Risk and Responsibility in Innovation

Last week I was guest at a lecture entitled Risk and Responsibility in Innovation at the Bocconi University of Economics in Milan. The speaker was the head of R&D of Allianz, the insurance company, Michael Bruch, and I was present as representative of the Bassetti Foundation, one of the co-sponsors with Allianz and the University. Details can be found here.

Bruch’s lecture was very interesting. He addressed the role that insurance companies play in the innovation process. His focus was on nanotechnology as an example of innovative research, but he was interested from the business perspective, not from a scientific one.

The main point that I took from the lecture was that the innovator has to see him or herself in partnership with the insurance company, and not as merely a customer paying for a service. This is because in many cases insurance coverage is a prerequisite for investment or sponsorship.

Bruch argued that it is much easier for an innovator to procure money from a bank or any other investor if they have insurance because having insurance demonstrates faith in a particular innovation process.

His point could be summarized as a mutual responsibility. The innovator has the responsibility to be thorough in their modeling, but also to address health and safety concerns, the positive and negative effects of their work upon society, possible legal issues and regulatory problems, and to communicate them transparently to the insurance company.

If the innovator complies with all of these wishes the insurance company is able to view the risk involved in the process and product, calculate a premium and create a business agreement with the said innovator. If any of these prerequisites are not met however the insurer cannot do this, will have to decline coverage, lose potential business and place the innovator in a difficult position. Without insurance it may well be more difficult to find investors.

In this model responsibility is therefore mutual and of benefit to all parties involved.

Bruch explained how emerging and innovative technologies carry what he defined as emerging risk, and explained the CRO ER Initiative for a joint effort on the upstream part of emerging risks. This is the partnership section that I outlined above, and comes before production. This part of the process is open to public scrutiny, something that cannot be guaranteed later on in the process when decision-making becomes more internal.

This part of the process involves identification prioritization and developing scenarios for risk. As the process moves on it involves management of these risks, and that tends to become an internal individual company process, with information and data becoming proprietary and more often withheld. This part of the process is described as an individual effort, while the first part a joint effort.

One of the major issues running through the lecture and follow on comments was the difficulty in assessing and measuring risk in the face of such uncertainty. Innovation by definition is the creation of something new, and newness carries risk without offering experience with which to measure it by. Innovators are by definition risk takers, they live outside the box of rigid mentalities or they would not be innovators, but as such they have the responsibility to think about, assess and communicate these risks so that they can be managed. Once they can demonstrate a risk management awareness and model the insurers see that they warrant cover, decide the price and weigh in with their unspoken support.

The first commenter was Alfonso Gambardella, Professor of Management at Bocconi, and he focused upon the importance of how decisions are made in the innovation process. He outlined a process within which a decision to accept or reject an idea is passed up and down the line of command. This process involves acceptance at ever higher levels, with responsibility moving up the structure as firstly lower, middle, and then upper management accept an idea, before presenting it to the upper levels for approval.

His second model involves acceptance due to rejection. The upper management do not accept an idea, it is thrown out, a third party takes it up, it is thrown out and on until somebody sees a use for the innovation, accepts it and put it into practice. Interesting models if not a little oversimplified.

I spoke about the complexity of the innovation process, responsibility to society and raised some questions about how to proceed in reaching innovators so that they could understand the partnership outlined in the lecture. The lecture also coincided with the release of my new book, A Handbook for Responsible Innovation.

Fabian Muniesa was the final commentator and he addressed the grander influence and importance of banking and finance upon the innovation process. He underlined the need for transparency in these turbulent times as insurance companies are part of the very foundations of our entire global system, and heavy losses due to unforeseen events (many analogies were made between asbestos and everyday uses of nanotechnology) could prove catastrophic.

All in all an informative and interesting morning that drew national and international press coverage.

image credit: allianz.com

Don’t miss an article (5,000+) – Subscribe to our RSS feed and join our Innovation Excellence group!

Jonny Hankins is a researcher and writer for the Bassetti Foundation for Responsible Innovation in Milan. Trained as a sociologist at the Victoria University of Manchester UK, his interests range from innovation in the renewable energy sector, bio and medical ethics and the role of politics in innovation, to questions of ethical and moral responsibility. He lives in Boston Massachusetts where he is also a professional musician, actor and street performer.