Tag Archives: disruptive technology

Traditional Insurance Is Dying

Finance. Taxis. Television. Medicine. What do these have in common?

They’re all on the long–and growing–list of industries being turned upside down by disruptive technology. 

The examples are legion. Once-sure-bet investments like taxicab medallions are at risk of going underwater. Bitcoin is giving consumers the power to bypass banks. Traditional television is at risk from online streaming.

Insurance Is No Different

In fact, innovative players have been disrupting the insurance market since before “disruption” was the buzzword it is today. 

Look at Esurance, which in 1999 rode the dot-com wave to success as the first insurance company to operate exclusively online. No forms, no policy mailers–it didn’t even mail paper bills.

By going paperless, Esurance told customers that it was the kind of company that cared about their preferences–and established itself as a unique player in an industry that places a premium on tradition. Insurance isn’t known for being innovative. 

Most insurance leaders operate under the assumption that if it ain’t broke, you shouldn’t fix it. And in a heavily regulated industry, that’s not totally unreasonable. 

But you only have to look at the scrappy start-ups that are taking down long-established players to understand what awaits the companies that aren’t willing to innovate.

Thinking Outside the Box

Take Time Warner–profit fell 7.2% last quarter as industry analysts foretold “the death of TV.” Meanwhile, Netflix’s profits are soaring beyond expectations–even as the risks it takes don’t always pan out. 

Remember the “Marco Polo” series that cost a reported $90 million? Neither does anyone else. But for every “Marco Polo” there’s an “Orange Is the New Black.” Highly successful programs on a subscription model show that Netflix’s willingness to take risks is carrying it past industry juggernauts.

The market is changing–and if you want to stay competitive, you need to use every weapon in your arsenal. Millennials aren’t buying insurance at the rate their parents did

To a consumer population weaned on technology like Uber and Venmo, the insurance industry seems positively antiquated. Facebook can advertise to you the brand of shoes you like–so your insurance company should be able to offer a product that you actually want.

The Information Importance

According to Accenture, “Regulated industries are especially vulnerable” to incumbents. When there are barriers to entry based on licensing requirements or fees, competition is lower. Decreased competition, in turn, leads to less incentive to innovate. This can leave regulated industries, such as insurance, healthcare and finance, in a highly vulnerable position when another company figures out a way to improve their offerings.

Other attributes that can make an industry vulnerable, per Accenture’s findings, can include:

  • Narrow focus: If a brand focuses entirely on cost savings, convenience or innovation, it isn’t effectively covering its bases. A disruptor that manages to offer two or three of these factors instead of just one has a near-immediate advantage.
  • Small scope or targets: Failing to expand offerings to all demographics can mean that industries or service providers aren’t able to replicate the broad reach of disruptors.
  • Failing to innovate: Disruptors don’t always get their product right on the very first try. Companies must innovate continuously and figure out ways to build continuous improvement into their business model.

Tech start-ups use information as an asset. How can you tell if information is a valuable weapon in the battle you’re fighting? 

“Big data” isn’t just a buzzword; industry analysts are calling it the wave of the future. At Citi, they’re talking about “the feed”: a real-time data stream that leverages the Internet of Things to reshape risk management. 

Auto insurers are turning to connected cars to let them reward safe drivers. Some life insurers are even offering discounts to customers who wear activity trackers.

It Can Happen to You

For most insurance companies, incorporating an unknown element into the way they operate is daunting. 

But talk to any cab driver, grocery store clerk or travel agent, and they’ll tell you that the only way to survive in a technology-driven world is to innovate.

Look at the insurance technology market to see what improvements you can incorporate into your organization, and think expansively about how you can use information: for agency management, to attract new customers and retain old ones, to expand your profit margins or to streamline operating costs. 

Your survival depends on it.

Bitcoin Is Here to Stay and Will Transform Payment Systems

Since the digital currency known as Bitcoin came on the scene in 2009, much has been written about it, both good and bad.  However, it seems clear that Bitcoin’s underlying “protocol” has the potential to transform the global payments system. Entrepreneurs are flocking to the Bitcoin protocol. Private equity and venture capital, most notably in Silicon Valley, have also begun to make substantial investments in the technology.

