INNOVATION: Ideas are not enough!

7/30/2019 INNOVATION: Ideas are not enough!

1/4

18 /COVER STORY

feature

innovation:

ideas are not enough!All organisations want to be seen as innovative, but is the industry merelyfocusing on innovation for innovations sake? Or is it really focused oncreating value? Don McKenzie believes there is a lot more to innovationthan just ideas. First of all, is it always necessary? And secondly, while theintention may be to improve outcomes and create value, innovation in anenvironment that lacks full understanding, expertise and resources couldlead to poor outcomes for the industry as a whole.

Journal Vol 36 / Issue No.3


2/4


19 /COVER STORY

The claims sector within the insurance industry

is becoming extremely ocused on the need or

innovation. O course, it is easy to understand

why there is a desire or innovation in claims

the obvious need to deliver an excellent claims

service demonstrating a strong grip on claims

costs is a constant pressure and challenge that

all service providers ace every day.

Innovation means diferent things to diferent

people; so to begin with, let us review a standard

denition o innovation:

Innovationis the process and outcome of

creating something new, which is also of value.

How do we do that? We improve products and

services. We look at the technology involved

and create new ideas related to each o these

areas. Innovation is not the same as inventing

something new and it goes urther than

improving in that it is looking or a method

that is not just better, but diferent.

Lets not split hairs on whether new things

that enter the market are innovations rather

than improvements. The question is whether

the industry is ocusing on creating value

or just on innovation or innovations sake?

In what context do we place innovation and

do we link innovation directly back to the

service and spend benets required to create

positive outcomes? Can innovation lead

to bad outcomes?

SuPPOrtING INNOVatION

fOCuSING ON VaLue

While there is a demand or innovation in the

claims sector, innovation is sometimes

accepted within a narrow view or within the

constraints o existing practices. The greater

challenge is to look at innovation that delivers

value outside the existing parameters or the

existing processes driving the industry orward.

Henry Ford was quoted as saying that i he had

asked the American people what they really

wanted, theyd have said aster horses. I Mr Ford

had decided to stay within this narrow view, i.e.

create a aster horse, his thinking may have been

very diferent, and he probably wouldnt have

gone down the path o the Model T. This typieshow limitations in thinking or demand can have

the potential o stopping innovation i innovators

only concentrate on step-changes to current

situations rather than game-changers.

I innovation originates rom restrictive

thinking or rameworks, there is a risk o

creating an environment that does not oster

true innovation. The industry needs to ensure

that it remains open-minded to new innovations

and nds mechanisms to support delivery and

development on an ongoing basis.

INNOVatION IN CLaIMS tODaY

While some may say its too broad a

generalisation, the majority o innovation

currently being championed in the claims

industry at present is IT systems-based. New

systems enter the market regularly with varying

degrees o success. Oten this innovation is sold

with buzzwords such as consistency

and predictability, but surely the core goal

o innovation is to ensure outcomes are

consistently and predictably positive and

not negative?

While the intention may be to improve outcomes

and create value, innovation in an environment

that lacks ull understanding, expertise and

resources could lead to poor outcomes or

the industry as a whole.

It can be argued that an IT solution is not enough

to be considered true innovation unless it creates

value. Creating value cant be done without

having people as the centrepiece: IT systems

dont resolve claims, people do. The IT solution

may support and acilitate the creation o value,

however, it is leveraging peoples experience

and expertise that creates the additional value

in the claims arena.

But what is driving the push or innovative IT

solutions? On the most basic level, IT improves

eciency. However the new innovative systems

are not just improving the eciency o existing

processes, they look at undamentally changing

the way the claims industry operates. Does this

mean the industry is automatically inecient

and currently delivering poor outcomes, and

i so, how is this measured?

KNOW YOur BaSe LINe

Beore looking at the outcomes that the

innovation may deliver, its important to

understand whether the existing outcomes are

good or bad and are even worthy o change.

