In the past couple of years, the trend toward watching reality tv shows and reading self-help or self-improvement books has certainly skyrocketed.  That said, today there are countless books on leadership, management, achieving success in business, and living the good life. To a certain degree, all of these books touch a common baseline when it comes to advice…do the right thing, live the good life, and you will be rewarded with success. The commonality could lead one to discount all books of this ilk as hokey and contrived. 

However, one author whose books stand above the rest is Malcolm Gladwell.  Gladwell’s book “The Tipping Point,” suggests an event of the magnitude the title names occurs when an idea, trend, behavior or expectation crosses a threshold and spreads like wildfire. When a tipping point occurs, it can change the fundamentals of business and be sudden.

Needless to say, history has seen many tipping points, which have offered opportunities to use technology, thereby creating leaps in innovation and transformation. It is easy to believe that another “tipping point” is underway today.

Carlota Perez, a scholar of technology and socio-economic development at Cambridge University, believes that from the Industrial Revolution to the Information Age there is a consistent pattern in the diffusion of technological revolutions and their impact on macro-economic trends. She implies growth in the economy takes place by successive surges of about half a century, each driven by a technological revolution.

Perez suggests core radical innovations come first, spawning a wave of interrelated investment. Each such revolution takes about half a century to spread around the world, and is characterized by two distinct periods: Installation and deployment.

A typical installation period lasts years, but often ends in a speculative financial boom or bubble. It is important to note that installation periods are times of creative destruction during which the emergence of new technologies into the marketplace is common.  New businesses quickly begin using these technologies during installation periods, and new business models emerge for existing businesses.

History shows the reversal of a boom or a bubble collapse typically leads to a market correction. The deployment period follows, weaving technology into the fabric of business and society. The deployment period is a time of creative construction and institutional re-composition. New technologies and business paradigms become the norm and tend to drive long-term growth and expansion of successful business models.

Over the past couple of centuries, there has been a technology revolution every 40 to 60 years, starting with the Industrial Revolution in 1771.  The Industrial Revolution was followed by the age of steam and coal, iron and railways, which started in 1829.  The days of steam, coal, iron and railways were followed by steel and heavy engineering (electrical, chemical, civil and naval) in 1875; and then the automobile age which began in 1908. The current era of information technology and telecommunications started in 1971, and represents the fifth major revolution during this 200+ year span.

As for today’s crisis, it is now evident that the boom and crash came in two episodes, the Internet frenzy which ended the .COM crash, and the credit bubbles of 2003-08 which resulted in the market crash and “great recession” now underway. Perez suggests the next two to three decades will be the deployment period during which business will begin to again use new technology to create a new business paradigm based on innovation.

The financial crisis is indeed a “once in a half century event,” but one Perez asserts has happened four times before over the last 200+ years. Each technology-based revolution had unique dynamics, but the historical view provides insight for insurance companies as they embrace the current disruption, and use new technologies like SOA, SaaS, social media, and mobile Internet computing to plan for the future.

New technologies and innovations advocated by entrepreneurs and leading companies are the force that creates and sustains long-term economic growth, even as this same powerful force creates a new competitive landscape and destroys the value of established companies if they do not re-shape their companies.

Re-Shaping the Insurance Industry
Considering innovation and insurance together are viewed by many as oxymoronic. While the insurance industry demonstrated innovation during the 1960’s and 1970’s by creating new products, services and distribution methods using technology, innovation slowed measurably. But during this period of innovation, early-adoption fueled growth, expanded customer access and competitive pricing through more efficient operations enabled by technology. This value has diminished due largely to the “Achilles heel” of legacy solutions and models. Once again, innovation and disruption are needed for a new round of competition.

Increased competition, cost inflation, changing customer loyalty, and decreasing premium growth are pushing the industry to change its paradigm again.  Insurance companies must re-assess business models and focus on insurance profitability fundamentals. Customer expectations, as well as product/services access, are influenced by the Internet and by businesses operating on it. Information transparency, product choices, behavioral/life-style shifts, and social media providing recommendations are changing consumer mind-sets.

A fundamental power shift is underway, and the shift is moving away from the agent/broker and insurance company to the consumer. The emergence of consumerization requires innovation. Recent research from Global Futures and Foresight, Gartner and Celent highlight the current focus on innovation and on how new thinking is identifying ways to use technology to unleash opportunities. Some of these analyst insights indicate:

  • Innovation is a key differentiator, high priority and discussion point among insurers.
  • Mash-up business models, combining elements of multiple platforms and/or existing models are increasingly viable.
  • The Internet is a critical thread through business strategies and innovation and must be embraced.
  • The Internet radically changed the way people communicate, interact and reconfigure their relationship to business entities.
  • Product innovation will be a top priority among leading P&C insurers during the next five years.
  • The customer is increasingly powerful relative to the company. Customers are empowered through information transparency, social-network interactions and information availability. Customer intelligence is critical to determine product and service needs.
  • Customer experience of convenience and quality service levels are expected not desired. Customer innovation and use of new technologies will be critical to support the "consumer of the future."

