Insights from Digital Insurance: Beating the “Law of Inertia” in Insurance Innovation
It’s common knowledge that due to a host of reasons, smaller insurers, municipal risk pools, captives and self-insured groups are hesitant to adopt new technology and thereby adapt their business processes for continuous improvement.
We know that some of these reasons are beyond their control, but we also know that many of these companies exist in a culture exemplified by “it’s always been done this way;” plus, the idea of making a significant change (to cloud computing from mainframe, for example) represents a risk too big to manage.
I recently sat down with Dr. Balaji Krishnamurthy, chairman of Think.Shift, a branding consultancy, director on the Board of CHSI Technologies, and a respected, seasoned corporate executive who TIME magazine recognized as one of 25 Global Business Influencers. I wanted to find out how corporate culture impacts what he calls the “Law of Inertia” within the insurance industry.
PS: What is the Law of Inertia and how is it hurting smaller insurers?
BK: The Law of Inertia states that people tend to endure the pain of the present rather than risk enacting change. I illustrate this with how often in my business travels I have laid awake in my hotel room bed in the middle of the night because the room is too warm. Of course, the thought of getting up from my bed, turning the lights on, finding the thermostat in the room, reaching for my glasses to read the thermostat and making the necessary adjustment does cross my sleepy mind. But that long series of steps and the immediate discomfort it entails quickly dissuades me from getting out of bed in preference for the uncomfortable temperature in which I can continue to try and sleep. I prefer to endure the known pain of the present rather than the unknown pain of making the change, even if doing so might unfold a future of greater comfort.
In many situations, the Law of Inertia is one of the reasons that smaller insurers, municipal risk pools, captives and self-insured groups are hesitant to adopt new technology. Having lived with the pain of the present (spreadsheets, databases and dated technologies) they fear the certain pain of the change (moving to new technology with considerable unknown) even when they know that doing so might put them in a better position for the future.
PS: We know that the insurance industry, by the nature of its business, is generally risk-averse, and therefore, hesitant to adopt new technologies. That seems to be changing somewhat, especially among larger carriers, but what role does culture play in determining a small-to-medium sized insurer’s path toward modern technologies?
BK: People think of culture as how the office runs and how people interact, but it really represents how the leadership thinks. The distinction is that the style of thought of leaders of any company drive behavior in thoughts and actions within the company, and that’s what creates the culture. The leaders’ style of thinking is one of the bigger factors influencing the company’s direction.
For example, think about Elon Musk: based on the temperament and management style of this company leader, the company has its own unique style and resulting culture. Now consider a smaller insurer, with 30-200 employees. Leadership in a company that size drives culture as well. Here is where that leadership can evoke one of two very different thinking styles: “gee we better get in there and innovate” or “gee, let’s protect what we have.”
PS: What are some of the tools insurers can use when addressing cultural challenges related to leadership that impacts best practices around technology? (This is especially appropriate in a fixed-budget, highly regulated environment such as a municipal risk pool, etc.).
BK: At Think Shift we use a tool called a “change table,” which measures the leader’s comfort level with change. The change table offers a spectrum of comfort level with change, and knowing where you and your organization are in that spectrum makes you intentional in embracing the right amount of change. If you are honest with yourself, you will admit the range of comfort you have within that spectrum. You will tend to hire people who are consistent with that spectrum; if you hire folks not in the same spectrum they’ll opt out.
Here is where intentionality comes in. Insurance leaders need to understand the spectrum, where they are, where they want to be, and ask themselves whether they are taking intentional steps to moving where they want to be. For many reasons, a lot of municipals and SIGs don’t ask the question. They are not intentional about it. Yet the exercise of becoming an intentional leader enables them to examine how they behave, how they live their lives, how they run their companies. Embrace it or change it. Intentionality creates direction that is self-imposed.
PS: What are some of the roadblocks to intentionality?
BK: Here is an analogy: We can compare the smaller insurer to an art gallery owner. Consider opening a gallery: you find a place, sign a lease, go to an auction, buy artwork, hang them up on the walls and open the doors. Customers come in, they like some of it and they buy it, leaving behind holes in the walls. Some art sells, some does not. The only art that doesn’t move off the walls is the art no one wants. Pretty soon 50% or more of the walls are covered with junk. But you have a sense of ownership and history of picking and putting that art on the walls, so you keep it on the walls. Companies that are long lasting probably have some great art but have also accumulated the art no one wants — you must be intentional about evaluating your art inventory, and take the art that is not selling, back to the auction.
So now consider the art gallery owner who ran his company for 30 years, has affection for the artwork he has acquired and has developed a style around the management of his gallery. When the gallery is sold, the new owner has no affinity to that artwork, and turns it over. This is not much different than the smaller insurer that has devoted his career to running his company including choosing technology, and has developed a leadership style around his company’s performance. Now a new leader may come in, and the turnover takes place – and importantly, the turnover is of both technology and ideas.
PS: Describe the risk that smaller insurers, municipal risk pools, captives and SIGs face in falling too far behind. What tools are available for them to “turn the ship around” and expedite new tech strategies that will help them remain competitive?
BK: Every small insurer should conduct the following thought experiment: the leader of the company imagines that he/she is leaving the company to a new owner who paid good money for it. If the new owner arrived tomorrow, how would they run this company? How will they maximize the return on the investment they just made? The current leader then lists all the things the new owner would do that are currently not being done. This costs nothing, and it’s critical that the leader be intellectually honest in this exercise.
Next, the current leader finds a trusted colleague with practical knowledge, takes a couple of weeks away on vacation and leaves this colleague in charge as acting CEO. That person, also charged with being intellectually honest, simply asks a lot of questions. When the current leader returns, the two leaders compare findings. Any small company can do this, and it will reveal the challenges, opportunities and a path forward.
PS: What takeaway would you offer a leader of municipal risk pools, captives and self-insured groups?
BK: If you think of your market as the rapids, and the water is gushing downstream with gusto, treading water, which is a lot of hard work, seems like standing still. It really is moving backwards. If, instead, you let your mind accept the rapids and the change it is imposing on you, it is actually much easier to swim downstream. That said, I would advise smaller insurers to watch out for the boulders so prevalent in the rapids. You can get further ahead with much less work, by taking the calculated risk of avoiding the boulders.
This blog originally appeared on Digital Insurance Magazine’s Website. Reposted with permission: https://www.dig-in.com/opinion/beating-the-law-of-inertia-in-insurance-innovation