Over the last few years, insurance has become an important hubfor tech innovation.

While the momentum is widely discussed, the numbers are evenmore telling. CB Insights reported that InsurTech companies have raised $5.67 billiondollars across 464 deals since 2011, compared to only $85 millionin 2010.

The influx of capital puts added pressure on traditionalinsurance companies to either adapt, by adopting technology intotheir business to offer a better customer experience, or join theinvestors by funding InsurTech initiatives.

Regardless of how insurers go about achieving innovation, theymust first learn how to think about it, and leverage itappropriately in order to remain competitive.

Embracing an innovative mindset can be a challenge, and thereare telling signs that many insurers simply do not have thiscapability built into their organization's DNA. Known issues likerisk aversity, lack of transparency, and feeling insulated byregulatory and capital hurdles keep real transformation at bay.

In order for carriers to enter this new era for insuranceunscathed, they must recognize these shortcomings and correctthem.

Related: 5 top insurance tech trends for2017

Risk aversion and innovation are polaropposites

The fundamental rule of insurance has always been to mitigate risk. While insurers should still seekto reduce risk, that mentality cannot remain so black-and-white.Today's insurers must mesh their attitudes with an innovationculture that thrives on taking risks. Leading tech companies, likeGoogle, depend on a "test and learn" approach in order to continuedisrupting themselves. Failing fast to find success at a quickerrate than the competition is their status quo. Insurers must adoptthis mindset, finding ways to dispel a natural risk-aversion andtake risks if they want to retain and build their customerbase.

This can be done through careful strategy, which will help keepeveryone in the organization feeling comfortable during thisprocess. Analytics and big data initiatives don't have be "blackbox" projects. In fact, they only work to their maximum potentialif insurers take control of these initiatives and merge them withexisting business strategy.

There is always risk involved when investing in something thatisn't proven within an organization, but calculated risks donecorrectly have shown to be effective by market leaders likeTravelers and Berkshire Hathaway who are known to leverageanalytics to gain market share in Workers' Compensation and otherlines. The first step of a strategy is to set goals for each newanalytics initiative. Decide which business challenge to addressfirst and build on that success.

Once a goal has been set, insurers should decide which metricswill be measured throughout implementation in order to monitor andadapt the project as necessary. Finally, it cannot beunderestimated how important it is to remain in sync during thistransition, from the C-suite to the front line employees. Adata-first strategy often means everyone is affected and theyshould be aware of the changes in order to adapt appropriately.

Regardless of how insurers go about achievinginnovation, they must first learn howto think about it. (Photo: iStock)

Insurers must be transparent at both ends

Another common behavior of the insurance industry that countersan innovative culture is a historically omissiveapproach to sharing information with customers. On the front end, acustomer typically enters their information and receives a quotewith little to no explanation of what went into the quote. Newgenerations of consumers are savvy and demand a degree ofsimplicity and transparency that they've come to expect from theirnon-insurance related purchases. P2P insurance start-up Lemonadehas become a great example of the type of company created to appealto a younger consumer base with video claims, an altruisticbusiness model and a simple interface.

It isn't just about overhauling the front end either, whichcurrently receives the lionshare of InsurTech funding. The reason transparency ismost important is its relationship to the claims process, which isthe single most common consumer issue in insurance. According to NAIC in 2008, 51 percent of consumer complaints relateto claims and only 4.7 percent relate to premiums. This isn'tsurprising, since making a claim is one of the few times theinsurance experience is visible to consumers. If this isn't fixed,the consumer or small business owner won't ever have a betterexperience with their insurance provider. The majority of consumersdo not understand the limitations and nuances of their coverage,and that lack of knowledge benefits no one, because the insurerwill receive the blame every time for a misunderstanding. In short,an informed consumer is better for both ends of thetransaction.

Related: Technology is changing the insurance industry,driven by outside influencers, competition

Insurance can't rely on complexity as acrutch

The final barrier is linked to why insurance is one of the lastremaining industries to become overtaken by the technologicalrevolution. The stringent regulations and complexity of operatingin the insurance industry have long created a bubble, insulatinginsurance from outside competition.Now with advances in technology,competitors don't need to underwrite risk to enter the insurancemarket, and they are able to bring their more customer-centricbusiness model that has worked well in other areas.As a result,customer expectations of insurance are beginning to mirrorcompanies like Amazon, known for their superior customer serviceand simplicity.

This puts traditional insurance companies at a disadvantagebecause they don't often think holistically about how consumersresearch and make purchases in the way tech-based companiesdo.  Since many insurers view their agents as the primarycustomer, the customer experience for the policyholder doesn'treceive the attention it deserves. In contrast, tech companies seethe world in terms of platforms, operating systems, and devicesthat create an engaging and interactive experience for the enduser. Then they add new vertical offerings to further serve a loyalconsumer base. Insurers must get on board with a fresh ideologyaround the customer experience if they want to improve and avoidbeing blindsided by the competition.

Insurance providers can replicate many of the same approachesthat have made companies like Google and Amazon so successful,leading to improved customer relations, satisfaction and retention.However, the industry must shift its mindset to better supportinnovation. This means encouraging an appetite for controlled risk,increasing transparency and limiting complexity from interactions,as well as making calculated investments in the tools that supportfaster, more meaningful business decisions.

Dax Craig is CEO of Valen Analytics. He can be reached viaemail at [email protected]. Theseopinions are his own.

See also:

8 online tech tools that boost insurance agency andcarrier collaboration

InsurTech's pay-as-you-go promise