Denise Garth is the senior vice president of strategicmarketing and industry relations for InnovationGroup.

The historical assumptions that serve as the foundation ofinsurance and business models have been shaken these past fewyears. Issues exposed by the recession highlight reasons for a25-year downward trend in underwriting profitability. Factor inchallenges posed by today's market, such as changes in the economy,consumer demographics and expectations, and added distributionchannels, and insurers must walk a new path of innovation toreverse the trends of the past.

Product Innovations

Increasingly insurance products are being designed incollaboration with customers. The resulting innovations areeasy-to-use, personalized products and features across a variety ofplatforms. With a constant cry for personalized solutions, theseproduct innovations must be grounded in robust productconfigurators and customer self-service that allowindividualization and choice among products.

As a result, the following innovations have emergingimplications for personal lines:

• Features that include disappearing deductibles, lossforgiveness, “green/eco-friendly” deductibles, and preventivemeasures designed to avoid an incident
• Discounts based on “liking” an insurer via social media
• New coverage options that support the increased demand forspecialized insurance products for unique assets like collectiblecars and antiques
• Insurance products designed, priced, and underwritten basedupon behaviors, such as how, when, where, and how much a customerdrives
• New products for underserved market segments such as teenagedrivers that will change rates quarterly based on driving behaviorand evaluation against a peer group
• Customized, bundled products and pricing to gain customerloyalty and “wallet share”

Keeping Up

In order to keep up with product innovation demands, insurersmust develop more agile solutions. Quicker customer analysis usingexternal and internal data, for example, allows insurers toproactively recommend new products, thus enhancing the customerexperience and relationship. Policy pricing can move from beingdemographically-based to being risk-based by using data sources togarner new insights into consumer demographics, behaviors, andattitudes.

While innovation is key, speed to market is integral. Customersdon't want to wait. Product development and configuration musthappen within days or hours rather than weeks or months. Tiered andmass-packaged products are losing their luster as insurers movetoward customized products and rating models that are a tier ofone, rather than rate schedules for the masses.

Added DistributionChannels

Once innovation occurs, distribution follows. Statistics showthat auto insurance is increasingly bought online or via directmethods. A survey conducted by AIS Media showed that 59 percent ofrespondents who were interested in an insurance offer receivedthrough postal mail preferred visiting the insurer's website foradditional information. Yet insurers are not being asked to chooseone or the other; they are being told to incorporate every possibledistribution channel into their offerings.

Nielsen estimates the world spends more than 110 billion minuteson social networks and blog sites. In fact, Gen X and Yincreasingly use “gaming” and social media sites to educate,validate, and make buying decisions on nearly everything, includinginsurance. According to Nielsen, three of the world's most popularonline brands are social media-related—Facebook, YouTube, andWikipedia. Will successful insurers also need to be on each ofthem? The possibilities are vast.

Innovations happen off-line, as well. MetLife and GM recentlyrolled out a program that provides GM auto buyers with a policythat covers damage to the car for one year free. Insteadof waiting for an insured to seek insurance, basic coverage nowcomes with the car. This new customer acquisition approach by wayof a new channel is likely less costly than traditional methods andgives the insurer a year to prove value. After that, inertia takesover.

Managing Change

Managing all of these innovations and distribution channelsundoubtedly will require robust policy, product development, andconfiguration capabilities that can support mass and customizedproducts. Real-time and Internet-based quoting and ratingcapabilities are a must. Meanwhile, these solutions should beflexible enough to design and configure new offerings quickly andsavvy enough to support each customer uniquely.

Part of the puzzle is integrating a policy management systemthat provides agents, customers, and service staff real-time accessto the same information a customer sees. Channel management andharmonization is needed to allow access to customer data withoutchannel conflict. Additionally, the system must provide purchasingand product support on a wide array of devices, including PCs,iPads and mobile devices.

Innovation and business must co-exist. The key to success isincorporating rapid, innovative product development and newdistribution channels along with sustainable, robust policymanagement solutions that can serve well into the future. Findingthe right balance will allow the insurance models of the past togive way to a new path forward.

Denise Garth is the senior vice president of strategicmarketing and industry relations for Innovation Group. Shecan be reached for further comment via email at [email protected].