Insurance companies are placing high importance on data quality to improve efficiency and profitability, as company leaders are better understanding the critical need for system and IT infrastructure upgrades.

A new AM Best report cites these developments as key examples of innovation efforts moving the insurance industry forward.

But Best's special report, "Insurers Continue to Innovate, to Varying Degrees", notes that while there have been improvements in recent years, most companies continue to do so at a low level.

The report says: “Ultimately, innovation must lead to measurable results that make the investment of resources worthwhile.

“Companies that had invested significantly in innovation infrastructure before the pandemic were a leg up in resources and improved capabilities.

“Innovation initiatives have accelerated, but whether they will result in sustainable results over the long term remains to be seen.“

AM Best sees a competitive advantage for insurers investing in innovation.

They see innovation as more than the standard digital transformation efforts sweeping the corporate world. They see innovation as a multi-stage process where ideas lead to new business models, processes or products that lead to measurable and ongoing advances that better positions a company relative to their peers.

AM Best created a formula for measuring a company’s “innovation score” in March 2020, just before the emergence of the pandemic.

The report said: “In response to the evolving risk environment, insurers accelerated their shift to digital technology and intensified their focus on product innovation and policy language modifications.”

The report observed: “The focus on, and importance of, innovation starts at the top, and we have observed more actions guided by clearer vision, such as more companies creating chief innovation officer positions, more frequent discussions at board meetings, and a greater emphasis on innovation throughout an organisation.

“For many companies, developing an innovative culture has been an ongoing challenge, but a persistent leadership focus and employees transitioning through this environment first-hand have bolstered the innovative cultural shift.

“Insurance industry culture is normally conservative by design, providing a means to support risk management and mitigation, but the pandemic upended the industry's methodically slower pace, as insurers needed to act swiftly and decisively to adapt to the rapidly changing environment.

“There has (been) more active promotion of innovation throughout organisations, though some companies are better able to back that up with quantifiable evidence. Additionally, some companies are placing greater emphasis on technological and innovative skills for new hires, helping to embed innovative culture.”

Some companies have engaged external consultants, others put more emphasis on training and IT upgrades.

The report concluded that innovation initiatives have accelerated but it still remains to be seen if they will lead to sustainable results for companies.

Less than 1 per cent of organisations were at the highest level of four on the new AM Best scale, while just 5 per cent earned a three. Most companies scored at the lowest levels.

The pandemic added numerous obstacles to overcome, but it also created tremendous opportunities, the report said. The more innovative insurers are in a position to leverage their new and existing capabilities and capitalise on offering solutions to organisations that haven't yet significantly advanced their innovation capabilities.