Innovation for the customer’s good

Regardless of technical innovation, ethical standards must remain relevant to the insurance industry and meaningful to customers

By Sian Fisher, chief executive of the Chartered Insurance Institute

Just as species evolve, so too do markets, products and professions. People often confuse evolution with progress and see a successful species as if it were the result of a designed process with a predefined outcome. It is easy to assume that all evolution is positive, rather than random adaptation to suit the prevailing environment.

But innovation doesn’t need to be random. Just like evolution, it is driven by environmental pressure to differentiate and successful innovations will breed followers. But we can choose the types of innovation we want to encourage, rather than leaving it to random chance.

Insurance began in the 17th century as a very simple concept. A single ship owner couldn’t risk their entire livelihood on the chance of a shipwreck, so they would pool the risk with a wider group. That was truly innovative, transparent and suited all the parties involved.

The pooling of risk is still at the heart of all insurance, but it has iteratively developed to meet customer demand for new types of cover, ways of buying and servicing. Regulation has established safety nets and professional standards have given those working in the profession a framework to work within and the expertise to do it properly.

The future of insurance will doubtless look different from today. There will be new things to insure and new ways of insuring them. But we have the opportunity to set the standards by which success should be measured and help encourage innovation that takes us in that direction.

What do standards look like for something such as insurance? They are not the same as regulations. Standards need to complement regulations; they form the basis for a progressive, customer-focused ethical approach, rather than an enforced set of minimum requirements.

Without clear standards, innovation doesn’t automatically benefit the customer. Even where it ostensibly responds to a customer demand, such as to reduce prices, it needs to be joined up with a holistic understanding of the entire customer offering. Cutting price by removing cover or reducing service standards is as bad as increasing price to include irrelevant cover, even if it appears to answer the customer’s primary demand.

Even though at its heart risk-pooling is very simple, modern insurance can seem complex, confusing and hard for customers to engage with. So it’s harder for customers to see where innovation benefits them.

So we need simple standards that customers can understand and care about, and which establish a level playing field for insurers and insurance brokers. This provides a context and environment for prioritising innovation.

And it means companies with technological skills can collaborate with companies with financial and customer skills with a common understanding of what the solution needs to look like for the customer.

True innovation starts with an insight into what the customer actually wants or needs, then moves to finding a way to achieve that

Industries that we tend to think of as innovative also tend to be the ones with customers who are involved in the innovation process. Being open source requires common, transparent standards. Of course, not all innovation is technological, far from it, and nor should the new way of doing things be chosen ‘because we can’.

True innovation starts with an insight into what the customer actually wants or needs, then moves to finding a way to achieve that. The customer is, of course, always right. But for the customer to know what they want, simple, transparent products, processes and information are needed, and that’s down to the professionals to make happen.

As a professional body, the Chartered Insurance Institute has a responsibility enshrined in a Royal Charter to “secure and justify the confidence of the public” in insurance. One way of doing that is to make sure that anyone employed in the profession, who designs, sells, services or advises on insurance products, has the right expertise to do that competently.

But critically it also means setting and driving an ethical approach for those professionals to sign up to. Our challenge is to make sure those ethical standards remain relevant and meaningful to customers today and in the future, regardless of the technological advances that shape the look of the products and services customers see.

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