Putting the cart before the horse

Kirstin Duffield is managing director of Morning Data. Joanna Henson is a business development executive at Morning Data.

Disruptive innovation

No, this is not a Facebook or LinkedIn pop quiz, but for almost every reader I would expect the immediate answer to the question "Should your IT innovation be disruptive?" to be a heartfelt "no".

Is disruption not one of the pitfalls any IT buyer strives to avoid? In fact, taken at face value, a client's expectation of minimal disruption is one of the most frustrating things that system providers experience. The assumption of "implementation within six weeks of date of decision and minimal disruption or involvement of the client" tests the skills of any project manager when it comes to expectation management!

But the term "disruptive innovation" is not as it may first seem. It is, to quote our dearest friends in the modern world, Mr Google and Mr Wikipedia: "Innovation that helps create a new market and value network, eventually disrupting an existing market or value network."

In 2009, the Czech-American economist Milan Zeleny described high technology as disruptive and raised the question of what exactly is being disrupted. The answer, according to Zeleny, is "the support network".

An early example of this was transportation by horse-drawn carriage. The support network of inns, stable hands and blacksmiths was disrupted by the innovation of the motor trade and in particular by the low cost Model T Ford.

The motor industry is now facing its own chapter of disruptive innovation with the introduction of electric cars. This disrupts the support network for fossil fuel-powered cars - the chains of petrol stations etc. Such disruption is fully expected and therefore understandably resisted by these support networks. In the long run, high (disruptive) technology bypasses, upgrades, or replaces the out-dated support network.

Perhaps it is easier to see disruptive innovation in context by considering the opposite, non-disruptive innovation otherwise known as sustainable innovation. This doesn't create new markets or value networks, but rather evolves existing ones. Wikipedia goes on to talk about the variants of this, namely "discontinuous" (i.e. "transformational" or "revolutionary") or "continuous" (i.e. "evolutionary").

We all understand the London (re)insurance market is niche, yet recent steps have been made towards adopting the kind of innovation and technology that much larger markets have very publicly benefited from.

The market of handheld devices that take photos, handle emails, play games, display books and newspapers, show maps (there are two more industries affected), offer instant everything - oh, and make phone calls - is a mass market that the London (re)insurance industry is not part of but uses as a by-product of operations.

These mass markets have had their support network disrupted - mobile phones replacing or lessening the need for landlines, digital cameras replacing photographic film, apps for eBay and Amazon replacing the need to shop in person.

But is there a place for this in a market with so few players? One hundred and seventy or so Lloyd's brokers all requiring software innovation that by the very nature of a Lloyd's broker should support its own unique innovation of niche bespoke (re)insurance solutions.

Technology can either be of the "tool-building" variety, where companies require their own IT infrastructure to build and maintain the applications, or of the sort where economies of scale enable companies to obtain the best and most innovative off the shelf products at the most competitive price.

Joanna Henson is a business development executive at Morning Data

Disruptive versus sustainable

The Lloyd's Target Operating Model, if embraced by the market, could completely transform the way data is captured for placing, signing, closing and renewals by converting this to an electronic process, rather than a manual one.

But is the rest of the support network ready? Perhaps not. If Lloyd's was to run a disruptive innovation approach, is there enough of a support network to fill the gap and adapt to support them? I fear that there probably isn't - certainly not yet.

An innovation that is disruptive allows a whole new population of consumers to gain access to a product or service. Characteristics of disruptive businesses, at least in their initial stages, can include lower gross margins, smaller target markets and the existence of niche products aimed at specialist target markets.

In my career within the (re)insurance industry I have seen disruptive innovation occur in a variety of guises. I have seen this in the change in how business is being transacted. Brokers, MGAs and insurers are embracing the broker portal model, which allows brokers themselves to gain a quote and potentially a policy.

Recent entrants to the British Insurance Awards 2015 showed what benefits can be obtained through broker portals. Operational efficiencies, cost savings and access to new markets are giving a competitive advantage. However, there can be a lack of consideration about how new portals can affect the support network in terms of core back office systems. If done in-house it is less disruptive but requires equally heavy maintenance.

Technology supports and creates both sustainable and disruptive innovation. Sustainable innovation gives time for software houses to advance their technology and continue to improve their existing products. On the other hand, a technology provider that allows a start-up broker or MGA to be compliant, bring a new product to the market and supplies the required IT infrastructure, will offer a flexible support network that can withstand disruption.

The challenge is to provide this flexibility to withstand the change for a commercial cost, yet appearing to be bespoke. The technology provider has to be ahead of their clients' needs, creating a product that will support the adaptation of requirements as it grows. However, providing a niche service is not always compatible with technology - fields and data must have context and so have somewhere to "belong".

The ability to comply with a never-ending list of different reporting requirements for one class or another, with any combination of underwriters, brokers and agents in the mix - each using different systems - means the use standards are going to be the only way this innovation can survive.

All areas within the market need continuous sustainable innovation, but also the creation of staged disruptive innovations that work hand-in-hand with each other. With growing, functionally-rich technologies and the move to embrace new technology to help guide, create and support new innovations, the London (re)insurance market will continue to be the market of choice for (re)insurance products and forward-thinking quality service.

So, should the (re)insurance market have both disruptive and sustainable innovation? Absolutely. Should your IT innovation be disruptive? Absolutely. But ideally the small and medium-sized enterprise market should look for an adaptive support network that has the flexibility to withstand both disruptive and sustainable innovation.

Joanna Henson is a business development executive at Morning Data