Innovation in insurance is for application, not aspiration

Every year, the editors from the globally respected Oxford Dictionaries choose a newly created word and award it the honour of word of the year. In 2013, ‘selfie’, a photograph that one has taken of oneself, typically one taken with a smartphone or webcam and uploaded to a social media website, triumphed over words such as ‘bitcoin’ and ‘twerk’ to take the title with use of the noun increasing 17,000% over the past 12 months.

So what would be the equivalent for the insurance industry over the past 12 months? Those at last year’s Monte Carlo may have chosen ‘convergence’, while perhaps ‘embrace’ would have been more fitting, with many believing that alternative sources of capital are here to stay.

Maybe ‘quiet’ would be the choice for US property/casualty players, as the Atlantic hurricane season did not produce one land-falling event. Although some will disagree, as a series of tornadoes will make 2013 one of the costliest years on record for the market.

‘Audacious’ describes Berkshire Hathaway’s lucrative sidecar deal with Aon, in which it will take 7.5% share of the broker’s entire retail subscription book that has a Lloyd’s participation.

One word that is unlikely to be the insurance word of 2013 is ‘innovation’. Although many chief executives and presidents will be happy to roll out the i-word in investor rhetoric and in speeches, we are still yet to see innovation embedded within the industry.

The use of innovation has so far tended to be discreet and focused more on products rather than business models. And it is easy to see why; operating process innovation is harder to input into a spreadsheet whereas new products are easily measured and tracked.

Innovation is a mindset that must circulate around the entire corporate structure. With few leading examples of innovation in insurance, it is hard for the industry to truly embrace changing business practices. But individual businesses can ask themselves three questions as a starting point for improving the way they operate: what can we stop doing? What can we start doing that we never thought we could do? And what can we dare to do differently?

The final question is the easiest one to answer but the hardest to implement. The true innovators will be the ones who embrace this question and embed it within the products they offer and the business practices they use. There lies the rub; innovation will only become the insurance word of the year when it is no longer just a word used, but when it becomes a daily business consideration.