Innovating Inside the Box - An Exploratory Comparative Case Study of Regulations’ Impact on Innovation in the Insurance Industry
Abstract: Innovation in general is an important driver for economic growth and consumer welfare.However, with the purpose of consumer protection and ensuring stability of the financialsystem, the insurance sector is bound to follow stricter regulations than most other sectors. Thepurpose of this study is to explore and gain insights into how insurance companies perceive,work with and are affected by regulations in relation to innovation activities. The researchquestion is defined as How do regulations impact insurance companies’ innovation? Bycarrying out a qualitative explorative comparative case study of two Swedish insurancecompanies, understanding of innovation in a regulated industry from a company perspective isexpanded.The study revealed that regulations impact the case companies in four major ways. (1)Regulations can prevent innovation and reduce customer value; regulations close off avenuesof innovation. Radical innovation seems especially difficult to pursue, making incrementalinnovation most prevalent. The absence of innovation negatively affects customers throughhigher prices and inferior products. (2) Regulations require additional resource investments;guiding an innovation project through the regulations requires both expertise, knowledge andextended project development times. As a result, both time and cost requirements are increased,effectively reducing the incentives to innovate. (3) Regulations are negative for creativeperformance; the regulations act as boundaries that limit the perceived creative space. Frequentregulatory setbacks demotivate employees, and overall creativity is reduced as a result. (4)Regulations can stimulate and shape innovation. Regulations have the power to change themarket dynamics. Especially increased competition drives innovation. Innovation may beforced by regulation or steered into different directions due to regulations.While the findings in themselves are not generalisable, interesting points for further researchare identified. The main contribution of this study is thus the broad view attained of innovationand regulation in the insurance industry. While it shows that it is possible to pursue innovationinside the box, defined by regulations, there is a need for further research on how regulatedcompanies best work with innovation and how effective regulation may be developed in orderto find a balance between protection and innovation that best benefits society and the economy.
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