Why Innovate? Insurers Must Reward Mid-Level Staff for Embracing Innovation

Many organizational transformation and innovation initiatives continue to stall in the face of resistance from mid-level staff who are not incented to support change—and thus prefer not to.

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The insurance industry is in the midst of massive disruption driven by technological change. According to a recent PwC survey, 86 percent of insurer CEOs believe that technology will significantly change their business over the next 3-5 years. In the C-suite, many executives talk about embracing analytics or digital channels to innovate their businesses, and internal strategy groups and external consultants are busily mapping grand strategies. Despite that, many organizational transformation and innovation initiatives continue to stall in the face of resistance from mid-level staff who are not incented to support change—and thus prefer not to.

Is this, as our British friends might say, “sheer bloody mindedness”? Of course not. It’s a rational response to a simple question: “Will I be safer if I embrace change or if I resist it?”

For those in the C-suite, the answer is usually that they’ll be safer if they embrace change. Boards and markets demand results, and even if C-level executives try and fail, they are likely to fail upwards or at least laterally into other leadership positions at other companies that are looking for leaders who aren’t afraid to shake things up.

Counter-Incentives to Change

For mid-level managers, the story is quite different; more often than not, sweeping organizational transformation does not provide any real short-term monetary benefits and increases career uncertainty. Plausible deniability, which allows C-level managers to distance themselves from middle management if things don’t go well, only adds to career risk.

In addition, few mid-level managers have significant performance incentives that are tied to company performance, and so continued employment and gradual promotion are their primary goals. Many of them have also learned that when change initiatives fail, senior leaders may be pushed out, but mid-level staff rarely lose their jobs.

Embracing change, means that mid-level staff may be pushed into unfamiliar roles they do not feel well-adapted to, thus putting their continued employment at risk. In embracing change, their risk and uncertainty go up, but their rewards do not. In this situation, resisting change is a completely rational response.

Rewarding the Embrace of Innovation

For insurers to successfully drive innovation, the first thing that needs to change is this organizational structure that values stability above risk-taking. Members of the C-suite need to create the reward mechanism for mid-level managers to promote change.  This can be a promise of promotion, a completion bonus for a set of specific objectives, long term stock options, participation in committees that determine key elements of the transformation, and a clear statement from senior management that innovation is rewarded, even if specific aspects don’t work out.  Insurer staff need to believe that “fail fast” does not meet “fail professionally.”

A few years ago, I saw a presentation by a senior executive from a direct personal lines company that is widely praised as an innovator. In his presentation, he said that new associates joining the company are told “Your job as it exists today will not exist in three years. We want you to help define your role as the company continues to evolve.” Not only does this empower staff to help create the future, it also informs them that stasis is actually higher risk than dynamism.

Is this true in your organization?

Matthew Josefowicz // Matthew Josefowicz is the President and CEO of Novarica. He is an expert on insurance and financial services technology, with two decades of experience advising CIOs on IT strategy and solutions. He has written more than 100 reports on insurance technology issues and is the lead moderator of the Novarica Insurance Technology Research Council. Prior to launching Novarica in 2007, he founded and led the global insurance group at analyst firm Celent and worked at D. E. Shaw & Co., LP. He holds a BA magna cum laude in Classics from Brown University. He can be reached directly at mj@novarica.com.

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