Insurance Carrier Innovation and Transformation in the Time of Severe Headwinds

In Novarica’s second virtual Innovation Special Interest Group Mass Mutual’s Ja’Nene Kane, and Erie Insurance’s Keith Kennedy joined Novarica VP Nancy Casbarro to discuss innovation success stories and best practices.

(Image credit: Kerstin Riemer.) 

The pandemic has caused an array of challenges for insurance companies. But it has also highlighted a range of opportunities for carriers to improve the efficiency of their distribution models and business operations. In turn, the impact true innovation can have on organizations is being magnified as we cross into the back half of the year. “Never let a good crisis go to waste,” a phrase sometimes attributed to Winston Churchill, seems remarkably applicable to the current business climate.

Ja’Nene Kane, MassMutual.

In Novarica’s second virtual Innovation Special Interest Group of the year on July 30, we were joined by Ja’Nene Kane, the corporate workstream lead for strategic planning and delivery at MassMutual, and Keith Kennedy, SVP of innovation at Erie Insurance. The panel joined Novarica VP Nancy Casbarro to discuss innovation success stories and best practices.

Innovation and the use of emerging technologies have recently faced a notable level of “headwind”, especially in the conservative culture that has evolved within many insurers. But there have been recent efforts to move the needle on accepting notable, transformational changes as part of a roadmap into the future. The discussion centered on three pillars: defining process, vision, and team; navigating company culture; and delivering success and stability.

Defining Process, Vision, and Team

The hardest part of innovation is getting started. After that, the main issue many insurers run into is defining what innovation is and what it will look like at their company. One panelist described their company’s vision for innovation and the internal support structures put in place. One point made was that thinking of innovation as being synonymous with emerging technology is limiting.

Focusing on solving business problems is critical to outlining an enterprise-wide vision. A clear process and well-defined roles are required to support an innovation vision. This also highlights the importance of understanding what business problems need to be solved and how to create a logical pathway for both productionizing and scaling solutions as they pass beyond a lab environment or proof of concept stage.

Our panelists described their unique processes and organizational makeups to support innovation. One outlined their organization’s approach to innovation and how they loop in subject matter experts from different corners of the company to oversee smaller groups working to disrupt the business model. These smaller groups can even be separate entities with their own offices.

Nancy Casbarro, VP, Novarica.

Looking at an internal “startup” over the fence had encouraged the larger company of one panelist to think, “Hey, why can’t IT and business work together over here too?” But insurers should be careful not to put innovation before learned experiences. By encouraging lessoned learned to be shared, a culture of transparency and fearlessness will be nurtured.

Navigating Company Culture

Innovation is unique. There is no perfect way to succeed. However, organizational culture can be a large obstacle for innovation. Culture exists in part to protect from both internal and external threats that are deemed to be outside norm. In order for a company to truly embrace innovation, cultural elements need to be addressed from the very top of an organization. There are a variety of risks inherent in innovational activities; failing to recognize this up front will consign organizations, at best, to a form of “innovation theater.”

Every point made during our discussion could in some way be drawn back to the importance of creating a positive company culture to support innovation. The only way to encourage employees to take risks and be comfortable in a “test and learn” model is to make it clear that failing at something isn’t tantamount to career suicide.

One panelist mentioned that they don’t like to “fail fast,” they like to “learn fast.” This is an interesting point for two reasons. First, they acknowledge that the word fail does not mix well with their company culture. Secondly, innovation is about learning. Words really do matter; taking cues from local context can help avoid setting up pointless battles on small items.

Innovation can be described as a revolution of continuous learning. These initiatives are not traditional in the sense that they should be refined over time. While there may be a clear starting point, achieving “done” may be more daunting, since each milestone produces a new set of learnings that can be a jumping off point for the next set of opportunities.

Delivering Success and Stability

Our panelists described innovation as an investment portfolio. Some of those investments were short-term plays with quick payback periods. Others were long-term initiatives that were meant to truly reshape a direction for a company (e.g., Amazon discovering that the services it built to support its own business were actually the foundation for AWS). The difficult task of getting business leaders to understand that idea, as well as buy into it, has ended many innovative initiatives.

Keith Kennedy, SVP, Innovation at Erie Insurance.

Insurers may need to put controls in place to protect innovation from the natural corporate “immune system” which, by design, strives to eradicate threats to the status quo. Changing the culture is a laudable goal, but it requires the explicit direction and support of the most senior executives in a company. Firms such as Salesforce that have embodied “innovation” as a cultural foundation do so at the explicit direction of their CEO/president.

Traditional measures of success may fail to properly reflect on the impact that innovation activities can create. At some level, these activities may represent an R&D effort, which can only be properly evaluated by looking at composite portfolio impact, rather than at the individual component parts.  Some insurers will secure a portion of their annual budget specifically for innovation in a pool outside of normal business-as-usual funding. This provides a stable and secure source of funding, which is one of the elements AM Best has begun to factor into its rating of insurers. Because the risk/reward calculus may be different than traditional, ongoing operations, carriers may need to revisit traditional approaches to compensation, particularly if they are to compete some of the best talent.

One of the unusual, potentially positive, results of the COVID-19 pandemic is that it has highlighted some of the challenges carriers have with manual and partially digitized processes, challenging them to operate effectively in an environment that has suddenly and dramatically shifted to be both highly digitized. The existential threats this has created for some organizations have shaken insurers’ comfort with doing things “the way we’ve always done them,” which may include an over-reliance on metrics such as ROI to create hurdle rates for new investments. Suddenly, delivery speed counts more than almost anything else, which has helped some organizations throttle up what some might describe as tactical innovation efforts.

While there is no doubt that the COVID-19 pandemic has challenged insurers, like all other industries, our insurer IT leader panelists showed that past innovation efforts have paid off and current innovation efforts are continuing. If there is any silver lining to the year 2020, it may be that insurers are finding out just how flexible they can be.

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Rob McIsaac // Rob McIsaac is a Senior Vice President of Research and Consulting at Novarica with expertise in IT leadership and transformation as well as technology and business strategy for life, annuities, wealth management, and banking. He has broad experience in IT strategy and management in the insurance and financial services industries. Prior to joining Novarica, he served in a series of senior technology management positions including leading the Business Transformation Office at Nationwide Insurance and as the CIO for First Citizens Bank, a rapidly growing regional firm based in Raleigh, NC. Rob spent the majority of his career at Guardian Life, where he was the Divisional CIO responsible for annuity, distribution and broker dealer operations and at Prudential Insurance, where he held a variety of positions including leading e-Business development efforts. Rob holds a BA in Economics from Montclair State University, an MBA in Information Systems from Seton Hall University and has received a number of business and technical designations including FLMI and LLIF. He can be reached directly at [email protected].

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