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4 Ways Insurance Is Disrupting Itself

Coming from the Insurance Executive Conference earlier this month in New York, I am extremely excited by what I heard regarding where the industry is heading.

I attended both the life insurance and P&C tracks, picking up the following insights about how the industry is disrupting itself before others can:

  1. Insurance carriers are embracing change.
    Anwar Haneef, partner at IBM Watson, said, “We have not seen much disruption in the insurance industry in the last 100 to 200 years” and acknowledged that new technologies have the potential of changing that. Jeffrey Killian, vice president of in-force service and operations at New York Life, stated, “We could become Blockbuster (Video) if we don’t go through the change.”
  1. Insurance carriers are focusing on their customers in a new way. For example, Gerald Patterson, senior vice president of retirement and investor services at Principal Financial group, spoke of Principal’s move away from thinking about customer service to focus instead on the customer experience. Principal tries to provide value to the customer and understand that young consumers expect the same technology from insurance carriers that they experience with other service providers. He also stressed the importance of embedding experimentation in your customer experience on a regular basis.
  1. Insurance carriers are embracing technology and planning for a different future.
    At the highest level, for example, Jane Chwick, former partner in charge of global technology at Goldman Sachs, provides technology expertise as a board member of the relatively young company Voya Financial. Patterson mentioned that he has recently spent time visiting Silicon Valley and attending Fintech conferences.

Killian acknowledged that realizing a company’s vision of customer experience requires investment and pointed out that Principal is committed to making the right investments to accomplish this. He remarked “We have invested a lot in Lean Six Sigma. It’s amazing how much energy you can unlock through these processes.”

Joe Beneducci, chairman, president and CEO of Prosight Specialty Insurance, said, “Technology is a catalyst that affords us options.” Life insurance executives discussed their expectation that the analytics movement will affect carriers’ entire value chain. They also saw predictive analytics enable insurance carriers to be learning organizations.

West Hunt, vice president and chief data officer at Nationwide, discussed the capability of scaling human expertise through cognitive computing. At the same time, the rise of robo-advisers and their potential threat to the business was mentioned. Finally, the recent trend toward digital and what it means to the industry was raised. Technology was discussed all over the conference.

  1. Further opportunities to leverage technology were identified. Colleen Risk, senior analyst at Celent, mentioned the opportunity insurance carriers have of enhancing their websites to provide transaction capabilities for consumers, such as changing beneficiaries. Recent research by Celent showed that less than 25% of life insurance carriers are doing e-delivery of contracts. Other opportunities include: making data available throughout the company, producing strategies to sustain customer loyalty, developing a compelling message for life insurance and educating Millennial consumers.

I was happy to participate in the conference and felt energized by the discussion of new topics that position the industry to continue to thrive into the future.

What do you think? Post your comments below!

McDonald’s: a How-(Not)-to on Innovation

McDonald’s is in free fall, in the U.S. and abroad. Sales in the U.S. were down 4% in February, continuing a slide that cost Don Thompson his job as CEO at the beginning of 2015. The McDonald’s promise of a uniform food and dining experience wherever you see the Golden Arches across the globe has quickly become a liability. Consumers are demanding choice, freshness and more transparency about the ingredients that go into what they’re eating — all things McDonald’s has in short supply. Those videos on how McNuggets are made aren’t helping much, either.

How did McDonald’s miss the boat? The slow-moving car wreck of a declining McDonald’s is déjà vu for marketers who have watched other industry-leading brands squander their equity by failing to adapt to changes in tastes. Blockbuster and RadioShack are just two of the many examples of companies that stood fast, or made only cosmetic changes, as their industries were innovating and shifting below their feet. Whether the products were comfort food, videos or cheap electronics, each company took too long to realize that people weren’t buying what they’re selling any more. Chipotle, Panera and other fast casual restaurants have quickly grown over the last 10 years, but, even though McDonald’s used to own part of Chipotle, it still stopped innovating and missed the looming threat.

Define dying. Even with the recent sales declines, McDonald’s still generates nearly $100 billion of revenue a year, so reports of its actually going out of business won’t be coming anytime soon. But the company is squarely on the wrong side of current eating trends. After expanding the menu to try and provide “something for everyone,” the company is now shrinking the menu again to focus on traditional core offerings. It will all be to no effect if the company isn’t able to re-imagine and re-invigorate the dining experience. Simply having salads on the menu isn’t enough. Nobody really wants to get a Caesar salad from McDonald’s to start with, especially not when it has more calories than the iconic burgers. And the rise of gourmet casual burger chains like Shake Shack and Wahlburger’s has made even McDonald’s core burgers look much less appealing than they did in the past. The patient is still breathing, but there are few signs of improvement.

