Tag Archives: jeff bezos

What’s Next for Life Insurance Industry?

What do Steve Martin, Alice in Wonderland and Amazon founder Jeff Bezos (or any other successful entrepreneur) all have in common? They know how to “get small.”

While the notion of getting small means something different to each, the ultimate meaning for all is that getting small is the key to something bigger.

For Steve Martin, it is a hilarious way to describe the way to measure how much a recreational drug has impaired, or perhaps even expanded, one’s perception of the world. For Alice, it is a way to enter places she could have never gone before and thereby learn something new. For Jeff Bezos, it is about envisioning a big idea and recognizing that investors and consumers won’t accept it unless it is served up in bite-sized pieces, in the right order.

Getting small is a critical, yet missing, skill set (and mindset) for the insurance industry. This wasn’t always the case. If you trace back the roots of any insurance company, you’ll find a founder who had a big vision but knew how to start small before asking anyone for money to help fund it. Perhaps it was just to help a small region of the country or a specific group of people who had a unique situation where impact could easily be measured.

Dial the clock forward 100-plus years and you have companies that are so far from their entrepreneurial roots that they completely lost the ability to create and launch brand new products, services and business models. We’ll blame things like legacy systems, multistate regulations and entrenched cultures, which are real; however, we can still apply the skill set of getting small to work within those constraints.

Having been through innovation journeys with a healthy number of insurance companies over six years, it is easier now to see how much this issue has impeded the ability to make progress with big ideas. Yes, there are game-changing ideas in their pipelines — ideas that disruptive start-ups would be proud of. But the lack of ability to get small stands in the way because of these three beliefs:

  1. The product has to be maintained for the life of any one policy. So every possible future transaction must be accounted for because nobody wants customer complaints.
  2. The product must conform to all the current rules and regulations, even if they don’t logically apply to the new idea, because nobody wants to disturb regulator relationships.
  3. The product’s underwriting risk must be completely understood before launching anything because nobody wants to shut down a product on account of being wrong about its pricing.

The reality is innovation in any industry involves complaints, changing relationships and being wrong about pricing. The key is minimizing each of these so that the financial and reputational impact on the company is also small. How? By building the skills of prototyping and minimum viable product (MVP) design.

Prototyping is a way to design an experience so that it feels real but isn’t. No promises are ever made, no rules broken and no risk transferred.

The advantage of prototyping is the ability to accurately test consumer reactions to key features, and learning which ones are the most attractive. More important, prototypes paint the vision of the future for purposes of galvanizing a team and inspiring change for regulators who need to be on that team. Not everyone can be inspired, but if you find a few, that’s a start.

The lessons from the prototype dictate the MVP, which is the smallest and lowest-risk starting point at which a product will attract. From this, you learn, adjust and ultimately scale up if appropriate. There is also an exit strategy. Choosing the right MVP is critical because it means you’ve taken the optimal amount of risk for the potential return.

Zero risk is not an option because it means you’ve learned nothing, launched nothing and got no result.

Steve, Alice and Jeff would never stand for that. Neither should you.

This article previously appeared in National Underwriter Life and Health Magazine.

What Is the Future for Drones?

In 2013, Amazon CEO Jeff Bezos announced to the world that the online retailer would begin to develop a “drone-to-door” delivery service for its loyal customers. Dubbed Amazon Prime Air, the system would deliver packages directly to your doorstep in just 30 minutes after an order is placed, setting a new and higher bar for “fast delivery.”

However, after a variety of issues and concerns were addressed by increasing regulations added by the Federal Aviation Administration (FAA), it  appeared that Bezos’ announcement would never get off the ground. But after two years of waiting for the FAA, Amazon will finally get to test these drones on U.S. soil — or, should I say U.S. air? — bringing customers one step closer to having their Tide detergent refilled by a delivery drone.

