Tapping the innovation 'black space': a forward-looking opportunity for liability insurers

As I write this, 200,000 gallons of oil a day are spewing into the Gulf of Mexico from BP's ruptured Deepwater Horizon rig.

This is a Very Bad Thing. However, it can also be seen as an incredible catalyst for aggressive innovation.

Innovators often speak of finding a 'white space' - that is, an unmet need or untapped opportunity in the market. However, we might stretch the metaphor and speak of a 'black space' - finding an unmet need or untapped opportunity in the guise of a disaster.

Let me illustrate. Predictions of this disaster's estimated costs to BP range from $3 billion to $15 billion. But as Kees Willemse, professor of offshore engineering at Delft University writes "The effects of this accident cannot be expressed in money terms alone, because of the growing scale of the environmental disaster if the oil spill cannot be contained soon."

We can't express the growing scale of the environmental disaster in money terms? But what if we could?

Stretching our innovation brains, perhaps there's an idea in here for an entirely new risk category for liability insurance.

Rearview mirror vs front windshield.

Ray Anderson of Interface Carpet is acknowledged as a visionary of corporate sustainability. But that wasn't always the case. In 1994, he first heard of customer concerns over Interface's toxic byproducts. When asked what his environmental policy was, he didn't have an answer.

The deeper he looked, the more alarmed he became. In his own words, his corporation was a 'plunderer'. Sometime in the future, he believed, men like himself would be imprisoned for environmental atrocities.

The solution wasn't immediately apparent. Anderson didn't have any exhaustive case studies to template, no examples of other companies that succeeded in what he was attempting. There was no real 'rearview mirror'. Inspired by Paul Hawken's Ecology of Commerce, he charted Interface's trip 'up Mount Sustainability' by looking forward, not back.

This 'front windshield' approach began with a vision: 100% sustainability by 2020. The strategy inspired by this vision was a success. Today, 60% of the way through Anderson's timeline, Interface is 60% more sustainable...right on track.

With the benefit of the Interface example, let's turn back to insurance. Insurance is all about evaluating risk and pricing it. This is done by looking at past experience for patterns, then predicting future losses based on those patterns. A rearview mirror.

Environmental damage, as Kees Willemse said above, is still beyond the scope of most to predict. We simply haven't had enough experience assessing (and assigning monetary value to) the far-reaching impacts of, say, an oil spill. Yes, we have 'rearview mirror' knowledge of what it will cost to clean up the spill itself. But what about the health costs to children ingesting polluted oysters 5 years from now? And what's the monetary value of reduced biodiversity in the Gulf?

How could we chart a course for a new risk category for liability insurance?

Looking forward, acting now

Assume we are committed to creating this new environmental risk liability insurance. The next step - taking a cue from Interface - should be mapping out steps to achieving that goal. Perhaps we could start with these three:

1. Define the innovation 'black space'. Imagine the worst case environmental scenario in key business classes as a way to stretch the mind. If you're having trouble seeing the far-reaching implications of a serious environmental mis-step, invite an NGO in to help get perspective.
2. Develop ideas for new products that would cover environmental liability. Developing these products responsibly would entail doing research to understand what customers could perceivably need; brainstorming to create ideas which would elegantly fit the bill; and branding those products to make them comprehensible and attractive to customers.
3. Engage and educate businesses that do not understand how to assess their own environmental risks. Imagine mapping out steps / processes that a company can follow to avoid green losses, or giving pointers on protecting the company from bogus green lawsuits.

It may be early days, and the insurance area in question may be unexplored. That only means the rewards of leadership are waiting to be claimed.

Marc Stoiber is VP Green Innovation at Maddock Douglas, a leading innovation agency based in Chicago. Stoiber would like to acknowledge the invaluable guidance and feedback of Maria Umbach, VP Financial Innovation at Maddock Douglas, and Mark Johnson of Reliance Insurance.