Although I sometimes can't decide whether Elon Musk is the business genius of our time or is two bricks shy of a load, he sure does get a lot of key principles right.
The latest instance is a little-noticed announcement last week about how he's using Tesla's auto insurance offering to create a feedback loop to help him make better cars. When an accident occurs, his designers learn immediately through the insurance arm what happened and can consider whether some modification to the car would reduce the damage or at least lower the cost of the repair. Customers will become less likely to gasp, "That fender-bender cost how much to fix?" Word-of-mouth on the cars will improve, leading to more sales, creating more data via the insurance arm, allowing for more design improvements and so on, pumping ever more money into Musk's pockets.
While emulating Musk won't mean that you, too, can send astronauts to the space station, insurers have a number of opportunities to create feedback loops and virtuous circles that could let them dominate a major part of the industry.
Companies have long tried to incorporate feedback, largely by having customer service reps' interactions interpreted in ways that can guide product design teams to fix problems or to understand customer needs that hadn't previously been articulated. Over the years, we've published articles about innovations such as improved speech-to-text translation, which let companies plumb customer calls for key phrases that could lead to insight. Just last week, we published a piece on how companies should track every time they say "no" to a customer, to see if a "yes" might be possible and lead to innovation in products or services.
What's different -- and what creates major opportunities for insurers -- are the newly available speed and specificity of insight, which can create such a tight feedback loop that the power increases over time and can lead to an insuperable advantage.
Technology companies dramatize the power of the right feedback loop. Facebook so dominates social media that it sees a huge percentage of the interactions and can mine them to see which ads work and which don't, which algorithms generate the most interactions in people's news feeds, etc. Facebook feeds its knowledge back into product design, and its competitive edge keeps growing (even though Washington is finally showing some antitrust concerns). The same holds true for Google's search engine: When Microsoft announced years ago that it was pouring unlimited resources into its Bing search engine, to take down Google's search engine, I was sure Google had nothing to fear even from a powerhouse like Microsoft. Google was seeing two-thirds of the searches, so it was learning and improving far faster than could Microsoft, which was seeing maybe one-fifth of the searches. Google Maps had the same sort of feedback edge over Apple Maps. Amazon, as the marketplace for so many goods, sees what works and what doesn't in exceptionally fine detail -- by color, by size, by time of year, by slight variation in price, etc. It's actually facing antitrust scrutiny because competitors claim Amazon uses the information to decide which products to start making on its own and enters markets with an unfair advantage.
Because insurance isn't nearly as digital as Facebook, Google or Amazon, the feedback loops will take longer to build, but they're still possible.
I'm especially optimistic about claims. As the process is being digitized, particularly with auto, there seems to me to be a great opportunity for some independent company to become good enough that it will achieve critical mass. At the moment, real progress is being made, as those involved in an accident take their own pictures, as artificial intelligence offers on-the-spot repair estimates and as coordination with the body shop at least begins digitally. But imagine what might happen if one competitor got its nose far enough ahead of others. That competitor would see so many of the claims that it could learn faster than others about just which pictures matter and how they should be taken, could finetune the AI to offer much more accurate estimates of damage (addressing what seems to be a source of many complaints at the moment) and could generally smooth the process between accident and repair by continually spotting and removing friction points. Then that company would become even more popular, giving it access to more feedback... and away we go.
Wouldn't you like to be that company?
Not every aspect of insurance lends itself to tight feedback loops. When you underwrite a batch of life insurance policies, for instance, you don't get your feedback for years or even decades on how accurate you were.
But just about anything that can be digitized allows for the kind of fast feedback that could produce a dominant information position.
Distribution is becoming digital enough in these pandemic times that at least pieces of the process could be optimized through instant feedback from agents, carriers and customers about where the pain points are. The opportunity is especially large with independent agents because, no matter how big a captive sales force is, it won't have the same scale as the universe of independents does, and information advantages are most powerful at scale (see, Facebook, Google and Amazon).
Business process outsourcing, buttressed by AI and robotic process automation, could be another opportunity for an information advantage from a tight feedback loop. That opportunity may be too immature still because, in general, if you've seen one business process at a company you've seen one business process at a company. There will likely need to be more more in common among processes before a company could swoop in and win the whole opportunity.
RiskGenius has always intrigued me as an information play, because of its AI that searches through policies to spot changes, compares clauses against similar ones in other policies, etc. If RiskGenius gets to critical mass in the number of policies in its systems....
There are surely other possible feedback loops, too, and if those of us in the insurance industry don't spot them then others surely will. Always remember what Amazon founder and CEO Jeff Bezos says: "Your profits are my opportunity."
P.S. Here are the six articles I'd like to highlight from the past week:
The bionic era automates symbolic work – perceiving and judging – and blends powerfully with the industrial era's automation of physical work.
There are two extremely different states existing within the insurance ecosystem: larger, well-funded participants and then all the rest.
Graph and network analysis helps organizations gain a deep understanding of their data flows, process roadblocks and other trends and patterns.
Wouldn’t it be good to be among those present at the start of voice-activated assistants, a technology of the future, and gain market share?
One advantage many captive insurance carriers overlook is tied to what may seem like a disadvantage— consumer preference for online research.
Transformation has advanced five years in eight weeks, and P&C insurers need to keep up with digital platforms, payments and communications.