The clock is ticking for the insurance industry.
In May, the comment period ended for providing feedback on a new procedure for scoring and assessing insurers’ innovation capabilities. According to AM Best – the rating agency creating the scoring mechanism – innovation is becoming increasingly critical to the long-term success of all insurers, especially with the accelerated pace of change in society, climate and technology.
While Best didn’t reveal a specific implementation timeframe for the rating process, the announcement signals that it’s time for insurers to be proactive about digital innovation. Because digital innovation can take months or quarters – from ideation to measurable outcomes – beginning the journey now will ensure the best possible innovation score when the rating process goes live.
Best’s plans have attracted plenty of interest. Some observers say the proposed criteria will push insurers to think about the future of their business. Others believe the criteria underscores the risk inherent in under-investing in innovation. In our work with measuring digital maturity for insurers, we see a direct correlation between innovation and digital maturity. This goes beyond merely having an innovation lab, launching a mobile app or incorporating drones into your processes. Digital insurance leaders are able to show measurable evidence of innovation outcomes.
The Newest Measure of Financial Stability
In many ways, Best’s plans may accelerate the shift in the industry’s thinking about innovation. While benchmarks of insurers’ financial stability have long included performance, leadership, claims paid and reserves, innovation capabilities are now overtly joining the list. Best’s message is that innovation is material and related to corporate longevity.
At the same time, Best has shared only the general framework it will use and has yet to reveal many details on how it will measure innovation. We don’t yet know what evidence the agency will accept to ensure neutral to positive outcomes on ratings.
It will also be difficult for insurers to predict their innovation score in isolation, and some may see their ratings drop as a result of this gap in understanding. Like intelligence, innovation is difficult to measure. There’s no definitive method, and every insurers’ innovation score will be relative to other insurers in the market. Without a full view of how they compare with their peers, it will be difficult for insurers to know what the new normal is for innovation.
Planning Now to Score Well Later
Innovation matters most when it creates real business value. It’s about embedding digital capabilities so they influence decisions and actions – and generate business outcomes for customers. It’s dynamically changing the conversation with a customer to influence the outcome of that interaction.
So, how much does your insurance organization know about its own innovation and digital maturity? How might your organization score?
We’ve long partnered with insurers to help them get a fact-based assessment of their progress through our Digital Maturity Diagnostic (DMD) and benchmark, which quickly provides relative, cross-industry digital innovation optics to help inform proactive digital investments.
So my suggestion? Let’s not wait. Enhancing digital innovation takes time. Insurers aren’t going to get there in a day. The time is now to evaluate your digital maturity to predict how your digital innovation score may be assessed by Best – and proactively address potential deficiencies.
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