Tag Archives: microsoft

When Incumbents Downplay Disruption…

An unmanned car driven by a search engine company? We’ve seen that movie. It ends with robots harvesting our bodies for energy.

That is a line from a 2011 Chrysler car commercial mocking Google’s self-driving car project.

Another Chrysler commercial was even blunter: “Robots can take our food, our clothes and our homes. But, they will never take our cars.”

Chrysler’s early mocking of Google’s efforts exemplifies the fact that few cling to the status quo tighter than the companies that best understand it and have the most stake in preserving it. It is human nature to value what one does well and look askance at innovations that challenge the assumptions underlying current success. Sprinkle in some predictably irrational wishful thinking and you have the mindset that too quickly dismisses potentially dangerous disruptions.

Ironically, seven years later, those Google “robots” are now mostly driving Chrysler Pacifica minivans. Those robots have taken Chrysler’s cars and driven more than 10 million miles. Chrysler benefits by selling cars to Waymo, the spinoff from that Google project, but not nearly as much as it might have from building the robots themselves. Waymo is valued at $175 billion, about five times Chrysler’s market value.

History brims with other examples.

When Alexander Graham Bell offered to sell his telephone patents to Western Union, the committee evaluating the deal concluded:

Messrs. Hubbard and Bell want to install one of their ‘telephone devices’ in every city. The idea is idiotic on the face of it… This device is inherently of no use to us. We do not recommend its purchase.

Ken Olsen, who disrupted IBM’s mainframe dominance with his DEC minicomputers, mocked the usefulness of personal computers in their early days. He declared, “The personal computer will fall flat on its face in business.” Olsen was very wrong, and DEC would eventually be sold to Compaq Computer, a personal computer maker, for a fraction of its peak value.

See also: Why AI IS All It’s Cracked Up to Be  

Steve Ballmer’s initial ridicule of Apple’s iPhone is also legendary, though the words of the then-CEO of Microsoft were mild compared with the disdain on his face when asked to comment on the iPhone launch.

Years later, after he retired, Ballmer insisted that he was right about the iPhone in the context of mobile phones at the time. What he missed, he admitted, was that the strict separation of hardware, operating system and applications that drove Microsoft’s success in PCs wasn’t going to reproduce itself on mobile phones. Ballmer also didn’t recognize the power of the business model innovation that allowed the iPhone’s high cost to be built into monthly cell phone bills and to be subsidized by mobile operators. (Jump to the 4:00 mark.)

The biggest challenge for successful business executives—like Ballmer, Olsen and those at Western Union—when confronted with potentially disruptive innovations is to think deeply about potential strategic shifts, rather than simply mock innovations for violating current assumptions.

Another perhaps soon-to-be classic example is unfolding at State Farm Insurance.

State Farm released an TV ad that is a thinly veiled attack on Lemonade, a well-funded insurtech startup. Lemonade makes wide use of AI-based chatbots for customer service. State Farm, instead, prides itself on its host of human agents. In the ad, a State Farm agent says:

The budget insurance companies are building these cheap, knockoff robots to compete with us… These bots don’t have the compassion of a real State Farm agent.

As I’ve previously written, AI is one of six information technology trends that is reshaping every information-intensive industry, including insurance. In fact, as I recently told a group of insurance executives, I believe insurance will probably change more in the next 10 to 15 years than it has in the last 300.

See also: Lemonade Really Does Have a Big Heart  

That doesn’t mean that Lemonade’s use of chatbots for customer service will destroy State Farm. But, as State Farm should know, customer-service chatbots are only one of numerous innovations that Lemonade is bringing to the game. As several McKinsey consultants point out, AI-related technologies are driving “seismic tech-driven shifts” in a number of different aspects of insurance. Lemonade has also adopted a mobile-first strategy and is applying behavioral economics to drive other business model innovations.

State Farm executives need to get beyond the mocking and think deeply about how emerging innovations might disrupt their strategic assumptions.

One way to do so is being offered at InsuranceThoughtLeadership.com, where ITL editor-in-chief and industry thought leader Paul Carroll has offered a “State Farm Lemonade Throw Down.” Carroll offers to host an online debate between the two firms’ CEOs about how quickly AI technology should be integrated into interactions with customers.

