Walmart’s acquisition of Flipkart demonstrates both Indian e-commerce’s coming of age and a repetition of history.
U.S. giants will spend billions in India because they see huge opportunities, and this will produce a short-term boon for Indian consumers. When the dust settles, though, prices will rise and consumer choices will become more limited than they had been. Foreign companies will mine data and manipulate consumer preferences. They will have once again colonized India’s retail industry.
Protectionism for physical goods and services is usually a bad thing, as it limits the incentive to innovate and evolve, stifling a country’s competitiveness and productivity. India’s protected domestic companies became lethargic, offered substandard products and services at high prices, and hobbled India’s economy.
In a digital economy, though, things are very different. The value resides in the ideas, which spread instantaneously via the internet. Entrepreneurs in one country can easily learn of the innovations and business models of another country and duplicate them.
As core technologies advance, they become faster, smaller and cheaper — and accessible to everyone, everywhere. Startups constantly emerge, putting established players out of business. So, speed and execution are key to business survival and competitiveness.
Valuable competition and innovation can arise from within the domestic economy itself, without having to invite foreign companies to the table.
Technology-based industries, such as retail, electronics and distribution, that require large capital investments handicap the small players, because money provides an unfair advantage to the larger ones.
The latter can use capital to put emerging competitors out of business — or to acquire them. It is what U.S. technology giants do as a matter of course.
Amazon, for example, has been losing money, or earning razor-thin margins, for more than two decades. But because it was gaining market share and killing off its brick-and-mortar competition, investors rewarded it with a high stock price.
With this inflated capitalization, Amazon raised money at below-market interest rates and used it to increase its market share. It also acquired dozens of competitors — just as it tried to do with Flipkart.
Having become the dominant player in the U.S. e-commerce industry, Amazon has its eye on India. A company that it left in the dust, Walmart, is desperate not to also lose the Indian market. Both are doing whatever they must to own Indian retail and then split the spoils between them.
That is why controls are desperately needed on this kind of capital dumping. And such controls won’t reduce competition or throttle innovation. As they did in China, they will stimulate competition and, through that, innovation.
Chinese technology companies are now among the most valuable and innovative in the world. In addition to having a valuation that rivals Facebook’s, Tencent’s WeChat e-commerce platform is far more advanced than any rival in the West.
Baidu is building highly advanced artificial intelligence (AI) technologies as well as self-driving cars. And DJI (Dà-Jia ng Innovations) has become a global leader in drone technologies. Had China not imposed controls, these companies may not have survived at all.
It is probably too late to save Indian e-commerce from modern-day East India Company-style colonization. But there are many other industries in which Indian startups can still lead the world.
With the exponentially accelerating advances occurring in technologies such as sensors, AI, robotics, medicine and 3D printing, practically every industry is about to be disrupted, and there are opportunities for Indian entrepreneurs to create solutions that benefit India and the rest of the world.
India urgently needs to wake up and protect its entrepreneurs from foreign-capital dumping. And it needs to provide incentives for Indian — and foreign — companies to invest in its startups, just as China did for its own.
DIAmond Award winner Trōv is one of the most widely referred to cases when speaking about disruption in the insurance sector. But what is Trōv exactly about? What is the business model? How successful is it? Trōv’s founder and CEO Scott Walchek will share his vision in a keynote presentation at DIA Amsterdam, this May. To warm up, I interviewed Scott last week.
Trōv is the world’s first on-demand insurance platform for single items. It is a mobile app that allows users to insure whatever, whenever. It empowers customers to insure “just the things you care about” for whatever period you prefer. Trōv users simply snap a picture of a receipt or the product code of a product. This creates a personal digital repository for all things tangible. For selected items, Trōv offers a quote to insure each individual item. Customers can then simply “swipe to protect” to purchase the insurance. It is equally simple to “swipe to unprotect.” With Trōv, long contracts are not necessary. Even the claims process is automated with the use of chatbots and available on-demand on a smart phone.
Trōv is founded by Scott Walchek. Scott is a successful technology entrepreneur. Over the past 25 years, he built companies such as Macromedia, Sanctuary Woods, C2B Technologies and DebtMarket. He was also a co-lead investor and founding director of Baidu, China’s largest search engine.
Scott: “At some point I realized there is an enormous latent value in the information related to the things people own. From obvious things such as receipts and warranties to actually having an overview of what you own and what the current replacement value of each item is. We want to curate ways to turn this into value for consumers. From keeping information on items up to date to, for instance, arranging insurance for these items.