The technology for “crypto-currencies” like Bitcoin may hold particular promise for opening up the financial system to the masses of individuals in the world’s poorest countries, the majority of whom do not have access to bank accounts. The technology also has implications far beyond the financial system and could have fundamental impact on voting, legal contracts and real estate transactions, to name just a few.

A debate is raging over whether Bitcoin should be regulated, and, if so, how far regulation should go, to minimize any dangers while not suppressing innovation as Bitcoin develops out of its “infancy.”

Several events have galvanized those in favor of more robust regulation. In October 2013, the FBI arrested Ross Ulbricht, a.k.a. “Dred Pirate Roberts,” who is alleged to have been the mastermind behind Silk Road, a website that was devoted to selling illegal drugs and other illicit items and services. The sole medium of exchange on Silk Road: Bitcoin. In January 2014, Charlie Shrem, a well-known member of the Bitcoin community and the CEO of BitInstant, one of the best-known and largest Bitcoin exchanges at the time, was arrested on money-laundering charges. Then, Mt. Gox, a Tokyo-based digital currency exchange, collapsed, and the loss of millions of dollars of customer Bitcoins spread through the news like wildfire. Taken together, these events have caused many fraud prevention professionals working in law enforcement, regulatory agencies, compliance departments and other institutions where digital currencies could conceivably be an issue to eye Bitcoin and other “alternative” currencies with a healthy dose of skepticism.

In spite of these events, Bitcoin has been gaining support commercially among merchants and retailers. The Sacramento Kings of the National Basketball Association, the Chicago Sun-Times and Overstock.com, among others, now accept Bitcoins as a method of payment. Thousands of small businesses scattered across the U.S., with notable concentrations in San Francisco and New York, also are accepting Bitcoins.

Because Bitcoin is a disruptive technology, there were no real applicable regulatory or enforcement mechanisms in place when Bitcoin came into existence in 2009. The nature of the Bitcoin protocol is such that regulations already in existence, in most cases, could not be easily adapted. The exchange, transmission, trade, securitization and commoditization of Bitcoins all have regulatory implications. Regulators are rightly concerned about such issues as consumer protection, anti-money laundering/countering the financing of terrorism, fraud prevention and other important issues.  However, because of Bitcoin’s disruptive nature, the application of existing regulations often places Bitcoin in a regulatory “gray zone.”

In March 2013, the U.S. Financial Crimes Enforcement Network, known as FinCEN, issued guidance that characterized Bitcoin exchanges in such a way that they must register with FinCEN and follow the Bank Secrecy Act’s (BSA) anti-money laundering (AML) regulations. Exchanges also must develop bank-level AML and Know Your Customer compliance standards for their businesses.

In July 2014, the New York Department of Financial Services (NYDFS) issued proposed regulations regarding “virtual currencies.” The proposal has entered a 45-day comment period. The proposal would require companies involved in virtual currency business activities to have in place policies and procedures designed to mitigate the risks of money laundering, funding terrorists, fraud and cyber attacks. At the same time, the regulations seek to impose privacy and information security safeguards on companies operating in this environment.

As the country’s leading financial center, New York has taken the lead in proposing regulations that seek to balance the need for anti-money laundering, fraud prevention and consumer protection safeguards against the desire to promote innovation within the nascent digital currency industry. Though it is unclear whether the proposed regulations achieve these ends, it might be argued that these regulations are preferable to a regulatory vacuum that leaves industry insiders and investors with more questions than answers. However, the danger of overregulation is that it could drive away legitimate industry actors and the innovation that would follow. Absent investment and innovation in the industry, the technology is largely left in the hands of those who wish to exploit it for nefarious purposes.

Only time will tell.

KEY TAKEAWAYS

1)  Digital currency technology is here to stay, and overregulation could stifle investment and innovation in the industry, leaving the technology in the hands of those who wish to exploit it for nefarious purposes.

2)   Bitcoin technology is still in its infancy, and venture capital and private equity elements are beginning to show real interest in the technology’s exciting potential to transform certain business practices across a wide range industries.

3)  Regulatory agencies have only recently begun to take notice of the potential issues that this disruptive technology presents.