Long-held, traditional business and technology strategies inhibit future success. Insurance companies must embrace new technology to unleash innovation in critical areas, including:

  • Customer Innovation
  • Product Innovation
  • Service/Claims Innovation
  • Business Model Innovation

How can your company survive the shift underway? By innovating through new technologies and ideas insurance companies can create a new foundation that leverages the shift and which will enable future growth and transformation.

Customer Innovation
“There has been a fundamental shift in consumer spending patterns, as restraint has become the new mantra. Over the next 18 months to two years, consumers will make critical decisions about discretionary spending, saving, or paying down debt, which will have long-term bottom line implications.” – Nielsen Chairman and CEO David Calhoun (July 30th 2009)

Increasingly, researchers find consumer social attitudes and behaviors have been irrevocably altered by the financial crisis. Insurance companies are seeing decreased premiums from customers who are switching policies to find lower cost/more value.  Brand loyalty is becoming a casualty of cost-comparisons.

Furthermore, the emergence of the “Net-Generation” is fundamentally changing businesses notes Don Tapscott in “Growing up Digital.” As identified by Tapscott, the net-generation represents 88 million offspring produced by 85 million baby-boomers. The net-generation eclipses their parents in terms of both size and impact. Members of the net-generation are the first to grow-up surrounded by digital media, with technology incorporated into all aspects of their lives.  This fact alone will change their expectations of society, resulting in social transformation. They live and breathe innovation.

Mary Meeker of Morgan Stanley identified one aspect of this innovation in her recent research. Meeker notes the dramatic adoption of mobile Internet computing which is creating new communication options for distribution and interaction within a fast-growing user-base.

Leading insurers are proactively responding, recognizing a new dynamic of interaction between customers, mobile computing and online networks, “re-constructing” the marketplace with new solutions. Recent Celent research identified that most of the top 10 U.S. insurers have a social media presence. However, by contrast, very few UK insurers have a presence on social networks.

Distribution of Twitter followers and Facebook fans for top 10 U.S. insurers

Figure 1: Distribution of Twitter followers and Facebook fans for top 10 U.S. insurers

These innovative companies obviously recognize the fast-changing market dynamics and opportunities that the Internet and social media provide. These opportunities include the facts that:

  • People will share significantly more data online via communities and networks.
  • Insurance schemes based on groups will become more common as their popularity increases.
  • Insurance companies will increasingly use public, shared data when assessing potential customers using sophisticated analytics.
  • Social networks are here to stay, and will have an increasing impact on how people experience the Internet and other media.
  • Today, financial services aggregators make the best use of social networks which divert customers from insurers.
  • Social networks currently offer an inexpensive route to the customer, one that customers will actively promote if the content is right.
  • Insurance companies must decide how they can best use this opportunity to first advertise and then to actively engage with their customers.

One leader in this new area of innovation is Geico. In business more than 70 years, ranked a top 5 U.S. auto insurer, and a leader in online quoting/selling, Geico expanded customer interaction by connecting the company’s website with Facebook, allowing customers to tell their stories, including product reviews and cost savings by switching … powerful customer recommendations.

Product Innovation
Product innovation, a key focus, includes both the product and “how” it is developed. Technology innovations such as Web 2.0 allow customers to participate in product innovation by co-creating products. This approach uses technology to link partners, suppliers, and customers to co-create targeted, richer products quicker than traditional methods.

While new products have been slow to market the last ten years, this co-creation or co-development approach and the emerging new products and services are poised to disrupt market dynamics. Products with built-in customer input and value will challenge “product price wars” and redefine customer relationships. Examples include:

  • Accident Forgiveness, which keeps rates from going up because of an accident;
  • Safe Driving Bonus, which rewards consumers with up to 5 percent of their premiums back for every 6 months of accident-free driving;
  • New Car Replacement, which replaces a car if a policyholder has an accident during the first three years of owning a new car;
  • Recover Care, which pays for assistance with cooking, cleaning, shopping, transportation and yard work if the policyholder is injured in a car accident;
  • Lifetime Car Repair Guarantee; which reduces costs by using authorized repair shops to guarantee all repairs; and
  • Disappearing Deductible, which rewards good driving with a reduction in the collision deductible by $150 and which continues to provide reductions of $50 for each year of a policyholder’s good driving record.