Oten changes to systems, process and people

come without understanding the current status

quo, or by making assumptions based on

inadequate data. This leads to parts o the

industry driving innovation without the correct

measurement or review process.

Don McKenzie,

Managing Director,Stream Group o Companies.

of l w bzzw c

ccy pcbly, b ly c l

f cm cly

pcbly p ?


3/4


20 /COVER STORY

savings. The low ees or many claim typescreates the commercial reality that very little

time can be spent on the claim and cheaper,

less qualied, resources must be used. This

then leads to negative outcome across all

aspects o the claim.

Insurers are split on how to address this issue,

but many now believe that a small increase

in ees to increase quality, combined with

splitting the claims validation rom the repair or

replacement, will deliver value to their bottom

line in terms o claims costs and retention o

happier customers.

At the most undamental level, claims leadershave to be concerned with:

the indemnity spend what did the

claim cost?

the cost to assess and manage the claim

the internal claims staf and external

provider costs

the service the customer/policyholder

received and their likelihood to recommend/

be retained by the insurer at renewal.

Within our own business, we have changed

the way we approach innovation. We now put

any innovation recommendations through

a rigorous process o ensuring that we rst

understand i our existing outcomes aregood, bad or worthy o change, based on real

measurement. I we cant measure the current

outcomes o the process, we dont try to

innovate until we can understand the base

line correctly.

INNOVatION aS a PrOCeSS

Value derived rom innovation doesnt

automatically occur: its a process. This

process requires a strong understanding o

the external market, an understanding o the

internal organisational capacity, and an ability to

properly and efectively execute positive change.

As a process it could be best typied in

Figure 1. Outside the organisation, there are

constant drivers, trends and issues that an

organisation cannot control; they can only

control the way they react to them. This ability

o a company to react to external actors will

oten be determined by internal actors such as

its resources, capacity, constraints and culture.

For example, an organisation which is trying to

deliver a new innovation, without understanding

current capacity, could lead to it ailing to deliver

the desired outcomes and potentially damaging

other areas o its business as it tries to recover

rom this delivery ailure.

A current example o this is the continued shit

rom independent claims assessment towards

direct supply models in which the claims

decision is undertaken by the same entity

completing the repairs or supplying

replacement products.

The goal is sound: reduce costs by reducing

proessional ees. Insurers have long concentrated

on proessional ee costs because it is easy to

measure but is it the best indicator o outcomes

or indeed, even the right thing to measure?

There is no doubt that in many claim types and

quantum brackets, loss adjusters may have ailed

to deliver value in some instances, but is the

baby being thrown out with the bath water?

I the claims validation decisions are made by

the same entity that repairs or replaces, what

will be the incentive to decline claims that are not

covered within the policy or to ensure an exact

like-or-like replacement? What are the customerservice outcomes o individuals who are not

specically trained in policy determination?

What is the efect on the total claims cost? I

you are only measuring proessional ees, will

an insurer get a satisactory outcome in these

other areas that many would argue are more

important than just the proessional ee?

Our organisations entry into the UK market has

yielded some interesting insights. Firstly, many

insurers in the UK market have been down a

similar path o combining validation and repair/

procurement with the same entity. This started

decades ago. In more recent times, however,

there has been a general market movement

to reverse this process because o a range o

negative outcomes. It is interesting to see

one market moving down a path that another

market is moving away rom at the same time

based on the outcomes o the last decade

or so.

While many insurers in the UK have reversed or

are reversing the process o having a single entity

undertake both aspects, many still ocus on

achieving the lowest possible proessional ee

at the expense o all else. The continued ocus

on ees has led to innovation o a negative kind

where ees are at unrealistic levels; with poorservice and spend rising ar beyond the ee

STRATEGY

ACTION

ISSUES

TRENDS

DRIVERS

OUTSIDE ORGANISATION INSIDE ORGANISATION

CAPACITY

RESOURCES

CONTSTRAINTS

NON-NEGOTIAB

LE

INNOVATION

fIG 1.

o , c ,

c cl; y c

ly cl wy y c m.