Lemonade’s CEO, Daniel Schreiber, has accepted. I hope Michael Tipsord, State Farm’s CEO, will accept, as well.

Better for Mr. Tipsord to face the question now, while there is ample time to still out-innovate Lemonade and other startups, than to be left to reflect on what went wrong years later, as Steve Ballmer had to do with the iPhone.

A Contrarian Looks ‘Back to the Future’

A recent week started with reading a page by Paul Carroll from his Innovator’s Edge platform. The title question was: “Will Apple enter insurance? Google? Microsoft? Amazon?” His opening statement was, “Apple’s market value crested $1 trillion last week, and its big tech brethren Google, Microsoft and Amazon aren’t far behind, all are valued north of $800 billion…”

I wasn’t shocked until he said, “All have extensive data about customers. And all have the size to tackle mind-bending problems that insurance faces – by contrast you’d have to combine AIG, Prudential and Allstate just to surpass $100 billion in market value…”

A day later, someone sent me Reagan Consulting’s “The Golden Age of Insurance Brokerage.” As I read through this short update, I could almost hear, “Happy days are here again” playing in the background for the brokers. The following captures the essence of this document: “We are living in the Golden Age of insurance brokerage. There are so many good things happening, it is hard to keep track of them all.” This was followed by six bullet points providing evidence of why the brokers are so happy. (No mention was made of insurance buyers, who may not be as HAPPY!)

A friend then sent me a link to “The Death of the Old School Agency,” by Michael Jans. This is a more in-depth view (30-plus pages) of the world as it may or will be.

From the executive summary, we learn that today’s agent faces a new world of:

  • Rapid changes in consumer behavior and expectations
  • Emerging, existing and well-funded competitive channels
  • A rising millennial generation with different expectations, both as consumers and workers
  • A pace of change unlike anything they’ve ever seen before.

Depending upon who, what and where you are, this report will bring good news or bad news, but nonetheless – it is news that (I believe) every agent needs to hear, consider, ponder and then decide on.

Agencies tomorrow are not “your daddy’s Oldsmobile.” Ask someone older than 40 to explain the phrase. This was the beginning of the end of a legendary line of General Motors automobiles and probably a foreshadowing of the collapse of General Motors.

I encourage you to study all three of these documents – they are well-written by very successful folks. Their ideas should be carefully considered, and, if properly adapted to your circumstances, all can improve your results. That is – as long as the world goes as “we the people” in this industry think it should. What follows is my contrarian view – less “raining on your parade” and more clearing the air as you look to the horizon in tomorrow’s consumer-driven economy. We are not in charge. We today are wagering on our individual and industry’s future. Place your bets. The market will pick the winners.

See also: 3 Myths That Inhibit Innovation (Part 3)  

This contrarian will offer his ideas by looking “back to the future.”

There will remain great opportunities in our future, but these will require transformational change. From today’s selling in an industry that is product-defined and product-driven, to a new client-defined and client-driven marketplace where we will facilitate our client’s buying – solving their problems and meeting their needs. In the competitive nature of tomorrow’s world – we’ll have to use artificial intelligence (AI) to anticipate these needs and deliver solutions before our clients “go shopping.”

Some of the people, gifts, expertise, disciplines, skills, etc. we’ll need will be much different than the mechanical process we use today. We will need communicators (verbal and nonverbal), empathizers, artists, inventors, designers, storytellers, caregivers, consolers, big picture thinkers, storytellers, caregivers and “techies.” This is not an all-inclusive list. (Consider reading “A Whole New Mind,” by Daniel Pink.)

Warren Bennis offered the following wisdom decades ago: “The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.”

Consider the following – brief observations from one man’s experience:

  • In 1978, Fireman’s Fund/Famex Agents offered a GM-endorsed insurance program for dealers. I was the SW Louisiana agent. In those days, the No. 1 concern of GM and its dealers was that GM would reach 65% market share and the federal government would break GM up into separate companies, Chevrolet, Pontiac, Buick, etc. GM’s arrogance, the dealers’ complacency, foreign competition, a poor product and a marketplace wanting change reshaped their world. GM never made it to 65% market share. I believe the insurance industry is ripe for a similar transformational experience.
  • In 1994, I was speaking to a bank in St. James Parish (Louisiana) about change. I said, “Today, GM, Sears and IBM are the kings of their respective jungles. I believe, in my lifetime, one of these companies will fail.” I was laughed off the stage. Fourteen years later, I was vindicated with the bankruptcy filing by GM. I personally believe that I’ll also prove right on Sears.
  • In June 2008, I was an instructor for attendees in a risk and insurance class at the KPMG Advisory University in Chicago. This was a continuing education week for KPMG consultants. A rookie consultant asked, “How does an insurance company fail?” I explained with the Champion Insurance story.

