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“Innovation” is a word used so often that it leaves many people jaded. While innovation is undeniably important in moving economies and businesses forward, there is a right way and a wrong way to approach it, whether that’s in insurance or another industry.

Several elements are required to achieve true innovation. Let’s call them the three C’s: capital, creativity and consumption.

The commitment of financial and intellectual resources is critical to developing new ideas for products and services that make a difference in users’ lives. By themselves, however, money and ideas aren’t enough. That’s where consumption comes in; for innovation to flourish, people have to embrace the new thing. Can we truly consider a product innovative if nobody uses it?

Businesses in virtually every industry spend significant sums to create and tout product innovations, to demonstrate relevance and to promote growth. Innovation does require investment, but perhaps not nearly as much as some might think.

The late Steve Jobs, widely considered one of the greatest innovators in modern times, said in a Fortune magazine interview in 1998: “Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led and how much you get it.” Jobs famously focused on creating a better experience for users of Apple products; that was the “it” he was referring to. He disdained and sharply criticized – occasionally profanely -- businesses that gave short shrift to the user experience.

How much does the commercial insurance industry “get it,” where policyholders are concerned?

Insurance brokers, underwriters, consultants and risk technology providers annually develop new products and solutions. In many instances – certainly not all -- product innovation is motivated more by competitive pressures than by client demand. That is the wrong way to approach innovation.

The right way puts the needs of the client first, taking cues on where and what to innovate by listening to clients’ concerns and ambitions. Listen, observe closely, and anticipate more. A client-centered approach increases the likelihood that an innovation not only will solve one or more real problems but also that customers will use it and find the experience favorable, resulting in a return on the innovator’s investments.

Conversations I've had over the years confirm that carriers and brokers each do a lot to bring innovations to market, but unfortunately insurance buyers don't always appreciate or take advantage of them – a strong indicator that the innovation didn’t start with the consumer. In some cases, brokers don't do enough to champion innovative products that carriers spend time and money to create. Innovation requires investment, but it also needs to make returns.

How does a new insurance product get sold? Buyers can’t purchase it until they know about it and realize how it can help them. Underwriters need to promote the product, and brokers need to discuss it with their clients.

The consumer has an important role to play, too. Insurance buyers not only should expect their risk advisers and underwriters to innovate products and processes but also should urge them to do so. Buyers should make their needs known and share their “wish lists” when it comes to risk mitigation and risk transfer and the overall experience of purchasing coverage. Asking “Why not?” is a good way to advance the innovation process.

Ask any innovator where good ideas come from, and the answer is likely to be “everywhere.” That’s equally true in the insurance industry, but the best ideas tend to come from conversations with consumers.

Innovation must start with understanding the need or problem. That understanding comes from ordinary interactions with customers and business partners. Then the innovator must understand how existing tools and approaches might fix that problem, or why current capabilities are inadequate. Innovation can then fill the gap between the need and the lack of available solutions.

Risk mitigation and risk transfer need to innovate, for a simple reason: risk itself innovates. Survey after survey of top risks shows new and emerging risks, usually perceived with increasing impact.

For example, the World Economic Forum’s Global Risks Report 2013 explores complex external risks that go beyond organizations’ ability to manage or mitigate. These include major systemic financial failure, water supply crises and failure of climate change adaptation. By the way, these risks are not mutually exclusive; one of the realities of global risk today is how interconnected many perils are. Climate change can disrupt water supplies and wreak havoc on economies.

Opportunities for insurance industry innovation are many, but they should all begin and end with one goal: help the customer.____________________________________________________Regis Coccia is an insurance journalist and content strategist. His columns on insurance and risk topics appear periodically on Fast Fast Forward.

The views expressed in this column are the opinions of the author and do not necessarily reflect the opinions of XL Group.

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