More than half of the world’s leading insurance companies lack innovation strategies, despite recognising how vital it is to compete with “bold new entrants”, according to a KPMG study.

The poll of 280 insurance leaders across 20 countries, including Australia, found half of insurers’ business models face disruption.

While 83% of respondents recognise the need for innovation, more than 79% feel they are too busy keeping up with day-to-day requirements.

About 74% feel they lack the internal core skills needed to drive innovation, while many say regulation is a barrier to innovation.

KPMG Australia Head of Insurance Martin Blake says the local industry must become more innovative to “fend off disruptors”.

“Relatively few insurers try to get first-mover advantage and fewer than one in four had a specific person accountable for innovation,” he said. “Collective responsibility is not proven best practice for developing and implementing a stream of innovation.

“Only 40% had a budget dedicated to innovation and less than 10% a hard measure of return on investment from new products or services.”

Mr Blake says start-ups are not the only perceived threat, with 40% of respondents saying current competitors will create “significant challenges over the next two years”.

Among Australian respondents, only 43% have a budget for innovation, while 83% expect their innovation budget to increase in the next two years.

The biggest challenge for Australian respondents is “increased competition from known competitors”, while growth strategies centre on “enhancing existing products and services”.

Australian insurers see opportunities in digital technology and its integration into business objectives, and the use of customer data analytics to improve underwriting, pricing and marketing.

They are most likely to say their source of innovation is “diverse, cross-functional” teams, and are more likely to have instigated cultural change programs and internal crowd-sourcing or employee competitions to produce ideas.

European insurers are least likely to measure innovation return on investment in a formal way, while Australian insurers are more likely to use consumer engagement.

Mr Blake says insurance companies are caught in an “innovator’s dilemma” and need to develop new business and partnerships to out-compete and out-innovate their peers and bold new entrants.

Two-thirds of survey respondents say they already look to other industries for inspiration and innovation models.