Tag Archives: Customer habits

The Hemingway Model of Disruption

In Ernest Hemingway’s The Sun Also Rises, a character is asked how he went bankrupt. “Two ways,” he says. “Gradually, then suddenly.”

In my experience covering innovation for nearly three decades, that’s how disruption has come to a host of industries: IT, newspapers, books, retail, music, etc. What I think of as the Hemingway model for disruption — gradually, then suddenly — is thus how I expect transformation to come to the four main areas that have yet to see huge changes driven by IT: healthcare, higher education, government and our favorite, insurance.

If history is any guide — and it usually is — many insurance executives will miss the warning signs and be caught unawares, just as executives in other industries have been. In 1997, my frequent co-author, Chunka Mui, and I sat in the office of the CEO of Sears and tried to convince him that the gradual change he was then seeing in retail would become sudden once the Internet matured. We argued that he should search for a new business model, using Sears’ brand name and experience with tools and appliances to become the nation’s handyman. He demurred, convinced that the “sudden” part of disruption wasn’t coming. That same year, we sat down with the president of a very large distributor of music and told him that “sudden” was just around the corner because of MP3 players. We argued that he should sell the business and run for the hills. He, too, was unconvinced.

Even though insurance executives now have two decades of disruption in other industries as evidence, I’m seeing many focus on the “gradual” part of Hemingway’s formulation and hoping that “suddenly” either isn’t coming or doesn’t hit until after they’ve safely eased into retirement.

I came across an article the other day by an old friend and colleague of Chunka’s and mine that takes a different tack and offers some concrete ways to monitor for disruption — or, rather, for what the article, How Old Industries Become Young Again, calls the “dematuring” of an industry. The author, John Sviokla, was a partner of ours at Diamond Management & Technology Consultants, now part of PwC. Before that, he was a professor at Harvard Business School, where he co-wrote a thoroughly prescient piece in Harvard Business Review in the early 1990s (years before most of us even discovered the Internet) that described the contours of what the authors then referred to as the “marketspace” and that we now think of as e-commerce.

In describing how to watch for coming problems and opportunities, Sviokla writes, “What most industries experience as disruption is typically not a sudden change from one source, but the accumulated impact of a range of interacting factors. If you want to be prepared for disruption, it’s critical to understand the more gradual, prevalent and multifaceted dynamic that underlies it: a phenomenon called dematurity….You can think of dematurity as a crescendo of mini-disruptions that add up to great effect.”

He says to look for changes in five areas, to understand how rapidly the industry will change and to see how to prepare:

  • New customer habits
  • New production technologies
  • New lateral competitors
  • New regulations
  • New means of distribution

Because Sviokla only touches on insurance, I’ll channel my inner John and offer some thoughts on the five areas, three of which are clearly dematuring the industry and a fourth of which seems to be well on its way.

New customer habits

This is clearly an area of change. The discussion among insurers mostly concerns Millennials, and that’s fair enough as far as it goes, but the issue is much broader. All sorts of customers have come to expect more transparent pricing and convenient service because of the examples that Amazon and other e-commerce giants have set. Mobile technology drives even more changes in customer behavior, increasing demands for immediacy, among other things. Other technologies, such as health-related wearables, are catching on, with consequences that are unclear at this point but that could be profound. Demographics are changing, and not just because of Millennials. And so on.

New Production Technologies

Another area of clear change. The inputs that can go into the writing of an insurance policy are exploding — cameras, sensors, previously unscrutinized notes from salesmen, from customer service reps, from social media, you name it. Silos within companies mean that insurers can’t yet take full advantage of the new inputs, but change is coming. Agile production technologies will soon mean that it won’t take six to eight months to get a new product to market. It will take six to eight weeks or even six to eight days.

New Lateral Competitors

There has been lots of speculation. Is Google coming? Facebook? Amazon? Will there be an Uber of insurance? Some other start-up that revolutionizes the industry? The answers are still a bit unclear, but it seems to me that new competitors are emerging and that the pace will pick up. You can already see effects in reinsurance, where some risks can be so fully quantified that they are being covered in the capital markets rather than through traditional insurers.