Despite the U.S. government dragging behind on approvals, for retail and civilian use, sales for drones aren’t expected to slow any time soon. Companies like Teal Group, an aerospace research firm, estimates that sales of both military and civilian drones will total more than $89 billion by 2023.

Other big companies, such as State Farm and AIG, are also getting into the drone business. In fact, State Farm is the first insurance company in the U.S. to receive regulatory approval to test drones for commercial use. With drones popping up in so many different industries, it makes me wonder, what impact will drones have on companies’ customer experience — good and bad?

The Good

State Farm plans on changing the insurance industry for the better, using drones to aid in natural disaster relief. For instance, instead of State Farm spending the money (and time) to ship hundreds of claims adjusters out to natural disaster sites to assess damages, the company will send only a handful of agents equipped with a drone partner to more efficiently survey damaged property.

Jason Wolf, a property defense attorney and shareholder at the Florida-based firm, Koch Parafinczuck & Wolf, stated in an interview to ClaimsJournal.com: “I envision a time when, after a catastrophe, an adjuster pulls up to a neighborhood and opens the trunk of his car and presses a few buttons on his tablet device, and the drone does an immediate survey of everything and streams it all right to his tablet device, and he knows exactly where to go first and what’s most significant within minutes. Costing very little money, the insurance company has a sense of everything that needs to be done in a very short amount of time.”

Imagine all the headaches this could mitigate for customers and employees after the chaos caused by unfortunate losses created by natural disasters.

It’s interesting, too, how this type of surveying will require additional training, but training we might be familiar with. Much like a police officer who trains alongside his dog in a K-9 unit, insurance adjusters will train alongside their partner – only, in this industry, it would be a drone.

While there is debate in the insurance world about how drones will operate, one thing is for sure – they will be operated and used to speed up services and save on cost, making customers’ lives a little easier. As such, claims assessment aided by a drone will yield quick turnarounds and an even quicker payout to the insured.

Additionally, insurance companies will start offering drone insurance to owners of unmanned aircraft systems (UAS). RiskandInsurance.com noted that the general types of coverage that will be required for the use of UAS and ancillary business activities will include liability, personal injury, invasion of privacy, property and workers’ compensation. The publication also mentioned that, given the conservative nature of the insurance industry, carriers could place stricter guidelines on drone coverage than the FAA does.

Once regulated and insured, drones will be sent out into the community to collect data. For example, what if someone’s home flooded? Well, insurance companies could send their drone to the flooded house and survey the area for all damages, speeding up the process for families affected.

There is also the use of drones for the collection of data by third parties. Imagine that Ford is looking to target advertisements for a new truck to areas where the road conditions would demand the use of four-wheel drive. Ford hires an agency to send out drones to specific cities where it is looking to advertise.

This drone will collect data on road conditions and take images of cars on the road to make sure a majority of drivers are in trucks, and will then report back on economic conditions. Ford doesn’t want to be advertising where citizens can’t or won’t pay for the product.

In a world becoming more drone-centric, these types of background checks and data collections via UAS will become increasingly more frequent.

The Bad

The government review process for a drone is 120 days, but, by the end of the process, Amazon says the technology of the drone submitted for regulation is outdated. Therefore, Amazon must update its filing and submit to the FAA for regulation, starting the 120-day review process all over again.

The other concern of the FAA is air traffic. Coming down with a few regulations on drone flight, the FAA is requiring that drone controllers have sight of the drone at all times and that they must operate under 400 feet.

Exelis, a global aerospace, defense, information and services company, was featured in an article on Engadget recently, discussing its development of an air traffic control system for drones. Nearly ready for testing at the FAA approved drone-testing sites, the low-altitude monitoring system would keep tabs on compact aircrafts flying at or under the mandated 400 feet.

It’ll be interesting to see how industry giants, such as Amazon, overcome these obstacles to create a non-invasive customer experience with drone technology.

Once regulated, the next issue is invasion of civilian privacy. Private and civil liberties advocates have raised doubts about the legitimacy of facial recognition cameras, thermal imaging cameras, open Wi-Fi sniffers, license plate scanners and other sensors commonly used by drones in the civilian sphere.

