Innovation: Engine for Economic Growth

Innovations in the Insurance Sector
with a reflection on the case of Bulgaria
Radostin Vazov
Innovation Research Group
VUZF University
“Innovation: Engine for Economic Growth”
International Scientific Forum
VUZF University
1 October, 2013
The worst innovation for the last 10 years
It may be hard to remember how innovative ideas like credit default
swaps (CDS) and similar derivatives were expected to increase profits
and lead to a new world of low-risk investments and continued
economic growth.
That didn’t work out as expected, and innovation sometimes doesn’t.
The question then becomes whether it is worth the risk?
Most corporate executives recognize the value of innovation, but few
would be brave enough to boast of clearly understanding the process
of implementing innovation in a business model, and even fewer of
successfully integrating continuous cycles of innovation in their own
Relative frequency of mentions of the word innovation in books cataloged by Google books
“Trade-offs define the limit of what is possible at a point in time, not
what is possible for all time … all innovation is about breaking tradeoffs.”
Michael Raynor, ” The Innovator’s Manifesto”
Вreaking trade-offs through innovation allows a company to reach a
point in “strategic space” that competitors cannot, allowing a company
to provide a product at a price or performance level competitors
cannot match, Raynor argues.
Professor Kim B. Clark argues that there are three types of innovations:
• Empowering
• Sustaining
• Efficiency
Counter argument:
• In the words of the old cliché, innovation and insurance are found
together only in the dictionary.
• the conservative reputation the industry enjoys has served to
camouflage a tremendous track record of innovation
Top 10 Most Innovative P/C Insurance Products and
its impact on Bulgaria
• Pay-As-You-Park:
Private passenger auto policy from Progresso. Rates are based on how
long the vehicle is not driven.
• GreenMaker:
R.W. Barkley is selling a product liability policy for home or garagebased businesses that manufacture cosmetics, clothing, jewelry, toys,
computers, beer, firearms, scuba gear, musical instruments, motor
vehicles, mobile homes or other products using primarily recycled,
upcycled, natural or organic materials.
• Commercial Specific Liability (CSL):
A low-cost option to the Commercial General Liability (CGL), the CSL
lets business owners specify the exposures they want covered.
• Vanishing Coverage:
A multi-year package policy from Hubb Insurance available only to
owners of high-end coastal properties and antique autos. The premium
is lowered by the same amount the deductible is raised each year until
the deductible reaches the policy limit or the premium hits zero,
whichever happens first.
• Home Business Interruption Protection (HBIP):
Covers loss of Internet connection, telephone service, HVAC and
refrigerator. Key family interruption provision covers time lost due to
family emergency, including injury, sickness, potty training accident, or
the “Daddy, I’m bored” syndrome.
• No-Show Coverage:
There is coverage for shoddy work, but what about when the plumber,
electrician, roofer or other contractor doesn’t even show?
• Global Scoring:
Chartus has developed a policy that guarantees to convert its auto and
home policyholders’ credit scores to whichever foreign currency
presents their financial history in the most favorable terms.
• Relationship Breakdown Coverage:
Hartford Stream coverage is triggered after two lovers break up and
remain separated for more than three months.
Dole Mutual has come out with a Personal Equipment Breakdown
Coverage that covers damage to reputation and ego due to erectile
dysfunction; includes Viagra or Cialis prescription co-pay.)
• Homeworkers’ Compensation:
The Harmfort has developed injured worker coverage specific to
hazards of the home-based workplace. Includes injuries related to
solitary worker syndrome (where individuals exhibit reduced social
skills), excessive weight gain, unnatural pet attachment, and
deterioration of driving skills.
• Hoosier Daddy Policy:
An Indiana insurance company has launched a policy that protects a
family’s income while the breadwinner is imprisoned for financial
Are this products are real innovation?
“Telematics car insurance—sometimes called black box insurance, payas-you-drive, or pay-how-you-drive insurance—could help to lower the
cost of owning a car …
Basic data monitoring
Core features
Driver diagnostics
Uses hardware to identify risky behaviors, e.g., hard
braking and cornering
Asset/enviro impact analysis
Reports on metrics such as fuel consumption,
efficiency, and carbon footprint
Advanced driver diagnostics
Uses device features for advanced trip logging,
driving metric trends, and mash-ups with third-party
Vehicle and other services
Value-add services such as accident notification,
vehicle recovery, navigation, geo-fencing, and alerts
Advanced analytics
Interactive services
Driver feedback
Data/ experience
Tracks core measures like miles driven, time of day,
and rate of speed
Modeling datasets
Provides drivers with useful feedback on how they
can improve driving habits
Historical telematic, premium, and claims data for
analytics and modeling
The Tribune reported another major insurer finding that “a recent test
with a group of employees showed dramatic changes in driving
behavior. For example, 25 percent of drivers in the initial group of
testers scored in the ideal ‘safe zone,’ but over the course of the test,
that figure rose to 75 percent.”
• Life insurance, accident, and health insurance, and now everything
from business interruption insurance to cyber insurance, reflect
innovations developed by insurers in order to allow merchants to take
risks for growth and families to survive in the face of unexpected
• On the other hand, a look at the percentage of the available market
buying various insurance policies may lead one to be concerned
about the lack of movement toward expansion of that market
• Innovation must allow us to go beyond the realm of the possible, to
do what no one could do before.
Perhaps for insurers, one goal should be to work to extend innovation
in solvency regulation to product and other regulation so the
regulatory drag on innovation may be minimized and the social good
served by innovation maximized.
• Innovations in insurance means to penetrate the market that the
consumers have a low income. But you need to improve trust of
consumers in the insurance sector.
• Create a product that contains a value added elements not only a
profit for the insurance company. Again, this means improving trust.
• Finding the social element in their products…..which again improves
Therefore, innovation in the insurance sector has a lot in common
with improving trust in the sector.
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