As the end of the first decade of the new century approaches, insurance companies are realizing a need for change and innovation within their industry. The urgency to make these changes is underscored by several external forces that will continue to take shape over the next several years. Insurers must begin preparing for the future as cultural and environmental changes, technological advancements, globalization and world health issues arise.

To address continual operational challenges within the insurance industry, adoption of new technology will be critical. Market demands are forcing insurers to take a look at how to incorporate real innovation to the business model rather than solely applying optimization to products, processes and services.

To protect against existing and new competitors, such as mass-market retailers, from snapping up vital shares of their market, insurance companies will need to apply new technologies and innovation to the business model to adjust for the changing needs of consumers.

Meeting the needs of small businesses

Until now, insurers typically repackaged existing products as ?new? and consumers bought what they were given. With greater frequency, consumers are realizing what they want and don't want, and if insurance providers resist innovation, this shift could affect their business significantly.

There are more small business owners now than ever before ? completely changing the landscape of the business consumer needs. Business owners fall on both extremes of the spectrum when it comes to small business liability insurance: those that demand commodity pricing and those that demand premium-quality policies. Both are very different in their wants and needs, and the insurance industry must diversify its offerings to accommodate this need.

While the needs of small businesses are changing across all sectors and small business liability continues to evolve, the information technology consulting and computer-related businesses have more distinct changes and vulnerabilities appearing at a more rapid pace. One such change is globalization. Insurance providers must respond to this growing need with innovative offerings in their liability insurance. They must integrate new technologies into their own industry so they can adequately serve the IT and computer industry.

Trends affecting insurance

In addition to globalization, changing demographics will potentially affect insurance for consumers, agents, brokers, policyholders and other professionals. Changes in workforce demographics will require employers to make adjustments to outdated liability insurance policies and insurers will need to be dynamic enough to keep pace with these changes.

Another market force driving the urgency for change is technology, and more specifically information technology. It has the potential to level the playing field of the insurance industry. Technology is opening the door for greater insurance product offerings among nontraditional organizations such as Kroger in the U.S. and Tesco in the United Kingdom. While the nontraditional organizations primarily offer personal insurance, small business liability insurance may not too far off.

To remain competitive, insurers are realizing that collaboration is essential to innovation. Collaboration can come from building relationships with suppliers, competitors, peers, employees and other stakeholders. Insurers also must observe other industries to garner fresh perspectives.

To truly incorporate innovation into the new business model and survive beyond the first decade of the new century, interaction with consumers will also become increasingly important. Insurers must capture the feedback of business owners to be sure their liability insurance is exceeding expectations.