It could have been different. The McDonald’s brand used to stand for tasty (if not necessarily healthy) food, a fun environment and a little piece of Americana. When I was a kid, I remember that rare times we got to go the McDonald’s down the block on 96th and Broadway as a real treat, complete with a Happy Meal and a toy. By comparison, last year I was spending a Saturday with my boys and wound up in a neighborhood where a McDonald’s was the only option for us to grab lunch. Instead of being excited, my four-year-old solemnly told me, “You know this food isn’t good for you, Daddy,” as he picked at the burger and fries in front of him. And he loves burgers. Times have changed, but McDonald’s really hasn’t. Instead of window dressing changes like substituting apple slices for fries in Happy Meals, the company needs to rethink the menu and value proposition, especially for families.

How can McDonald’s be put back together again? The best companies don’t shy away from market changes. They face changes head-on. It’s hard to remember now, but Netflix was once completely focused on renting DVDs by email. Instead of fighting the streaming revolution, Netflix embraced it wholeheartedly and now makes much more from that part of the business (though the company still has 6 million DVD subscribers in the U.S.). Demands change, and even the most entrenched market leaders can see it all slip away quickly; just ask Blackberry. McDonald’s needs to change its strategy, food and even the look of the stores if it wants to keep up. It won’t be the same old McDonald’s any more, but it might just help turn the business around.

9 Technologies That Will Change Insurance

“We’re at maybe 1% of what is possible. Despite the faster change, we’re still moving slow relative to the opportunities we have.”

This compelling statement from Larry Page, CEO and co-founder of Google epitomizes the power and potential of emerging technologies. Yet most insurers have difficult comprehending how fast emerging technologies are being introduced. And the pace is gathering speed, having a profound impact on our lives, our businesses and our industry. Moore’s Law tells us that computing power doubles every 18 – 24 months, but even that seems to be irrelevant compared with the power of emerging technologies, because they are coming faster, and they are more formidable than ever before.

This rapidly accelerating pace comes at a time when the convergence of advancing technologies, increasing customer expectations and access to capital for new technology start-ups are magnifying the extremes, and the impact to the insurance industry is more game-changing than ever before. Never before has technology advancement had as much influence as what we are experiencing now.

Technologies promise breakthroughs that will challenge long-held business assumptions and shift the boundaries between business and industry – creating completely new businesses and industries. SMA is actively tracking nine emerging technologies: 3D printing, the Internet of Things (IoT), drones/aerial imagery, driverless vehicles, wearable devices, “gamification,” artificial intelligence, semantic technologies and biotechnology. We are following them from a perspective inside the industry as well as taking an “outside-the-industry” view. 

Not surprisingly, adoption is being led by the Internet of Things (IoT). The IoT is followed by artificial intelligence (AI), drones/aerial imagery and then gamification. The insurance industry’s rapid adoption is impressive. Five of the nine technologies are projected to arrive at or go well beyond the tipping point within three years. All nine are projected to surpass the tipping point within five years.

Adding to the momentum, individuals and companies that are a part of SMA’s Innovation Ecosystem and represent outside-the-industry perspectives see an even faster rate of adoption and greater potential for the transformation of insurance. This underscores that the insurance industry is on the crest of a massive wave of change.

Over the next five years, these emerging technologies, just like the Internet, smartphones and social media before them, are expected to drive new business models and foster the formation of companies from unexpected combinations of companies and industries — capturing the customer relationship and revenue. The astounding influence of these technologies — over a relatively short period — will begin to delineate a new generation of market leaders within and outside the insurance industry. Who will be the next Facebook, Uber or eBay?

So how should insurers respond to this rapid adoption? Insurers must quickly begin to develop strategies and experiment with and invest in these technologies today. If not, many insurers will be placed at significant risk, because there is typically a minimum two-year lag time between leaders and the mainstream and a minimum four- to five-year lag time between leaders and laggards. And given the pace of adoption of these technologies by insurance customers, the lag time carries more potential for damage than it did in the past. Consider that Apple introduced the iPhone just seven years ago, in June 2007. The result has been massive destruction and transformation that has created new leaders while forcing others into increasing irrelevance.

