Underway for some time now, the disruption of the insurance industry has moved into a new phase, following the announcement by A.M. Best that it may soon begin scoring insurers’ innovation efforts. Journalist Russ Banham spoke with ratings agencies, thought leaders and an industry exec to discuss the varied responses to A.M. Best’s announcement that it may begin scoring carriers’ individual innovation efforts as a component of ratings.
In mid-March, the venerable insurer ratings agency sent out a draft report on its plan to incorporate a score on an insurance company’s innovativeness within its overall rating of a carrier. The report—”Scoring and Assessing Innovation”—affirms the disruptive risk that digital and data technology presents for insurers that fail to invest in innovation or invest unwisely.
Certainly, the importance of innovation is not news to industry participants. Over the past several years, hundreds of startup InsurTech companies have sprung up like mushrooms after a long-needed rainstorm. Many of the startups (and certainly their deep-pocket investors) saw an opportunity to enhance the business of insurance, leveraging technology to increase back-office efficiency, enrich the customer experience, and improve underwriting, pricing and claims administration.
The breathtaking pace and breadth of the startups’ technological ingenuity suggested an industry ripe for disruption. In response, many large insurers have increased their capital budgets to invest in similar enhancements, evident in their digital and data transformations. Pressed to do the same, many midsize and smaller insurers are following suit, moving their on-premise IT systems to the cloud and investing in data and analytics initiatives.
A.M. Best’s plan to assess and score each carrier’s innovation investments and their outcomes will likely further these efforts, given the vital importance of an insurer’s financial strength to customers’ trust in their claims-paying ability. Life, health and property/casualty insurers have until May 13 to express their comments about the draft report to A.M. Best.
The process by which the ratings agency will assess and score innovation is laid out in the draft report, which may alter as carrier comments are received and incorporated. A.M. Best expects that all rated companies eventually will be scored and assigned a published innovation assessment.
“None of this is final yet and it’s possible things could change,” said Stephen Irwin, the Oldwick, N.J.-based rating agency’s senior director, Credit Rating Criteria, Research & Analytics. “We’ve been talking about innovation with companies for some time, but we are now moving toward more of a way of formalizing these discussions.”