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When you think about innovators in the insurance industry, do small, regional mutual insurers immediately come to mind? Perhaps not. Here in Gen Re’s Mutual Practice, though, we have seen just such companies show remarkable skills in innovation - despite smaller budgets and fewer resources.
Innovative thinking has become so important that AM Best has determined it should be part of their rating process. Recently, the credit rating agency released a draft of its new “Scoring and Assessing Innovation” criteria. The draft defines innovation as a multiphase process whereby an organization transforms ideas into new or significantly improved products, processes, services or business models that have a measurable positive impact over time and enable the organization to remain relevant and successful. These products, processes, services or business models can be created organically or adopted from external sources.1
AM Best now believes that the pace of innovation in the insurance industry is accelerating and that an insurer’s ability to innovate is increasingly critical to its long-term financial strength. Although AM Best says a company’s innovation score will not affect its rating, companies must be prepared to respond - and to consider how their current level of innovation (or lack thereof) compares to their peers and affects their plans for the future.
Recently, we’ve seen several excellent examples of innovation implemented by some of our mutual practice clients. In response to determining water damage as its biggest cause of loss, one mutual insurer invested in a “smart” automatic water shutoff system for a sample of its insureds. The system is connected by a professional to the homeowner’s main water line and controlled by a smartphone app. The system learns the homeowner’s typical water usage, and when it detects unusually high usage, it automatically shuts off water to the home. Preliminary results are optimistic, with documentation showing many water shutoff “events” without water damage claims.
Another mutual company is taking an innovative approach to inspecting its insureds’ roofs. Rather than relying on costly on-site home inspections or outdated Google Earth images, it has contracted with a company to take high-quality images from pilot flyovers in grid patterns. A hazard grade is assigned to each roof, based on the detailed images. So far, the company has found the results to be very accurate and cost-effective in determining whether an on-site inspection is required on the insured risk.
These are both great examples of companies using external resources in an innovative way. Considering costs and resource allocations, adopting innovation from external resources may be the most efficient way for mutual companies to successfully transform one or more aspects of their business. Soon AM Best-rated companies may have their innovation score published for all to see. We will be monitoring the proposal.* Now is a good time to start considering how to develop or find innovations that will keep your company relevant and financially strong.
* Update: AM Best released updated innovation criteria on September 13, 2019. Draft documents are available in the Methodology section of AM Best's website.