Civilian uses of drones for hobby are already causing issues, most notably at the White House, but across the country, as well. The LA Times reported last June that while LA Kings hockey fans were celebrating their Stanley Cup victory, a group noticed a drone flying over their heads filming the scene. Angry at the invasion of privacy, the crowd knocked the drone out of the sky using a T-shirt and then smashed it to bits with a skateboard.

In Los Angeles, flying a drone in public is not illegal, but LAPD Cmdr. Andrew Smith commented that, “It was kind of an eye-opener for us, that this something we really need to pay attention to.” While the Kings fans reactions may seem a little over the top, the general population seems to feel the same way when they see a drone overhead.

With no official laws on the books regarding the use of domestic drones, the right to privacy becomes a large topic of concern for many citizens. The American Civil Liberties Union states on its website, “Congress has ordered the Federal Aviation Administration to change airspace rules to make it much easier for police nationwide to use domestic drones, but the law does not include badly needed privacy protections.”

It will be interesting to see how industries promote drone use to their customers, without raising fears about a threat to privacy. After all, customers may not always be right, but they are always the customers.

Drones will also need to be protected from cyber attacks.

“Cyberattacks on your PC – they can steal information, and they can steal money, but they don’t cause physical damage, whereas cyber-attacks in a UAV or a car can cause physical damage, and we really don’t want to open that can of worms,” said Kathleen Fisher, the previous program manager of the DARPA project in a statement to NextGov.com

The Pentagon is currently working on developing code that will protect a Boeing Little Bird unmanned aircraft from being hacked. Defense industry programmers are rewriting software to safeguard the computer onboard the helicopter drone and aim to have the project completed by 2017.

The Future

It’s exciting to think about what drone technology will bring to companies and their customers – and to people everywhere. Let’s face it, if we think we have seen the complete potential of what customer experience has to offer, then, well, we’re being naive. The new drone technology will reinvent customer experience once again. And the best part? We all get to see how it unfolds.

The future seems endless for drones. Whether you feel they are an invasion of privacy, or they will begin to make our lives easier and aid society in ways that haven’t even been thought of yet, drones aren’t going anywhere any time soon. If you need to put it in perspective, a white paper featured on Cognizant.com notes that 40,000 drones are expected to deploy in 2015, and this is a number that will continue to increase each year. This industry is ready for take-off.

drone 2

If you haven’t come face-to-face with a drone yet, don’t worry, you will.

How Not to Innovate (and How to): IBM v. Facebook, Amazon

You don’t often see a CEO squash a great quarter with an analyst call script designed to batter his company’s stock price. Yet, that’s what Mark Zuckerberg recently did—to his great credit.

One of the biggest challenges for public companies is to make investors prioritize long-term value over short-term profits. So, rather than running a victory lap after beating Wall Street’s expectations for the third quarter, Zuckerberg laid out a long-term strategy that drove loads of investors away.

To understand why this was a smart move, look at Amazon.com and IBM.

Few CEOs have been more audacious than Amazon CEO Jeff Bezos in managing Wall Street. Bezos told investors 17 years ago, “It’s all about the long term. . . . Our goal is to move quickly to solidify and extend our current position while we begin to pursue the online commerce opportunities in other areas…. We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.”

Bezos has, ever since, eschewed profitability to invest in—and deliver—innovation and growth in ever-expanding retail categories and adjacent markets, including tablets, phones, original content and cloud services.

In return, Amazon attracted investors who believed in his long-term time horizon, as evidenced by Amazon’s astronomical price-to-earnings-ratio and a market cap that stands at nearly $140 billion. Amazon’s costs have risen to eat up all revenues — but the stock price has rocketed.

At some point, Bezos will have to deliver profits commensurate with Amazon’s scale, but, for now, investors continue to give him wide latitude to invest for the long term.