New Regulations

Obamacare has certainly shaken up parts of the health insurance market, but, in general, regulations will slow the dematuring of insurance, not accelerate it.

New Means of Distribution

This will take a while to sort out, but at least parts of the sales process will go direct — the agent may still advise on the content of the policy but won’t handle as many logistical details. The increasing reliance on mobile devices will accelerate the move to direct interactions with insurers.

However, you see Sviokla’s checklist of five areas to watch, I’d encourage you to read his article. A lot of the discussion about the potential for disruption can get emotional — The British are coming! The British are coming! No, they’re not! No, they’re not! — but John, as usual, has managed to take a dispassionate, scholarly look at the issues.

Uber Should Be a Friend, Not a Foe

As I read the considerable amount of press Uber is attracting, the level of negativity from the insurance industry is striking. Uber is free-loading. Uber is undermining consumer protections. Uber encourages drivers to engage in what amounts to insurance fraud. And on and on.

Reality is, Uber, Lyft and the many other start-up companies of their ilk are meeting a new set of needs reflected by the burgeoning sharing economy — needs that traditional businesses with traditional business models and traditional approaches to connecting with customers are not satisfying. Functionally, these new entrants supply high-quality goods — whether it’s an immediately available taxi ride in midtown Manhattan or a cozy apartment via Airbnb in Milan. Emotionally, they deliver good value for the money, competent service and a pleasant experience. These offerings also meet higher-order emotional needs that people have, e.g., for control, security, freedom, even independence. This ability to connect not only functionally but also emotionally suggests that the sharing economy sector is here to stay. These companies are firing on all of the cylinders that make for enduring offerings.

That said, the entrepreneurs behind these offerings are riding on the back of the long-established risk-management practices — policies, pricing, product — of the insurance industry while avoiding the burden of full, dedicated insurance coverage.

The reaction of the insurance industry has been to cry foul, call out the regulators and point to the consumer protections provided by traditional insurance.

Is this reaction ultimately productive?

Technology is pulling the rug out from under business models that looked quite durable even a decade ago. Customer habits and desires for discovering, investigating, shopping for, purchasing and servicing insurance bear less and less resemblance to those upon which the industry relied for the first two centuries of its existence.

As an alternative, I propose the insurance industry look at Uber, Lyft and their peers as a force for positive change and as inspiration to evolve the insurance sector toward continuing strength and relevance in the new economy. This approach can be a path to growth, profits and stability.

One way to achieve this vision is for leaders in the industry to foster cocreation platforms. Cocreation, simply put, is bringing together constituents from inside and outside your company to innovate and problem-solve around big opportunities and issues. Cocreation is a way to engage the instigators of the sharing economy in helping the industry figure out how to transform its risk-management practices to work in new sectors of the economy.

What does cocreation look like?

Imagine diverting the industry’s focus from what’s wrong with sharing economy companies, to seeing their emergence as the opportunity to create forms of insurance supporting new business models.

Next, imagine identifying all the constituents who might contribute creatively and with impact to figuring out how to realize the opportunity in a way that is sustainable. These might include experts on current insurance practices, but importantly would include heavy representation of “outsiders”; i.e., people who work for sharing-economy companies, users of their services, regulators, distributors and big data, digital, brand and customer experience experts.  Constituents would include people with no connection to the insurance industry who bring totally different perspectives that can be applied to insurance — for example, airlines (shared transportation), retail (mass market franchises and distribution), “experience” companies (innovators that elevate an offering beyond product features and price). What’s important is to include people for whom there is something to be gained by participating.

Now imagine giving these constituents a private forum — possibly a 24 x 7 Facebook-type site — where they can engage in dialog on topics relevant to the challenge, or on opportunities to come together for a facilitated meeting in a physical space where they might prototype solutions to the challenge.

Finally, imagine that you as the insurance carrier can listen effectively and glean insights about possible new offerings and use these findings to define alternative approaches that can be validated through an iterative process of test and learn.

Cocreation is another way to think about solving the “problem” of the Ubers of the world, harnessing the immense creativity that spawned the sharing economy to be a force for enabling new sources of value from which we can all benefit.