We’re a technology company, not an insurance company. We’re new in this space. So I started with testing our first ideas about a proposition and the assumptions behind it with several senior executives of large P&C insurers such as AIG and ACE. What I assumed is that at the end of the day the core metric of success is the ratio of insurance to actual value. The better this ratio, the better the balance sheet.
Of course, this is an oversimplification, but everyone agreed that in essence this is how over the past 200 years value in insurance is created. Now, what is remarkable is that insurers do not really know what consumers own, and what the exact value of these goods is … What if they did know? This would disrupt markets. It would lead to much better risk assessment driven by real knowledge of the true value of what people really own.”
Trōv’s main target users are millennials, a target segment that most incumbents find very difficult to reach and engage with. Why does Trōv strike the right chord among this generation?
Scott: “We’re in the Australian market for a year now and entered the U.K. market a few months ago. Around 75% of our users are aged between 18 and 24. It appears that we are successful in tapping into the specific needs of this group. We do this by explicitly tapping into four key millennial trends. The first is “on-demand.” We can see that from how millennials consume entertainment, shopping etc. Services need to be now, 24 hours a day, on my device. The second trend is, “Don’t lock me into a lengthy contract.” We enable micro-duration. Customers can turn their insurance on and off as they see fit. In practice, they hardly do. But it is about the psychological benefit of being able to do so. The third is what we call “unbundled convenience”: “Let me choose what to protect, the things I really care about.” The fourth is: “people/agent optional.” Millennials want to engage with their smartphone without having to talk to an actual person.”
Trōv is based in the San Francisco Bay Area. But you decided to launch first in Australia and the U.K. Why there?
Scott: “Ha ha – there’s a linear story and a non-linear story to that! The linear story is that microduration is still new to the industry, so our hypothesis requires testing. The regulatory environment is important if you want to get to market fast. Australia and the U.K. have a single regulatory authority versus the 56 bodies in the U.S. But we’re also in the process of filing in the U.S. The non-linear story is that I just happened to meet Kirsten Dunlop, head of strategic innovation at Suncorp Personal Insurance, at a conference in Meribel in France. She immediately understood the strategic impact of Trōv, and that is when it took off.”
Because the Trōv concept is so new to consumers, it must be extremely interesting to learn what exactly strikes the right chord …
Scott: “Customers just love the experience. Our NPS is +49. However, we’re learning every day. With a completely new concept such as Trōv, it is impossible to know exactly what to expect, honestly. It turns out that Trōv reveals new consumer insights. There is still a significant number of valuables that our audience wants to insure but that we cannot provide a quote for, for instance. Although more than 60% never turn off an insurance, the ability to switch an insurance on and off turns out to be an important psychological benefit. This appears to be category-dependent. Sporting goods are switched on and off more often than smartphones and laptops.
We’re constantly measuring and improving every step of the funnel. From leaving Facebook to downloading the app, to registration, to actual swipes. We will share concrete numbers on uptake and conversion rates at DIA Amsterdam. But to already share two big learnings: We designed Trōv for use on smartphones, but, much to our surprise funnel figures multiplied when we decided to add a web interface. And we are actually even attracting better-quality customers.”
In Australia, you decided to partner with Suncorp, in the U.K. with AXA and in the U.S. with Munich Re. What are the success factors of a partnership between an insurtech and an incumbent?
Scott: “At the end of the day, it is about relationships and people. We understand their internal challenges. Everyone agrees that real knowledge of individual insured goods and the actual value of those goods improves the loss ratio. But we need to figure out how this works exactly through experimentation. This requires internal dedication, throughout the whole organization, starting at the top. It is not about conducting small pilots, but the willingness to experiment while going all the way, invest for several years and learn as we go what insurance will look like in the future and how consumers want to engage.”
What are your future plans and ambitions with Trōv? We can imagine that Trōv could also be an interesting partner for retailers and producers of durables. With Trōv, they could seamlessly sell insurance …
Scott: “We have three lines of business. The first is what we call “solid.” This is about expanding the Trōv app geographically, covering more categories and continuously developing the technology. Trōv will be launched in Japan, Germany and Canada shortly. Then there is “liquid”; offering white-label solutions to financial institutions, for instance in relation to connected cars and homes. The third line of business is “gas”; basically Trōv technology embedded in other applications; insurance as a service. This could be attractive for all sorts of merchants, telco operators etc.”
This would make Trōv even more part of the context in which consumers makes decisions about the risk they are willing and not willing to incur. And it also taps into the exponential growth of connected devices, similar to how machine-to-machine payments are increasingly taking place …
Scott: “Yes. What we’re now doing with Trōv is really the beginning. Trōv is about providing our customers with exactly the protection they want, exactly when they want it. With more and more connected devices and sensors and new data streams everywhere we can make the whole experience so seamless they don’t have to do anything at all.”