4/4


21 /COVER STORY

I organisations can better understand all the

ingredients required, and evaluate whether they

have all those ingredients, they will create the

platorm to deliver better value and signicantly

increase the chance o delivering positive

outcomes. I key ingredients are missing,

to increase the chance o success these

need to be added beore the implementation

process begins.

eVaLuatING INNOVatION

When presented with an innovative idea, beore

taking the leap o aith, there are some key

considerations:

Why are we seeking to innovate

this service or part thereo?

Do we understand the current outcomes

o what the innovation seeks to replace

and do we have the ability to measure all

aspects o the change? Does the orecast value exceed the

potential risks?

Does the organisation selling the innovation

have all the ingredients to deliver on its

commitments?

Do you have the resources and capacity

to ully maximise the innovation or your

organisation?

Where does this sit in the priority list o all

the issues you currently ace?

Implementing broad evaluation criteria into

the assessment process ensures that new

innovations are given the best opportunities

to deliver value. For the service provider, this

improves services and product oferings but

the question which must remain at the

oreront o our thinking is whether we are

looking to innovation to solve an execution

problem or to deliver tangible benets that

could not otherwise be achieved.

In summary, the insurance industry as a

whole must continue to nd ways to innovate

its service, systems and products to create

additional value to all stakeholders. However,

without a solid ramework supporting the

evaluation and delivery o innovation,

innovation may just simply remain as a good

idea, or worse, create negative outcomes due

to poor execution.

Don McKenzie is the Managing Director of the

Stream Group of Companies throughout Australia,

the UK and New Zealand as well as a director

of Cerno Ltd. Don is a also Member of ANZIIFs

Claims Faculty.

INNOVatION taKeS tIMe

aND MaNY INGreDIeNtS

Many people oten think that innovative ideas

start with that Eureka! moment, on the back o a

napkin, when you least expect it. This can

sometimes happen, but, more oten than not,

signicant time and thought must be invested.

The challenge or all organisations is that the

pace o business is ast and most organisations

dont have the time or resources to set aside

time or innovative thinking.

Google are well known or adopting a 20% rule:

they encourage employees to spend twenty

per cent o their time on creative projects not

related to their employed duties so that employees

will develop innovative thinking. Realistically, it

would be dicult or most organisations to set

aside a day a week or all staf to be innovative,

but it does demonstrate the commitment and

investment needed to deliver a suitable rameworkto oster a positive environment encouraging

innovation.

Once an innovative idea is chosen to be delivered,

our experience is that success is dependent

on the other ingredients required within the

organisation to ensure the execution delivers

value. I one or more key ingredients are missing,

the potential risk o creating poor outcomes

exponentially increases.

As an example, i the case, context and vision or

the innovation exists, but the skills to execute the

innovation do not, there is a very real risk that

misguided strategy and supporting actions will

be implemented leading to negative outcomes.

See Figure 2.

Case/Contextfor Innovation

SuccessfulInnovationVision + Skills + Incentives + Resources + Action Plan + Champion +


LacksFocusVision + Skills + Resources + Action Plan + Champion +

Case/Contextfor Innovation FrustrationVision + Skills + Incentives + Action Plan + Champion +


FalseStartsVision + Skills + Incentives + Resources + Champion +


MisguidedActionVision + Incentives + Resources + Action Plan + Champion +

Case/Context

for Innovation ConfusionSkills + Incentives + Resources + Action Plan + Champion +

FearVision + Skills + Incentives + Resources + Action Plan + Champion +

INGREDIENTS TO DELIVER INNOVATION

POTENTIAL

ORGANISATIONAL

OUTCOME

fIG 2.

Documents

INNOVATION: Ideas are not enough!