Insurers with well-developed innovation initiatives have much higher levels of top-line growth than those who lag behind on the innovation curve, AM Best reported last month.

In a special report titled “Insurers Leverage Innovation for Financial Strength,” published in mid-March, AM Best analysts used innovation assessments that the rating agency assigns to property/casualty insurers and reinsurers to gauge levels of invention and then compared five-year operating performance metrics of innovators and laggards.

Twenty-two carriers and reinsurers earned a “leader,” “prominent” or “significant” innovation assessment from AM Best, and those innovators saw their net premiums vault 11.9 percent, on average, between 2016 and 2020. In contrast, 16 companies were assigned AM Best’s “minimal” innovation assessment and grew just 7.9 percent, on average, over the same period.

AM Best also found that “leaders” had a lower variability in their growth rates over the years. “Innovation has allowed these companies not only to gain a competitive advantage, but also to maintain it,” the report says, explaining that digital advancements help innovators gain market share. They go on to increase sales with customer focus—by addressing customer needs, allowing customers to move between digital self-service channels and human-based interactions, and responding to new emerging risks, among other things.

During the COVID pandemic in 2020, differences in premium growth between innovators and laggards were particularly striking, the report says, reasoning that more innovative companies leveraged digital operating models and benefited from investments in efficient infrastructure and advanced analytics, while their less innovative competitors struggled. By the numbers, leading innovators reported net written premium growth of 6.5 percent in 2020. On the other end of the spectrum, companies assessed with “minimal” innovation scores grew only 1.9 percent, on average.

“Innovation has enabled insurers to expand their customer pools, while also developing more targeted, informed risk selection,” the report says, highlighting the clear competitive advantage that innovators have in the form of profitable top-line growth.

In short, AM Best reports, “innovation and top-line growth are linked.”

The report also details differences between “leaders” in innovation, “moderate” innovators and those carriers evidencing “minimal” innovation on other performance measures, including combined ratios, expense ratios, loss ratios and operating ratios, as well as financial strength ratings.