Adjacent Product Innovation: It’s Not Always About Disruption

By minimizing the number of completely new areas for a program, insurers can focus on creating value in one area by leveraging existing assets.

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The digital revolution has arrived, and it’s changing industries one by one. What started with social media and online content has quickly expanded to e-commerce, and now consumers are demanding digital experiences in every interaction in their lives, including those that they have with their insurance companies. This has led insurers to obsess about “disruption” when less radical forms of effective innovation are well within their reach.

That insurers need to innovate is not in question. Their customers are doing an increasing amount of business online. According to Accenture’s Global Consumer Pulse Research, in the past six months 49 percent of P&C consumers purchased a policy online and 41 percent used a mobile device to make the purchase. Insurers can prosper by meeting their customers in the digital world. Or they can continue along the same path and watch their customers migrate to companies that offer more innovative products and services that better suite their needs.

Changes in demographics, technology, channels and business models are creating significant new opportunities for insurers to defend market share and increase revenue and margins. The need to innovate—and do so quickly—has been identified as being critically important by 88 percent of insurance companies. However, innovation can happen in a variety of different ways, and in an age when we’re bombarded with messages about digital transformation, innovation and disruption, it’s hard to know what might actually work.

Myth-Busting: “Uberization” & Insurance

How many times have you heard the phrase “Uber in your industry”? It’s an increasingly popular phrase when talking about innovation and digital. While it might be inspiring, the phrase causes businesses to overly focus on disruptive innovations, meaning new products or services that completely upend existing markets or create entirely new ones. Think Uber, Netflix or Airbnb.

But, as we noted above, it is not always necessary to come up with a grandiose silver bullet idea in order to innovate. In fact, these kinds of projects are high risk and have a low chance of success. This means projects are often dreamed about and debated internally, but may never actually get off the ground.

Adjacent Product Innovation

Source: Harvard Business Review. Click to enlarge.

Source: Harvard Business Review. Click to enlarge.

Organizations can also deliver business value quickly by focusing on adjacent product innovation. Simply put, adjacent innovation includes taking existing products into new markets and digital channels, or creating new digital products for existing markets.

New technologies, such as wearables, make existing products more tailored and user-based; new channels can help insurers sell products in new ways that better resonate with customer preferences and behavior; and new customer segments can help reshape an existing product to create a new offering.

Adjacent innovations keep one area stable, such as product or service, while focusing on creating a new and innovative go-to-market angle. By minimizing the number of completely new areas for a program, insurers can focus on creating value in one area by leveraging existing assets.

Adjacent innovations also tend to scale faster because you are not creating everything from scratch, meaning it is a low-risk, high-value innovation. Who doesn’t want that? This allows you to rapidly create a minimum viable product (MVP) that shows quick impact and value that executives will want to champion. This type of innovation will ultimately change the culture of your organization for future innovation projects. The sooner you can show value and generate internal publicity and executive buy-in, the quicker you can scale.

Delivering Business Value

Now, adjacent innovation is more than a theory: There are many insurers who are already practicing adjacent insurance innovation to deliver business value. For example, one specialty insurer wished to implement a new model allowing them to eliminate intermediaries and instead sell directly to the customer. By cutting out the middleman (agent/broker) and selling directly to the customer, this insurer can offer products at a lower, more competitive price because the cost of sales decreases. In turn, the insurer can immediately increase revenue.

This is a high-transactional model, so the organization created a multi-channel solution that is self-service and fast. They built an application for liability insurance which allows end customers to get quotes and buy and manage their policy without needing to do any interaction offline. This flexible, automated solution supports the new business model of selling directly to customers, with the advantage of being able to come in with lower prices.

Another example: An innovative insurance company wished to create a new version of its life insurance product to make it more simple, accessible and transactional, enabling the customer to easily get a quote online and buy the product. With the launch of new propositions into the market, the group maintained its competitive advantage while also increasing premium volumes through more targeted products. A small team delivered the products in a matter of weeks versus the estimated four months. Its iterative releases also led to more frequent market feedback earlier in the go-live schedule, allowing the team to hone its product portfolio with additional releases.

Key Takeaways

While reading about some of the great results might make you want to jump into a new project, it’s important to have a balanced insurance innovation portfolio. Alongside experimenting with transformational ideas, think about processes to support rapid time-to-market for adjacent product innovations. Your process for digital innovation should be all about speed, agility and low cost. Fostering a culture that supports a test-and-learn, fail-fast approach will get new ideas into the market quickly and at low cost in order to see what works.


Hans de Visser // Hans de Visser is vice president of Solutions at Mendix, where he is responsible for platform positioning and defining the company’s vertical solution strategy. Prior to joining Mendix, de Visser held senior management positions at BPM company Cordys and ERP vendor Baan. He holds a master’s degree in business administration from Erasmus University in The Netherlands.

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