While it may be difficult to grasp the sheer magnitude of the change coming from the emerging technologies, remember that Larry Page of Google says we are only seeing 1% of the potential. Insurers must aggressively find a way to engage these technologies and uncover the potential, first to stay in the game, and then to win it. To do so, insurers must have modern core systems as a foundation to integrate the use of these technologies.

Consider these questions: How will product liability need to be redefined for driverless vehicles? If individuals or businesses no longer need auto insurance, what is the impact on other products? Multi-policy discounts? Will the driverless car encourage shopping for alternative options? Will it drive commoditization into other products? How will insurers assess the value and risk of a 3D-printed structure, body organs or vehicle parts? How will biotechnology-based agriculture change risk factors? How will drones help underwriting and claims? Can drones also provide resources needed during catastrophes, creating new services and value? Could gamification be a new channel to help drive increased market penetration through engagement and education about life insurance, health, medical, liability, home, umbrella and more?

These are but a few of the implications for insurance. They are inter-related and complex. They stress the significant disruption that is coming, and coming fast, as represented by the five out of nine emerging technologies that will reach the tipping point within three years … and some much sooner. Insurers that have not begun to pilot these technologies are already lagging behind and will struggle to keep up with this accelerated pace of adoption, not just from today’s competitors, but also from tomorrow’s competitors, as well as their customers. That poses a question: Will you remain relevant, or become the next Kodak, Blockbuster Video, Borders or CNN of insurance – the iconic brand that dies?

The coming years hold unparalleled opportunities for innovation and matchless potential for becoming market leaders that leverage emerging technologies to increase customer value, engagement and loyalty to insurers. As Steve Jobs stated, “Everyone here has the sense that right now is one of those moments when we are influencing the future.” The question to you is: Will you influence the future or be a remnant of the past?

This article is adapted from a new research report, Emerging Technologies: Reshaping the Next-Gen Insurer.

Digital Disruption: Coming to P&C Soon?

My wife is a project manager who is responsible for business operations at our local high school. She hired some people this summer to process and distribute new textbooks within the school, but they hadn’t finished the job and school was about to open, so she needed someone to come in at the last minute and help get the work done. More specifically, someone who would follow her instructions and would not expect to get paid. . .  so I spent a long Saturday with her at the school, schlepping pallets and boxes of new textbooks to the classrooms, getting everything in place in time for the start of the new school year.

I wasn’t happy with the work (the school was hot, the textbooks heavy) and more than once I thought wistfully about Steve Jobs, who according to biographer Walter Isaacson had targeted the school textbook business as an “$8 billion a year industry ripe for digital destruction.” Targeting textbooks seemed like a good idea to me, because not only are they big and heavy and expensive — they don’t update easily, either.

Unfortunately, Jobs didn’t live long enough to disrupt the textbook industry, but others are on the same path and, selfishly, I wish them well! Check out The Object Formerly Known as the Textbook for an interesting look at how textbook publishers and software companies and educational institutions are jockeying for position as textbooks evolve into courseware. Also, As More Schools Embrace Tablets, Do Textbooks Have a Fighting Chance? takes a look at how the Los Angeles Unified School District — second largest school district in the country — is equipping students with iPads and delivering textbooks digitally in a partnership with giant book publisher Pearson.

Harvard professor Clayton Christensen, author of The Innovator’s Dilemma, is credited with coming up with the term “disruptive innovation,” which he defined as: “a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”

These days, we tend to associate disruptive innovation with a new or improved product or service that surprises the market, especially established, industry-leading competitors and increases customer accessibility while lowering costs.The notion is appealing, and it makes for exciting business adventure tales featuring scrappy, innovative underdogs overcoming entrenched, clueless market leaders. Of course, disruptive innovation has been happening for a long time, even if it was called something else, but lately technology has made it easier and cheaper for upstart firms to take on industries they think are “ripe for digital destruction.”

There are some who think we’ve gone too far in adopting the disruption mantra. In her recent article The Disruption Machine, Harvard professor and New Yorker staff writer Jill Lepore squinted hard at disruption theory: “Ever since The Innovator’s Dilemma, everyone is either disrupting or being disrupted. There are disruption consultants, disruption conferences, and disruption seminars. This fall, the University of Southern California is opening a new program: ‘The degree is in disruption,’ the university announced.”

