“The only thing insurance and innovation have in common is their position in the dictionary,” says MetLife Chief Innovation Officer Zia Zaman, reciting an old joke about inertia within the industry. Well, things are changing.

MetLife – and the bulk of its competitors – pay more than lip service to the word ‘innovation’, despite it being one of those corporate buzzwords that have cynics rolling their eyes.

“Innovation is a tricky word. It’s about doing something different that adds value,” says Zaman.

“But it has to be something that someone is willing to pay for, otherwise it’s just an invention.” Stagnant for years, many large insurance companies now believe establishing an innovation culture is at the core of their future success.

“The insurance industry is a very, very large industry that has not changed or adapted much,” says Zaman, who was recruited from outside the insurance industry in June 2014.

“But we’re not just competing against each other as insurance companies today.

“We’re competing against financial tech start-ups that are looking at how they can actually grab our customers and understand them better than we do.”

To help compete with those nimble new players, MetLife has put Zaman in charge of the LumenLab, the company’s innovation facility in Singapore.

Thought of as a ‘disruptive innovation centre’, the LumenLab is a factory that builds business models outside of the “MetLife way of the past,” Zaman says.

“We are an incubator – a group of people pushing the boundaries. What we’re doing is taking small teams of people who are working on particular problems – things like diabetes across Asia – and building businesses day in, day out. We’re then testing them with customers and understanding ways we can generate cash or loyalty.”

It’s fair to say MetLife’s LumenLab is a far cry from the traditional insurance model.

Shifting landscapes

While the world’s larger insurance companies have historically been hesitant to branch out from rigid policies and ways, many have realised that the strength of their newest
competitors lies in their agility.

In anticipation of this landscape shift, KPMG conducted an online survey with 280 insurance industry executives across 20 countries in April 2015. The findings of the Insurance Innovation Imperative survey indicate the world of insurance is about to be disrupted with significant threats and opportunities alike – similar to what the taxi and hotel industry is going through.

Innovation in insurance

In fact, more than 80% of respondents say they believe their organisation’s future success is closely tied to their ability to innovate ahead of competitors.

KPMG’s Head of Insurance and NSW Chairman Martin Blake, one of the Partners who helped pull the survey together, says the industry is “experiencing a level of change we’ve never seen before”.

“There are a number of mega trends affecting insurance – from other industries, to technology, demographics, environment, social behaviours – they’re all really redrawing the business landscape,” he says.

“A reason insurance companies have been slow to innovate is because, up until now, it has been a real money-spinner,” says Blake.

“Because their primary lines are so profitable, they don’t actually want to disturb that customer base. They don’t want to cannibalise their own business. So there’s this constraint,” he says.

“But there’s a growing realisation of the need to innovate.”

Blake says what makes the insurance industry so vulnerable to disruption is that it has very few touch points with customers. Often, companies only reach out to clients during the renewal process.

“Most insurers do not have a relationship with their customers,” he says.

MetLife’s Zaman agrees. He adds that companies can make the mistake of thinking of innovation solely in terms of technological leaps, when it’s really about customers.

“You can’t serve tomorrow’s customers with yesterday’s business model. Innovation always starts with the customer.”

Boots on the ground

One firm punching above its weight by creating innovative insurance products tailored to its customers’ needs is CRE Insurance Broking.

The team focuses on delivering risk transfer solutions to the construction, resource and energy sectors.

“We target clients who have been with one of the larger players, but want a bit more hands-on advice and bespoke solutions,” says CRE Insurance Broking Managing
Director David Harrison.

“People talk about innovation and disruption, and they automatically think technology is going to be the answer to all of this.

“But at the end of the day, if you’ve got an office full of brokers transacting business through online portals via standard insurance products, then a lot of the technical knowledge and skills base required to transact more complex risks is lost.

“They’re not talking to underwriters, they’re not preparing risks and they’re not negotiating risks. It’s all transacted through a system.”

Before founding CRE four years ago, Harrison had spent the majority of his career working with international insurance companies.

Where his business differs from the larger firms is that they’re not out to “flog a product”, Harrison says.

2015 ANZIIF Innovator of the Year

“Our role is to try and transfer as much of their risk to the insurance market at the lowest possible cost. Our business is a high-margin business – our clients pay more for our services than perhaps you’d otherwise expect, but we see ourselves as a partner of their business, not a supplier.”

If the customer is first and foremost in developing an innovation culture, then employees aren’t far behind.

Allianz, for example, has a staff innovation program called Innov8 that encourages staff to submit ideas for consideration, with the best receiving financial rewards.

“Submissions can be for very simple things right through to new products,” says Allianz Australia Chief Information Officer Steve Coles.

“Annually, we implement around 200 ideas generated by employees.”

Another suggestion, as recommended by the KPMG report, is to “focus on developing a diverse group of talented people in-house, identifying individuals with reputations for shaping new ideas and simplifying processes”.

It’s also important to partner with external experts. Almost 70% of respondents in KPMG’s survey say they believe partnerships, not in-house efforts, would characterise the future of innovation. And while most insurance companies are aware that innovation begins with people, technology remains a major driver.

Old problems, new solutions

AIG Senior Vice President Asia Pacific Science Paul Gaspar says the rapid change in technology provides a wide range of opportunities for new revenue sources.

“Cyber is a great example. We can spend hours on digital media, but the problem is this creates all sorts of issues around privacy, which is a new risk that never existed before,” he says.

“These new environments offer opportunities for companies who help people manage their risk.”

With over 90 million customers in over 100 countries and jurisdictions, AIG also uses technology to collect and collate a huge amount of information about the risks people and businesses face around the world, and uses that information to create innovative products and services.

In 2014, the company launched a service called NOVI, which calculates a company’s maximum probable loss in the event of a product recall.

The calculation is based on analysis of thousands of recall incidents and more than 25 years of experience with food and beverage manufacturers.

KPMG’s Blake adds that cyber crime, peer-to-peer apps, and tech start-ups are all prime examples of how technological advancements are creating new insurance product opportunities.

“Corporate Australia is unconscionably incompetent when it comes to cyber. That presents an opportunity for insurance brokers,” Blake says.

Finally, for companies looking to innovate, it’s important not to be dissuaded by failure. In fact, MetLife’s Zaman says it’s a key to success.

“We basically allow for us to fail fast and fail early for those projects that don’t have a lot of positive market feedback,” Zaman says.

“I might have 100 projects, but I only need two or three of them to come through to succeed in a big way.”