9DECEMBER 2020An important benefit of the availability of information and greater connectivity is the potential to eliminate some of the costs from the business process of insurancea phone. Everything they need is in their pocket, and they are looking for solutions on the go. This direct connection will also affect the way insurance is transacted. Insurers must recognize and address the shift in how consumers of the future will choose to transact business for both personal and small commercial insurance.An important benefit of the availability of information and greater connectivity is the potential to eliminate some of the costs from the business process of insurance. Regardless of an insurance company's business model, the business process still requires a significant amount of background data. The ability to gather that data through automated sources and eliminate much of the manual labor in that step should help reduce costs in insurance transactions, including any ensuing claims activity--another important reason for insurance companies to stay focused on technology-based solutions.The insurance industry has always been highly regulated which makes it a challenging landscape to navigate for innovators. The question of the impact of insurance regulation and privacy standards remains large. Such regulation will slow innovation from time to time but will not stave off sensible solutions that meet market needs. Insurance regulators are keenly aware of the critical need for innovation and are working to ensure that regulation is not an impediment to sensible innovation that improves the efficiency of the insurance market. However, this is a hurdle that could benefit the fast follower position.A market leader today that doesn't pay attention to the changes in insurance needs, the types of competitors entering the insurance market, and in the demands of insurance buyers, will quickly become a market laggard tomorrow. The challenges may seem overwhelming, but a good way to start is to not get stuck in the past and to be cognizant of the external changes around you. Build a culture that encourages employees to embrace change and to look for ways to improve your business products, services, and processes. The need for speed places a greater importance on your ability to be decisive, manage projects, and implement change. Patience in this regard is not the greatest virtue, but focus is. Start the process today, but don't expect to address everything at once. A strong culture that embraces new ideas is the most important aspect of innovation.Given our expectation for change in the insurance industry, we at A.M. Best believe that it is imperative that all insurance companies remain observant of the challenges and opportunities that could impact their business and develop a culture that empowers employees to move the business forward. We have begun to monitor a company's activities in--as well as its level of--innovation in our rating process. We believe that innovation will play an increasingly critical role in a company's ability to maintain its competitive market position and, ultimately, its long-term financial strength.A.M. Best expects to capture the growing importance of a company's ability to innovate in its rating methodology in the near future. We recognize that such a criterion is difficult to capture, but adding this component reflects how important a company's ability to innovate and adapt to the changing risk management needs of society, as well as to new technology and new ways to deliver risk management service, is to their long-term financial strength.
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