Health Insurance - The "I" Word
In our ongoing conversations with executives and managers in the U.S. Life/Health business, a recurring theme is something I'll call the "I word” - Innovation. Everyone believes passionately in its importance to his or her future success; everyone realizes that the industry's results in this area are inconsistent at best, invisible at worst; everyone wants to be innovative or be better at innovation; and everyone is afraid that someone else will figure it out before they do. It is the Holy Grail for companies far and wide.
Webster defines innovation pretty simply, "The introduction of something new; a new idea, method, or device." Easy enough to understand, yet with few exceptions our products and processes are the same today as they were 20 or 30 years ago. Try to think of another business where this is the case. What's the problem? Three things come to mind:
Complexity - for some reason, we have developed products, services and processes (with the best of intentions, by the way) that are mind-numbingly complex for the average consumer/buyer to understand. If you disagree with me, give a typical life or disability contract to one of your friends and ask them to read it from cover to cover. Then ask the few who can do it to explain what they've just read. This complexity comes with another cost - it makes products and processes difficult to change or update in order to leverage emerging needs and new competitive opportunities - speedy to market we ain't. Some of you are saying "By gum, regulation is the culprit!" To a certain extent, I'll agree, but that's a subject for another day.
Culture - insurance people, myself included, tend to value technical expertise and equate "tried and true" with quality. Anything that is new or creative or untested just can't be much good when it comes to insurance. We protect this turf by finding ways to knock down new ideas in the name of good risk management. In my experience, it's very hard to break through this mind set in most insurance cultures. In a famous quote from an insurance exec, "New products leave large holes in my balance sheet".
Discipline - we're in the business of assuming financial risk at a time when we don't know the cost of goods sold of the products we're selling. Prudence, discipline and rational thinking are important, yet we sell products to buyers who are trying to get the maximum risk relief for the lowest cost and who don't really understand our products or how they're built (see Complexity, above). Too often attempts to innovate or be creative lose track of the business we're in, and "new and different" becomes "loss leader" as we try to please our distributors and our customers. Another famous quote: "Innovation in my business turns out to be a race to see who can pay out the most money."
In my view we have three choices: we can continue to come up with very logical reasons to stay the way we are; we can innovate our way to irrationality and failure; or we can find a way to balance good risk discipline with cutting edge products, processes and services. Almost everyone agrees on which choice is best - the trick is to figure it out before someone from outside our industry does.
We'll be covering the topic of Innovation at our Dynamics Seminar in March 2013.