Service/Claims Innovation
Service is the “moment of truth” for insurance companies. Customer preferences are changing and new access options are expanding beyond “website self-service” to “ease-of-access” with any device.

With a growing mobile market, consumers want innovative ways to shop for and manage their insurance. Insurance companies are expanding the online experience using mobile Internet devices with mobile apps that:

  • Quote;
  • Pay bills;
  • Report claims;
  • Find repair-shops with Google maps;
  • Provide ID card access; and
  • Offer daily repair monitoring.

Today, service is about insurance companies being able to provide 24 X 7 X 365 access, all based on customer preference.

Esurance, a direct-to-consumer auto insurer, is another example of innovation in insurance.  The company expanded their online services by offering self-service claims. Esurance’s solution provides a revolutionary claims experience through reflexive, conditional questioning, real-time triaging, assignment and scheduling repairs.

Business Model Innovation
Insurance companies are reinventing their business models by “transforming/optimizing” existing business capabilities to create a new business model. Consider the example of one leading insurance company which launched a new auto brand that is 100 percent Internet-based. The company’s virtual operation is uniquely positioned to serve the mobile/portable, Generation Y or Net-Generation insured. Customer demand is highlighted by significant growth on the order of more than 1000 new customers per month since the company’s launch.

The operation captures, prepares and processes insurance from quote through claims, repair and renewals to transact ALL insurance needs electronically, much like banking. The results are impressive: The company reports double-digit new business conversions, as well as business growth, decreased expense ratio and claims costs, better-than-average customer service and repair quality exceeding expectations. This virtual insurance company has created an innovative, relevant, modern operation by embracing trends and customer expectations to deliver top-tier value and service.

SaaS Model
Innovation comes in many forms. Consider a leading workers’ compensation insurance company which utilized a SaaS (software as a service) model to deliver new technologies which transformed the company’s business model.  This innovation not only enhanced the company’s competitive position, but successfully mitigated and managed the company’s risk exposure, supported profitable growth, and provided a platform for expansion.

The company’s approach included using a functionally-rich, modern solution with a SaaS delivery model, thereby creating economic benefit by reallocating capital to expand their product and service offerings. The SaaS deployment was critical to enhance the company’s disaster recovery capabilities, given their U.S. Gulf Coast location along “hurricane alley.” With a multiple-hosted site strategy, the company was insulated from business disruptions.

This virtual insurance company believes insurance consumers will greatly influence SaaS-based operations. As customers demand more, insurance companies must have quick deployment of products, achievable in a SaaS model. Access to current solution releases, enables continuous innovation.

Results Matter
This new “deployment period” of technology-based revolution requires business innovation for future success. Financial ratings analysts are now focusing on core business operations, forcing the insurance industry to consider customer, product, service and business model innovation. Why?

Financial ratings analysts are focusing beyond top line growth and bottom line financial results, to core business process and IT performance. The analysts are evaluating insurance companies’ use of capital, whether for market expansion, growth, operational efficiency, product and service innovation, or transformation initiatives.

The days of significant capital investment in IT systems are changing due to the increased need for capital to expand and grow the business. Because of this new focus, insurance companies are considering customer, product, service, and business model innovation.

With these insurance company examples in mind, it can be said that results matter, and innovation delivers. The insurance industry is at the tipping point, a new deployment period converging change, technology and customer expectations. Just like the past, the industry has the potential to truly innovate and transform by embracing the disruption and creating a new paradigm of sustainable competitiveness.

Warren Buffet states: “Be fearful when others are greedy and be greedy when others are fearful.” Now is the time to be greedy… greedy for innovation.


With over 25 years of domestic and international insurance and financial services experience in strategy, operations, market development, relationship management and technology, Denise Garth, VP of Global Industry Affairs, brings to Innovation Group a broad knowledge of the insurance business from people, process, technology and data to create innovation, collaboration and transformation. Denise helps position and expand the value of the organization’s technology and services to the industry and provides a market and customer driven view as Chair of the Product Strategy Group. She engages industry influencers and customers via roundtables, summits and networking to broaden relationships and deepen customer insights. Prior to joining Innovation Group in September 2008, Denise was with ACORD for seven years as Vice President, Standards and Membership where she significantly expanded ACORD membership, global presence, and led the standards strategy and product development of ACORD standards. Denise is a former executive in business operations, IT, program management, business reengineering and marketing with numerous insurance companies including Mutual of Omaha, CUNA Mutual, and Century Companies of America. Denise works with the industry research firms, industry organizations, strategy consulting, industry media and awards organizations to deliver expanded value to the Innovation Group, customers, and the industry, regionally and globally.

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