By the way, USC’s Jimmy Iovine and Andre Young Academy for Arts, Technology and the Business of Innovation is, in fact, opening this year and will focus on critical thinking with plans, according to the academy website, to “…empower the next generation of disruptors and professional thought leaders who will ply their skills in a global area.” And, yes, that is Dr. Dre’s name on the academy!

But there are others who believe we have now entered a decidedly more treacherous innovation environment, one that Josh Linkner in The Road to Reinvention says is forcing companies to systematically and continually challenge and reinvent themselves to survive. His fundamental question is this: “Will you disrupt, or be disrupted?” And Paul Nunes and Larry Downes, who wrote an article for the Harvard Business Review Magazine in 2013 titled Big Bang Disruption (they have a book on the same topic, summarized by Accenture here), warn of a new type of innovation that is more than disruptive — it’s devastating: “A Big Bang Disruptor is both better and cheaper from the moment of creation. Using new technologies…Big Bang Disruptors can destabilize mature industries in record time, leaving incumbents and their supply-chain partners dazed and devastated.”

Should CEOs be worried? When Mikhail Gorbachev visited Harvard in 2007 and said, “If you don’t move forward, sooner or later you begin to move backward,” he was talking about politics and multilateral nuclear treaties, not companies, but the warning certainly could have been directed at CEOs. That message, refreshed to incorporate the disruptive innovation threats that have emerged since then, seems a bit unsettling: If you run a company and you aren’t dedicating resources to continually scanning the marketplace for threats and improving and reinventing your business, if you are instead taking a “business as usual” approach, you are at risk of being marginalized or supplanted by competitors who will bring new products, services, experiences, efficiencies, cost structures and insights to your customers.

Maybe not this year, or next year, but sometime soon.  It’s not a question of whether it will happen, but when. Thus Linkner’s question, restated:  Will you disrupt yourself, or be disrupted by someone else?

Of course, some industries, like property casualty insurance, may not be high on anyone’s “ripe for digital destruction” list, so maybe there’s no need for insurance company CEOs to worry. Except perhaps about Google and Amazon. I keep thinking back to Blockbuster CEO Jim Keyes’ comments to The Motley Fool in 2008:  “Neither RedBox nor Netflix are even on the radar screen in terms of competition.” You know the rest of the story, which illustrates the real-life consequences of an incumbent underestimating and then becoming “dazed and devastated” by a competitor.

The Last Analog Generation (and Other Stories of the Dead and Dying)

The Last Analog Generation—let’s call them LAGgards—are departing, and in their wake a fascinating new world is emerging.

I’ve been surprised lately, when meeting with the nation’s leading financial service providers and discussing the tsunami of intergenerational wealth transfer that is upon us. The generation that is now entering (or will soon enter) the work force stands to receive something like $30 trillion of personal wealth over the next 20-30 years. That’s a staggering figure by any measure, but what’s really surprising is the apparent lack of preparedness and stunning dearth of appreciation for the opportunity – and potential threat – this massive wealth transfer represents to stalwart companies and even entire industry sectors.

For context, according to research, there exists roughly $230 trillion of personal wealth around the globe. That’s both financial wealth, like cash and its numerous equivalents, and real and personal property; the figure does not include corporate or public holdings. To give some sense of perspective to the enormity of that figure, just consider that the gross world product (the combined market value of all the products and services produced in one year by all the countries in the world) totaled approximately $85 trillion in 2012. Thinking about the number another way: To accomplish the transfer of $30 trillion over the next 30 years would mean that more than $1.9 million would have to change hands every minute.

By the time the last baby-boomer has shuffled off this mortal coil, about 13% of all global personal wealth will have changed hands in one form or another. Understanding some of the techno-societal distinctions between the bequeathers and the bequeathees should be a discipline required for anyone who aspires to make sense of the opportunities or threats attendant to the wealth transfer.

Because we develop a sort of digital life for the things in our users’ lives (by collecting and digitally managing all the information about those things), Trōv is becoming a technological bridge between the LAGgards, who were born before the digitization of everything, and the emerging generations who are indisputably “born digital.” In our interactions with users and the service providers that are precariously dangling between these two distinct constituencies, we are developing a sense for both parties. A couple of the big thoughts that seem to aptly describe what influences the perspectives of two groups are at once technological and sociological: the death of privacy and the power of information symmetry.  

