Investing in innovation to help insurers expand faster, improve prospects

INSURERS THAT invest in innovation are able to expand faster and improve their operations, boosting their long-term prospects, an official from global insurance ratings agency AM Best Company said.

Greg Carter, managing director of analytics for Asia Pacific at AM Best, said insurance companies that invest heavily in innovation see their businesses expand faster and are able to lower costs and improve their overall operations.

He said these improvements could translate, although not immediately, to better prospects for these insurers and eventually help prop up their credit ratings.

“The insurance industry is, historically, not the most innovative when you look at other sectors, financial services, and other consumer products, insurance tends not to have attracted the major investments,” Mr. Carter said during the second day of the Insurance Summit 2021.

“What’s out there is a huge digital ecosystem of other companies innovating, and providing solutions to all manner of problems that the insurance industry can tap into,” he said.

AM Best measures insurers’ ability to innovate through the efforts and investments they put in — which they refer to as the input score — and the results generated or the output score.

These innovation scores are used to group insurers into five categories. The top players with a score of at least 28 will be considered a “leader” in innovation, followed by those grouped as “prominent” with a score of 23-27, “significant” for insurers with in 18-22 points, “moderate” for scores ranging from 12 to 17, and “minimal” for those with less than 12 points.

AM Best Senior Financial Analyst for Southeast Asia Yuan Tian said its latest innovation assessment showed more than 50% of rated insurers were tagged as “moderate” and only one company was considered a “leader.”

Around 10% were able to reach the second-highest ranking of “prominent,” followed by 20% in the “significant” category, while the remaining 20% were under “minimal.”

The data showed that the output scores of companies were lower than their input scores across categories, proving that investments do not always translate to results, she said.

“A company must be able to demonstrate they have utilized the capital efficiently to create value and to have tangible results to be able to receive higher scores, and higher overall innovation,” Ms. Tian said.

“The companies that have good innovation capabilities are more likely to keep pace with the development of the industry, or to be successful and sustainable in the longer term. The company that fails to innovate may run into the risk of becoming less competitive or less relevant in their market, which could drag out the profile and the performance over time,” she added.

Ms. Tian noted that Asia has a large number of diversified insurance companies, with some more matured than others. However, the highly innovative insurers in Asia are fewer compared to those other regions like Europe.

She said insurers are trying to innovate further as the coronavirus pandemic prompted them to improve their operations and distribution channels, enhance personal and health insurance products and explore digital platforms.

“However, some of those innovation efforts may be limited by resources, human capital, readiness of infrastructure available in those less developed markets,” Ms. Tian noted.

“Overall, we think that majority of the insurers in Asia recognize the importance of innovation, although the level of developments, the pace of adoption of new technology, are quite varied markets by markets and companies by companies,” she added. — B.M. Laforga