Innovation: Ideas are not enough!

By Don McKenzie - Managing Director - Stream Group of Companies | Vol: 36 Issue: 3 | Jul 2013

The claims sector within the insurance industrys becoming extremely focused on the need for “innovation”. Of course, it is easy to understand why there is a desire for 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 face every day.

Innovation means different things to different people; so to begin with, let us review a standard definition of innovation: 

“Innovation” is 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 of these areas. Innovation is not the same as “inventing” something new and it goes further than “improving” in that it is looking for a method that is not just better, but different. 

Let’s not split hairs on whether new things that enter the market are innovations rather than improvements. The question is whether the industry is focusing on creating value or just on innovation for innovation’s sake? 

In what context do we place innovation and do we link innovation directly back to the service and spend benefits required to create positive outcomes? Can innovation lead to bad outcomes? 


While there is a demand for innovation in the claims sector, innovation is sometimes accepted within a narrow view or within the constraints of existing practices. The greater challenge is to look at innovation that delivers value outside the existing parameters or the existing processes driving the industry forward.

Henry Ford was quoted as saying that if he had asked the American people what they really wanted, they’d have said faster horses. If Mr Ford had decided to stay within this narrow view, i.e. create a faster horse, his thinking may have been very different, and he probably wouldn’t have gone down the path of the Model T. This typifies how limitations in thinking or demand can have the potential of stopping innovation if innovators only concentrate on step-changes to current situations rather than game-changers. 

If innovation originates from restrictive thinking or frameworks, there is a risk of creating an environment that does not foster true innovation. The industry needs to ensure that it remains open-minded to new innovations and finds mechanisms to support delivery and development on an ongoing basis.


While some may say it’s too broad a generalisation, the majority of innovation currently being championed in the claims industry at present is IT systems-based. New systems enter the market regularly with varying degrees of success. Often this innovation is sold with buzzwords such as “consistency” and “predictability”, but surely the core goal of 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 full understanding, expertise and resources could lead to poor outcomes for 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 can’t be done without having people as the centrepiece: IT systems don’t resolve claims, people do. The IT solution may support and facilitate the creation of value, however, it is leveraging people’s experience and expertise that creates the additional value in the claims arena.

But what is driving the push for innovative IT solutions? On the most basic level, IT improves efficiency. However the new innovative systems are not just improving the efficiency of existing processes, they look at fundamentally changing the way the claims industry operates. Does this mean the industry is automatically inefficient and currently delivering poor outcomes, and if so, how is this measured?


Before looking at the outcomes that the innovation may deliver, it’s important to understand whether the existing outcomes are good or bad and are even worthy of change. Often 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 of the industry driving innovation without the correct measurement or review process.

A current example of this is the continued shift from 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 professional fees. Insurers have long concentrated on professional fee costs because it is easy to measure – but is it the best indicator of 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 failed to deliver value in some instances, but is the baby being thrown out with the bath water?

If 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-for-like replacement? What are the customer service outcomes of individuals who are not specifically trained in policy determination? What is the effect on the total claims cost? If you are only measuring professional fees, will an insurer get a satisfactory outcome in these other areas that many would argue are more important than just the professional fee?

Our organisation’s entry into the UK market has yielded some interesting insights. Firstly, many insurers in the UK market have been down a similar path of 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 of a range of negative outcomes. It is interesting to see one market moving down a path that another market is moving away from at the same time – based on the outcomes of the last decade or so.

While many insurers in the UK have reversed or are reversing the process of having a single entity undertake both aspects, many still focus on achieving the lowest possible professional fee at the expense of all else. The continued focus on fees has led to innovation of a negative kind where fees are at unrealistic levels; with poor service and spend rising far beyond the fee savings. The low fees for many claim types creates the commercial reality that very little time can be spent on the claim and cheaper, less qualified, resources must be used. This then leads to negative outcome across all aspects of the claim.

Insurers are split on how to address this issue, but many now believe that a small increase in fees to increase quality, combined with splitting the claims validation from the repair or replacement, will deliver value to their bottom line in terms of claims costs and retention of happier customers.

At the most fundamental level, claims leaders have to be concerned with:

  • the indemnity spend – what did the claim cost?
  • the cost to assess and manage the claim – the internal claims staff 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 of ensuring that we first understand if our existing outcomes are good, bad or worthy of change, based on real measurement. If we can’t measure the current outcomes of the process, we don’t try to innovate until we can understand the base line correctly.


Value derived from innovation doesn’t automatically occur: it’s a process. This process requires a strong understanding of the external market, an understanding of the internal organisational capacity, and an ability to properly and effectively execute positive change.

As a process it could be best typified 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 of a company to react to external factors will often be determined by internal factors 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 failing to deliver
the desired outcomes and potentially damaging other areas of its business as it tries to recover from this delivery failure.


Many people often think that innovative ideas start with that Eureka! moment, on the back of a napkin, when you least expect it. This can sometimes happen, but, more often than not, significant time and thought must be invested. The challenge for all organisations is that the pace of business is fast and most organisations don’t have the time or resources to set aside time for innovative thinking.

Google are well known for adopting a “20%” rule: they encourage employees to spend twenty per cent of their time on creative projects not related to their employed duties so that employees will develop innovative thinking. Realistically, it would be difficult for most organisations to set aside a day a week for all staff to be “innovative“, but it does demonstrate the commitment and Investment needed to deliver a suitable framework to foster 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. If one or more key ingredients are missing, the potential risk of creating poor outcomes exponentially increases.

As an example, if the case, context and vision for 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.

If organisations can better understand all the ingredients required, and evaluate whether they have all those ingredients, they will create the platform to deliver better value and significantly increase the chance of delivering positive outcomes. If key ingredients are missing, to increase the chance of success these need to be added before the implementation process begins.


When presented with an innovative idea, before taking the leap of faith, there are some key considerations:

  • Why are we seeking to innovate this service or part thereof?
  • Do we understand the current outcomes of what the innovation seeks to replace and do we have the ability to measure all aspects of the change?
  • Does the forecast 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 fully maximise the innovation for your organisation?
  • Where does this sit in the priority list of all the issues you currently face?

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 offerings but the question which must remain at the forefront of our thinking is whether we are looking to innovation to solve an execution problem or to deliver tangible benefits that could not otherwise be achieved.

In summary, the insurance industry as a whole must continue to find ways to innovate its service, systems and products to create additional value to all stakeholders. However, without a solid framework supporting the evaluation and delivery of 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 also a Member of ANZIIF.

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