Privacy is dead

LAGgards are concerned that their personal information remains private. Okay, this should neither surprise nor irritate any of us. However, the norms for what is considered private are being entirely redefined by the constant revelations of breaches (both nefarious and national) – and the new (ab)normal boundaries of self-disclosure regularly displayed on the massively adopted social media platforms like Facebook, Twitter and their do-alikes.

Just take a peek (if you have the stomach for it) at Instagram’s ersatz cult of spoiled children referenced as #richkidsofinstagram. Photos are regularly posted depicting the profligate lives of a generation of an über-wealthy and unbelievably overexposed generation reveling in their latest acquisitive binge or imbibing impossibly costly libations.

As Robert Scoble, one of the oracles for the emerging generation of Digital Natives, intimated to me, privacy is all but dead, and it is no longer a core issue of the emerging generations. So what? Self-disclosure and widely available information about all connected people and institutions will make a profound impact on reputations: personal, corporate and governmental, and if you’re attempting to engage the new generation of wealthy, transparency is mere table stakes, at best.

Information symmetry — your advisor is dead (he just doesn’t know it, yet) 

Information symmetry will be the death of intermediated businesses. When Netflix started shipping CDs and DVDs to homes throughout the U.S. in the late 1990s, the writing was on the wall for the leading distributors of home video. And, as cloud storage and high-bandwidth digital pipelines became ubiquitous and increasingly affordable, Blockbuster (as a proxy for all things analog) scuttled its storefront retail business – bowing out because its distribution channel was obliterated by technology’s relentless march.

Retail auto sales have undergone a somewhat similar coming-of-(digital) age, as well. For years, LAGgards have been subject to the demeaning process of haggling over price, because details about costs were kept intentionally opaque, giving the salesperson the information advantage. (This imbalance in access to data is sometimes referred to as information asymmetry). The sales process was successfully upended when data from the likes of Carfax and Kelly Bluebook were made instantly accessible to anyone with an interest and a browser. 

For roughly similar reasons, LAGgards have grown dependent on trusted advisers, various specialists and brokers to make decisions about many of their important investments, risk, spending and even medical choices. Data asymmetry is at the very center of the LAGgards’ dependence on these data-equipped intermediaries, and models for business — even entire business sectors — have been built on its expected continuation. 

But make no mistake, these intermediated, information-unbalanced businesses are (or soon will be) in trouble; their added value questionable. With massive data availability, the information-scales are being leveled, and with instant, mobile connectivity, the generation-digitalis is no longer apt to transact or make decisions through a human intermediary. The generations of Born Digitals demand immediate, hands-on, intermediary-free access to nearly all aspects of their lives. 

So what? If your livelihood assumes that your clients will be dependent on you because you alone hold the magic elixir of unique information, beware. You might need to consider embracing the new models of info-egalitarianism rather than resisting them. 

To wit, we recently began testing an in-app capability to insure a newly acquired item at point-of-sale with literally the push of a button. This action alerts the broker-of-record to information that had been previously unavailable and carries tremendous customer-retention and quality-of-service implications (not to mention risk management and potential revenue upticks).

I have been perplexed by some brokers, who appear more concerned about the incremental work that this might create than the expansion and quality of their service. Powered by data accessibility, irrespective of our entrenched operations, the march toward disintermediation is inexorable.

Although these two ideas — personal privacy and disintermediation –- may appear to be distinct families of thought, they are much more than distant cousins. Indeed, they are utterly related and perhaps alone frame the most important distinctions between the LAGgards and the Born Digitals.  

If you depend on your intermediated services and expect them to remain relatively unchanged, you may be setting yourself up for incalculable risk (and you’re most likely a LAGgard). However, if you are comfortable with gobs of information floating around in the cloud and are adopting the tools that help you benefit, then you are likely going to survive the turbulence.

The opportunities arising from the merging of data and disintermediation are just becoming evident – and these trends will entirely reshape seemingly unassailable businesses and entire industries. 

As the fabric of personal information privacy becomes increasingly threadbare, the expectation for transparency in all segments of commercial life will be elevated to a prerequisite for any type of engagement. And as new generations of shoppers, investors and the “serviced” become less concerned about privacy and more connected to — and facile with — data, business as usual will be anything but.

(This article first appeared in JetSet magazine.)