Contrast Bezos’ approach with that of his counterparts at IBM. In 2006, IBM CEO Sam Palmisano told investors that IBM would focus on earnings per share, ahead of growing IBM’s business. Palmisano’s rationale, as he recently told Harvard Business Review, was that IBM was a “mature business” that needed to respond to the demands of shareholders who “wanted more margin expansion and cash generation than top-line growth.” Palmisano dubbed his plan Roadmap 2010 and committed to increase earnings per share from $6 to $10 by 2010.In return, IBM amassed like-minded investors who drove up IBM’s share price in lockstep with earnings growth. Roadmap 2010 was so successful with investors that Palmisano and his successor, Ginni Rometty, doubled down on it with Roadmap 2015—which called for IBM to deliver $20 per share by 2015.

While investors loved them, Roadmaps 2010 and 2015 took IBM far off course in meeting the needs of its customers and employees. The problem is that while IBM might well be a mature company, it competes in an industry that was far from mature in 2006, and is even less mature today. Rather than accepting old age, IBM needs to be as agile as startups and growth-minded goliaths—like Amazon. But Palmisano and Rometty locked IBM into a set of investors and expectations that left less and less room for agility.

Rather than staying on top of the rapid advances in information technology products and services redefining its industry—and every one of its target markets—IBM management had to focus on financial and business reengineering to increase earnings for its investors, as promised.

One industry insider summed up IBM’s predicament this way: “They are paying the price for moving to services—which was smart—but not investing in the fundamentals to support services, e.g., recruiting, training, staffing, etc. They kept their earnings afloat by financial engineering, such as loading up on debt to fund buybacks.”

IBM paid a high price for not innovating. It suffered declining revenues for the last 10 quarters—to the point where Rometty had to abandon Roadmap 2015.

The superiority of Amazon’s long-term market leadership approach over IBM’s short-term profitability considerations is evident in the two giants’ battle over cloud services.

Who could have imagined in 1997 that one of the next big things in IT services would be cloud services, and that Amazon would be the dominant player in that space? If anyone should have foreseen and owned the cloud, it should have been IBM—given its deep client relationships and long history of running data and networking centers for corporate clients.

Yet, BusinessWeek estimates that Amazon Web Services is one of the fastest-growing software businesses in history:

The growth of Amazon’s cloud business is unprecedented, at least when compared to other business software ventures. It’s grown faster after hitting the $1 billion revenue mark than Microsoft, Oracle, and Salesforce.com. You would need to turn to Google—which had the advantage of the vast consumer market—to find a business that grew faster.

Amazon has also vanquished IBM in head-to-head competition, including for a high-profile 10-year, $600 million contract for cloud services to the CIA.

What’s more Amazon’s initial success has drawn other deep-pocketed competitors like Google and Microsoft.  The resulting price war might have more dire consequences for IBM, which does not have Amazon’s long-term investment flexibility.

So, when Zuckerberg prepared for his recent earnings call, he could have easily crafted a story that short-term investors would have loved. Facebook beat expectations for both top-line revenue and bottom-line profits. It also made great strides in showing that it would dominate in the mobile space—a transition about which many observers (including me) had been skeptical. Facebook’s share price would surely go for a nice ride if Zuckerberg simply focused on monetizing his social network.

Instead, Zuckerberg took a page from Bezos’ playbook and laid out five and 10-year visions with aspirations far beyond the core Facebook network. He told investors that he would build a series of other billion-user products—before starting to monetize them. What’s more, he said that Facebook would build the next major computing platform, which he believes will revolve around augmented reality. And he made it clear that this vision required significant investment and that, like Bezos, he would prioritize long-term market leadership over short-term profitability: “We’re going to prepare for the future by investing aggressively.”

The subsequent drop in share price meant that a lot of investors got the message, and left.

Zuckerberg still needs to deliver on his long-term strategy. But he left little doubt about his intentions and made sure that his investors were working on the same assumptions. That’s smart.