Imagine if you could pick between Uber drivers based on their driving experience. Would you hire an experienced driver who has logged hundreds of thousands of road miles or one who has driven just a few hundred miles? I’ll bet you’d go with the experienced driver.
Now apply the same question to driverless cars. How would you pick? The same logic applies: Go with experience.
By the miles-driven heuristic, recent reports released by the California Department of Motor Vehicles show that Waymo (the new Alphabet spinout previously known as Google’s Self-Driving Car program) is running laps around its competitors. As with human drivers, experience matters for driverless capabilities. That’s because the deep learning AI techniques used to train driverless cars depend on data—especially data that illuminates rare and dangerous “edge cases.” The more training data, the more confidence you can have in the results.
In 2016, Waymo logged more than 635,000 miles while testing its autonomous vehicles on California’s public roads compared to just over 20,000 for all its competitors combined.
As the W. Edwards Deming principle that is popular in Silicon Valley goes, “In God we trust, all others bring data.” The data shows that Waymo is not only 615,000 miles ahead of its competitors but that those competitors are still neophytes when it comes to proving their technology on real roads and interacting with unpredictable elements such as infrastructure, traffic and human drivers.
Now, there are lots of ways to cut the data and therefore a lot of provisos to the simple test-miles-driven heuristic.
Waymo also leads the others in terms of fewer “disengagements,” which refers to when human test drivers have to retake control from the driverless software. Waymo’s test drivers had to disengage 124 times, or about once very 5,000 miles.
Other companies were all over the map in terms of their disengagements. BMW had one disengagement during 638 total miles of testing. Tesla had 182 disengagements in 550 miles. Mercedes-Benz had 336 disengagements over 673 miles. Fewer miles might mean fewer edge cases were encountered, or it might mean that those companies tested particularly difficult scenarios. But, low total miles driven casts doubt on the readiness of any system for operating on public roads. Until other contenders ramp up their total miles by a factor or 1,000 or more, their disengagement statistics are not statistically relevant.
What do those highway miles tell us about Tesla’s ability to handle city streets, which are more complex for driverless cars? Not much, but the 550 miles that Tesla did spend on public road autonomous testing speaks volumes about its dearth of experiential learning on city streets. (Ed Niedermeyer, an industry analyst, recently argued that most of Tesla’s 550 miles were probably logged while filming one marketing video.)
Notably missing from the reports to the California DMV are all other Big Auto makers and suppliers—and other players cited or rumored as driverless contenders, like Apple and Baidu. They might well be learning to drive on private test tracks or outside of California. But, until they bring data about their performance after significant miles on public roads, don’t trust the press releases or rumors about their capabilities.
Waymo’s deep experience in California does not guarantee its victory. Can it stay ahead as others accelerate? That remains to be seen, but it is clear from the California DMV reports that Waymo is way ahead on the driverless learning curve.
It’s time to reflect on the passing year, mark my predictions from last year and throw some light on what I see 2017 holding in store.
In my post from this time last year, I made a number of predictions, so, now, I wanted to look at how I did. Feel free to jump in and see how close to the mark I was and share your perspectives.
Reviewing 2016 — How did I do?
1. Fintech and insurtech. In last year’s piece, I said that 2015 was the year of the zone, loft, garage and accelerator and that this would continue in 2016 with more focus. Regarding fintech and insurtech, I was right. We have seen some heavyweight investment (more so in the U.S. and Asia) and no major failures, to my knowledge. Trending up. Points: 1.
2. Evolution of IoT. In 2015, I wrote, “2016 will be the year we all realize (IoT) is just another data/automated question set.” Evolution here is continuing, but not at the pace I expected. New firms such as Concirrus (and many others) have come up with some great examples of managing and leveraging the ecosystem. Points 2.
3. Digital and data. At the end of last year, I said 2016 would continue to be a big area of growth for both. There’s been progress, yes, and pace and traction ahead of what’s expected. Points 3.
4. M&A will continue but will slow.I think this has slowed this year, with two of the three major regions in the latter half of the year focused on Brexit and the U.S. election. Now, folks are trying to work out where that leaves fintech/insurtech. Points 4.
5. Will the CDO Survive?I said I thought we’d see a move back to the chief customer officer. Well, no sign of my chief customer officers yet! (Although, after writing this, I came across three chief customer officers, so it’s a start). Have you ever asked an insurance company or people inside the company “who owns the customer?” To me, we’re still product-centric rather than customer-centric. Points 4.
