As the wave of innovation in insurance has built over the past few years, incumbents have had a choice about whether to swim out and try to surf it or to stay in the shallow water and hope to not get knocked over. No longer.
Last week's announcement by A.M. Best that it will assess and score insurance companies on their ability to innovate means that incumbents either have to build robust capabilities or suffer consequences in the here and now. Best has essentially taken the position that a company cannot do nothing, nor can it really follow the herd or adopt a slow-follower mentality. Innovation is critical to long-term resiliency.
This is great news—at least for the industry as a whole. While some companies will remain incapable of innovating, they will not be able to claim surprise.
With this new focus on innovation, A.M. Best has done the insurance industry a big favor by not only sounding a warning but also offering the industry focus, structure and direction to avoid the danger of inaction.
A.M. Best, which will look both at the innovation process and at the results, is going to peer deeply into what companies do and don't do, so the box-checking that I suspect is going on at many insurance companies will have to end. Companies can no longer go on innovation tours and claim they are "staying on top of insurtechs." Executives will no longer just be able to assure superiors and the board that, "Yeah, yeah, we have an innovation process in place and have X projects planned."
A.M. Best will be comparing companies against each other and will have access to so much data that raters will be hard to fool, and they will double back in subsequent years to see which efforts and which companies delivered the goods. A three-year effort at change management won't cut it with A.M. Best if real innovation doesn't follow. (You can learn more about the A.M. Best methodology here and can offer comments.)
As usually happens when an industry goes through a wave of change, many companies will decide to sell rather than innovate. Selling is the safe bet, if not necessarily the best one.
For those incumbents that opt to bet on their ability to innovate, the process will provide some guardrails. Innovation is, by definition, a step into the unknown. A.M. Best will give companies informed feedback on how they're doing, and there are best practices that can guide companies through the uncertain waters of the innovation process.
A.M. Best at its annual Review and Preview conference this week is going to great lengths to explain its perspective and its proposed process, and is bringing in world-class speakers on innovation – encouraging insurance industry attendees that innovation is not only critical, it’s doable. Another encouraging message is that the size of the company does not matter to how well it can innovate.
Thank you, A.M. Best, for planting the flag firmly. Now it’s up to the insurance industry to get serious about doing what few really want to do, but we all know must be done.
Cheers,
Paul Carroll
Editor-in-Chief
