The theory goes that, in time, every industry becomes a technology industry. Well, what if we thought of insurance as akin to an electronic device and gave it an operating system, like what we've seen in recent decades with computers and smartphones?
The power of operating systems is undeniable. IBM surged to the forefront of the computer industry in the 1960s when it developed an operating system that ran on all its mainframes, meaning that software written for one model could run on any other model in the family. Digital Equipment opened the market for minicomputers in the 1970s with the operating system that tied together its VAX line. The Microsoft operating system that ran on the original IBM PC and compatibles ushered in the personal computer revolution in the 1980s by creating a large enough, unified market that it attracted software developers in droves. The Apple and Google operating systems for smartphones have likewise provided a platform for vast arrays of apps and services, making the devices so valuable that we rarely leave them out of arm's reach.
Along the way, those operating systems created tens of trillions of dollars of value for shareholders, customers and the developers of apps and services. (Microsoft, Apple and Google, alone, have a combined market value of some $6.5 trillion, and the operating systems have played a key role.)
What could an operating system look like in the insurance industry?
When you look at, say, the historical development of Microsoft's operating system, you can see where an OS begins, how long it takes to develop and what the potential is.
Back in 1981, when the IBM PC was introduced, the OS was as rudimentary as could be. When you turned on the computer, you were greeted with a screen that, in its entirety, showed: "C:\_" -- you had to have the relevant commands memorized to actually do anything. Widgets that we have long taken for granted, such as a calculator or a clock, had to be installed as separate pieces of software. Connecting to another computer via modem was even more complicated.
But MS/DOS was enough to get the PC revolution going. Windows 3.0 added a graphical user interface in 1990, and the operating system has steadily increased in power since then -- not so much from its own merits as from the ecosystem it allowed. Graphics programs, communication software, etc. all plugged into Windows and enhanced it, eventually getting absorbed into it. The advent of the internet browser took the PC to a whole new level in the mid-1990s and attracted its own enhancements -- e.g., Wikipedia, which gave us all encyclopedic knowledge in moments.
Insurance is in the very early days. It's still digitizing many processes that have been analog for forever. Think of how many applications still happen on paper and how many checks are mailed. But the digitizing means that pieces of the insurance process can be pulled together without respect to physical location, in a trend called "open insurance" that is taking us toward that powerful goal of an industrywide operating system.
The result will be an industrywide ability to easily share information and cooperate across corporate and even industry boundaries, along the lines of the sharing of data and work across files and programs within a personal computer that mean even something as technologically complex as a Zoom call can be treated as a single task rather than as a long series of discrete steps.
While insurers have traditionally taken a go-it-alone approach that has meant relying on proprietary data and having all aspects of the insurance process take place within the insurers' four walls, those constraints will disappear in a world of open insurance. Insurers will be able to take in more data and price risk more accurately -- while offering new products and services. Insurers will augment distribution channels by incorporating nontraditional outlets, such as car dealers, which can offer insurance when someone buys a vehicle. And insurers will be able to cut costs, because efficient services from third parties will more easily be incorporated into their processes.
There is risk, as well as opportunity. When products, services and processes can plug into an operating system, they become interchangeable parts -- often creating a winner-takes-all competition. We didn't wind up with a whole bunch of spreadsheets on PCs; we pretty much all wound up with Excel. If you're fortunate enough to have the best claims processing system or distribution or underwriting, then you're in great shape, because you'll be able to sell them as services to others. But if you aren't the best, then you'll likely need to purchase the most efficient system from someone else and may eventually find your company hollowed out.
If you're interested in reading more on the issue -- and I think it's perhaps the most profound technological change the industry faces -- we've published any number of articles on parts of the phenomenon. Here is something I wrote at the beginning of the year on the importance of the ecosystems that will form once corporate barriers break down. Here is a link to a webinar I hosted at the Future of Risk conference in May on application programming interfaces (APIs), the technical standards that allow for collaboration. And here is a piece we published earlier this month on how embedded insurance -- those car insurance sales via the car dealer -- has reached a tipping point.
I'd point you to two other recent pieces, as well. Here is a smart piece via Medium that explores the implications of sharing data and capabilities. And here is a full-on report from Accenture, which explores what insurers can learn from the banking industry and details areas where open insurance can drastically improve what the industry offers.
In the end, the industry may not be able to go as far as the personal computer industry did. That's because there won't be one company that controls the operating system as completely as Microsoft did with PCs and as Apple did with the Mac. The industry will operate more as the looser amalgam of apps and services that mostly self-organize on Google's Android OS.
Still, the industry is clearly moving toward some sort of operating system that builds on all the individual corporate efforts at digitizing, and it's never too soon to start contemplating how to best take advantage.