6. New business models.I said last year that we’d need to be clear on what the new business model will be — and what it needs to be. This year, there’s been lots of talk in this area, including here at Deloitte in our Turbulence Ahead report. We identified four business models for the future: 1) Individualization of insurance, 2) Off-the-shelf insurance, 3) Insurance as utilities and, finally, 4) Insurance as portfolio. It may take longer for this to materialize, but, without doubt, these models are coming. See my colleague Emma Logan describe these here. Points 5.
7. What we buy and sell. I believed that, last year, we’d move away from a product mindset to become more relevant and convenient. But we’re still in talking mode, although the ideas here are evolving rapidly. Expect an all-risks policy in Q2 2017. Points 5.
8. Cyber is the new digital.There has been an increase in the number of products and players, but there still hasn’t been any personal cyber policy. I expect that to come in 2017 still. Points 6.
9. Partnerships and bundling. In 2015, I thought we’d see a big rise in the partnerships between insurers and third parties. That’s happened. Points: 7.
So I’m marking my 2015 predictions as 7/9 (or 78% ) — a good effort, but I may have been a bit too ambitious.
Re-reading the above, I still feel all my predictions are valid, be it the end of the CDO, the birth of personal cyber or an all-risks policy. I’ve been involved in enough conversations over the last 12 months to say these are all very real, although some are closer to seeing the light of day than others.
Moving into 2017, here are my top 10 trends to watch:
Speed. Almost all conversations about insurance start with a statement that we’re not moving quickly enough — from transforming and modernizing the legacy estates to quite simply getting products to market quicker. We can no longer wait six months to launch new or updated products. Look at those who managed to capitalize on Pokemon Go insurance cover. In insurance, we’ll move from fast walking to jogging and sprinting. But take caution: This is still a marathon, and there’s still a long way to go. In fact, as Rick Huckstep wrote recently, the sheer speed at which the insurance market has grown in the last 21 months is part of the challenge and attraction.
AI, cognitive learning and machine learning. AI has been long bandied around as a material disruptor. On the back of collecting/orchestrating the data, it’s critical to drive material insight and intelligence from this and allow organizations, brokers and consumers to make subsequent decisions. In 2017, AI will come of age with some impressive examples, including voice. In 2016, we saw Amazon’s Echo and Google Home product launches, as well as some insurers — like Liberty Mutual — giving voice a try. Imagine asking freely, “Am I covered for…?” or, “What’s the status of my claim?” Adding this skill to the mix will likely be table stakes. In addition, AI will augment other solutions to drive value, e.g. robotic process automation, which I wrote about here. All this boils down to getting a better grip on the amazing data we have already while leveraging the vast open data sets available to us.
Line of business focus shift. The insurtech world will make a definitive shift from all the wonderful personal line examples to SME (the next obvious candidate) and to more specialty and complex commercial examples. Will Thorne of the Channel Syndicate wrote a great piece on this in November. While the challenges are harder and more complex, I believe the benefits are greater once we get to them.
Believers. The market has polarized somewhat between those who believe in major innovation and are pushing hard, and those who don’t (or have a different focus and near-term objectives). The range is from those who worry about the next 90 days/half-year results to those who are actively looking to cannibalize their business and investing to find the most efficient way to do this. Here, there’s no right or wrong, with hundreds of organizations strewn across the path. I still believe more will move to the cannibalization route as the first carriers start to unlock material value in 2017, including continued startup acquisition. Oliver Bate (Allianz) had an interesting and positive perspective on this during his company’s investor day in November.
Scale and profitability. Over the last 12 to 18 months, I’ve seen some great startup organizations; internal innovation and disruption teams; VCs; and more. Now is the time to work out how we industrialize and scale these. This is the very same challenge the banking and fintech communities are going through. If you’re an insurance company with 30 million or 80 million global customers, should you be worried about Startup X that has 10,000 or 100,000 customers? If they do manage to scale, can they do so profitability? This reminds me of a recent article about how unprofitable Uber is, but, with millions of engaged customers, they have our attention now. Profitability will become front and center. In fact, Andrew Rear over at Munich Re Digital Partners put together a good post on what the company looks for and why he and the team chose the six they did.
Orchestration. With all of these startups in insurtech, we’ll need to quickly understand what role they play. Are they a platform play, end product play, point disruptor or something else? Regardless, given the volume and velocity of data generation, the importance of both API connectivity and the ability to orchestrate it will increase dramatically. For me, these are table stakes.
