Insurance: the ultimate shared-value industry
Shared value as a concept is nothing new – but a recent report suggests the Australian insurance industry is perfectly placed to take it to the next level.
Shared value was first outlined by Harvard academics Michael Porter and Mark Kramer in 2011. Writing in the Harvard Business Review, they said trust in businesses had fallen to a new low as companies prospered at the expense of communities.
But it didn’t have to be this way, they said.
“Companies could bring business and society back together if they redefined their purpose as creating ‘shared value’ – generating economic value in a way that also produces value for society by addressing its challenges,” the pair wrote.
“A shared-value approach reconnects company success with social progress.”
The Harvard experts set up the Shared Value Initiative in the US. Its Australian offshoot, the Shared Value Project, last week released a detailed report that concludes the insurance industry is ideally placed to be a shared-value trailblazer.
Using examples from across the world, the report presents the case for insurers to pursue a shared-value approach, saying the strategy can work to create more resilient or insurable cities, or prevent ill health in target population groups.
In the foreword, Professor Porter describes insurance as “the ultimate shared-value industry, where social impact is integral to economic success”.
But despite this, many insurers “remain stuck in a passive, actuarial model rather than pursuing shared value”, thereby overlooking opportunities to enhance outcomes for the company and society.
“Insurers benefit more than almost any industry from societal advances, but have lagged in proactively tackling the societal conditions that will most affect their businesses,” he says.
“Shared value in insurance moves the industry from a passive guardian to an activist model, where companies anticipate, prevent and mitigate societal risks.”
Professor Porter says insurers need to adopt shared value as a core strategy, and move beyond a narrow internal focus on product and claims management to embrace an “externally oriented approach” that improves customer behaviour, partners with relevant civil society actors and advances public policy.
The report says the shared-value approach is driven by changing realities (such as climate change and ageing populations), eroding trust and insurer blind spots, and it names three major opportunities for insurers to create shared value:
- Prevent risk and dynamically reward risk reduction
- Close the protection gap for the underserved
- Invest assets in prevention and protection systems.
IAG is a founding member of the Shared Value Project, and the report refers to a number of the insurer’s initiatives.
In terms of preventing risk, it works with car manufacturers to improve safety and security standards. It offers reduced premiums for measures such as automatic emergency braking and it sends alerts to customers approaching dangerous crash zones.
IAG is also striving to identify underserved markets. For example, its research shows home and contents insurance penetration among Indigenous people is 47%, against 96% for the general population. It has developed an insurance solution to deliver “risk transfer benefits and measurable business value to Indigenous communities”.
It has also developed the Good Hoods program, which encourages people to connect and interact by listing neighbourhood initiatives and encouraging the launch of new ones.
IAG Head of Group Shared Value Ramana James told insuranceNEWS.com.au that since he joined in 2014, the insurer has been embedding a shared-value framework to help make strategic decisions.
“Insurance, as much as any industry, has shared value at its heart,” he says.
He believes business expertise is required to solve the world’s major problems, and communities will react positively to the shared-value approach.
“When you demonstrate a long-term commitment it builds trust, and people are very open to working with us.
“There are already some great things happening in Australia, and momentum for shared value is growing.”
The theory sounds good. Now it’s up to insurers to put it into practice.