External disruptors. In the Turbulence Ahead – The Future of General Insurance report released earlier this year, we identified six key external disruptors that are happening regardless of the insurance industry. These are 1) the sharing economy, 2) self-driving cars and ADAS, 3) the Internet of Things, 4) social and big data, 5) machine learning and predictive analytics, and 6) distributed ledger technology. The key for me within insurance is to identify what role we’ll play. I believe we’ll continue to firmly be the partner of choice for many given our societal and necessary position in the global economy.
Micro insurance. Here, I specifically mean the growth of micro policies, covering specific risks for specific times. Whereas we typically annually see 1.1 policies per customer, we’ll see eight to 10 micro policies covering a shorter period (episodic or usage-based insurance) as per our business models described in the Turbulence Report. This will be true for all lines of business. We’ve already seen some great launches in this space — including Trov, which partnered with Munich Re in the U.S., AXA in the U.K. and SunCorp in Australia. There’s been global access through partnering with established players that has created a new way to market to the next generation. While we switch this on manually by swiping left and right (given some of the external disruptors and location based services), this will very much be automatic going forward. Insurers will need to find new ways to orchestrate, partner and find value to bring in clients. It won’t be just one policy, it will be many that they orchestrate to deliver clients everything they need.
Blockchain and DLT. I almost didn’t include blockchain here, but two factors have led me to include this for the first time: 1) the number of requests we’re now seeing in the market for both specific solutions and more education/use cases and 2) the fact that nine of the 18 startups in the FCA’s new Sandbox are blockchain-related. In 2016, we saw lots of PoC examples, trials and the first live insurance product on the blockchain (see: FlightDelay). Some use cases are more developed than others, and some markets are more suitable than others (I’m still looking for good examples in personal lines), so I believe this will evolve in 2017 but that there won’t be scale breakthroughs. However, along with the World Economic Forum, I firmly believe that “The most imminent effects of disruption will be felt in the banking sector; however, the greatest impact of disruption is likely to be felt in the insurance sector.” We still must ask, “why blockchain?” Just because you can use it? It needs to be the right solution for the right business problem. Horizontal use cases such as digital identity or payments offer compelling use cases that can easily be applied within insurance. In many ways, blockchain, for me, feels much more like an infrastructure play in the same way we would do core systems transformation (policy, claims, billing, finance, etc.)
Business as usual — for now! Partly related to No. 4, we still need to run our business. How we do this and how we set up for the future will be another challenge — not just from a technology perspective but from a people and organization design perspective. (How we work, collaborate and more.) What are the transition states from our current models to a new world in 12, 24 or 36 months. Forward-thinking organization are putting plans in place now for their organizations in the years to come. This will become more important as we embed, partner and acquire startups and move toward new ways of engaging and working with customers.
Interestingly, there are now also so many accelerators, garages, hubs, etc. that startups all now have a lot of choices regarding where to incubate and grow. This presents a whole new challenge on the rush to insurance disruption.
Finally, there are two other observations I wanted to share:
China. While I don’t spend any time in China, it’s hard not to be in awe of what is going on — specifically, the speed and scale at which things are happening. China’s first online insurer, Zhong An, did an interview with Bloomberg regarding what the company is doing with technology (including blockchain) and, more importantly, its scale ($8 billion market cap in two years, 1.6 billion policies sold) — and the only concern from the COO, Wayne Xu, is that the company isn’t moving quickly enough! Step away from this and look further to what’s happening with disruption in general with Alipay and others from the BAT (China’s equivalent of GAFA — Baidu, Alibaba and Tencent) is simply amazing. There’s a good FT article on Tencent, the killer-app factory, and the sheer speed and scale of disruption.
Community. The global insurtech (and fintech) community is an amazing group of people from around the world who have come together across borders and time zones to further challenge and develop the market. Each geography has its own unique features, mature players, startups, labs, accelerators, regulators and, of course, independent challenges. We don’t always see eye to eye, which makes it all that more rewarding because you’re challenged by industry veterans and outside-thinking entrepreneurs. This year’s InsureTech Connect in Las Vegas with more than 1,600 people was truly amazing to see. Things have clearly moved far beyond a small isolated hive of activity with varying levels of maturity to a globally recognized movement. It was great to meet and to see so many carriers, startups, VCs, regulators and partners looking to further the conversation and debate around insurance and insurtech. This community will, no doubt, continue to grow at a fast pace as we look for insurtech successes, and I look forward to seeing how the 2017 discussion, debate and collaboration will continue.
As always, I look forward to your feedback! What I have I missed?