Then he asked for an example of a “rock solid” insurance company. I said, “AIG.” The KPMG senior partners in the room nodded in agreement. Less than 100 days later, AIG was functionally bankrupt, requiring a $182 billion bailout by the government. None of us saw that coming. (I’ll bet you were surprised, as well.)

As I wrap up this article, hoping I’ve stimulated a much more important discussion about the future, consider the following:

  1. Companies valued at $100 billion are “big” until measured against trillion-dollar operations in a world in transformation – especially if the giants have better technology and data!
  2. Apple, Google, Microsoft and Amazon (AGMA) are kings of their respective jungles. Yet these companies are not even as old as the majority of readers of this column (with the possible exception of Microsoft and Apple, founded in the mid-1970s). Why would we think that our “old and stoic” industry is “safe” and “promising” for tomorrow? Are we celebrating our past when we should be planning our future?
  3. Do you think that any of your clients who have recently received a rate increase will be as enthusiastic about the profitability of our industry and the future of the world of brokers as stated in the article offered by Reagan? I’ve rarely (if ever) heard a client celebrate the profitability of our industry when it is an expense to theirs…
  4. Generational changes, social media and our societal rethinking of issues of race, gender, ethnicity, family, values, economic models (socialism / capitalism), etc. may result in our going in directions that we, 10 years ago, would have never considered possible.
  5. Has our industry let the government get its nose into our tent/economic system. NFIP has been in this industry as long as I have. The private sector didn’t want to address the flood risk. Now, these nearly 50 years later, the flood program is a government program and not sustainable. Unfortunately, the government may be ready to have the camel stand up in the tent? Medicare for everyone is no longer a crazy idea. It may not work, but….
  6. If the insurance industry was being designed today to do what it does, do you really believe it would be what we have? If you answered yes, please reread the question!

See also: What Is Really Disrupting Insurance?  

Bookstores, travel agencies, video stores, etc. were important in our communities of yesterday – UNTIL THEY WEREN’T. Should we begin redesigning our own operations and industry and future before a competitive innovator does it for us?

Quantum Computers: Bigger Than AI?

Elon Musk, Stephen Hawking and others have been warning about runway artificial intelligence, but there may be a more imminent threat: quantum computing. It could pose a greater burden on businesses than the Y2K computer bug did toward the end of the ’90s.

Quantum computers are straight out of science fiction. Take the “traveling salesman problem,” where a salesperson has to visit a specific set of cities, each only once, and return to the first city by the most efficient route possible. As the number of cities increases, the problem becomes exponentially complex. It would take a laptop computer 1,000 years to compute the most efficient route between 22 cities, for example. A quantum computer could do this within minutes, possibly seconds.

Unlike classic computers, in which information is represented in 0’s and 1’s, quantum computers rely on particles called quantum bits, or qubits. These can hold a value of 0 or 1 or both values at the same time — a superposition denoted as “0+1.”  They solve problems by laying out all of the possibilities simultaneously and measuring the results. It’s equivalent to opening a combination lock by trying every possible number and sequence simultaneously.

Albert Einstein was so skeptical about entanglement, one of the other principles of quantum mechanics, that he called it “spooky action at a distance” and said it was not possible. “God does not play dice with the universe,” he argued. But, as Hawking later wrote, God may have “a few tricks up his sleeve.”

See also: The Race to Quantum Computers  

Crazy as it may seem, IBM, Google, Microsoft and Intel say that they are getting close to making quantum computers work. IBM is already offering early versions of quantum computing as a cloud service to select clients. There is a global race between technology companies, defense contractors, universities and governments to build advanced versions that hold the promise of solving some of the greatest mysteries of the universe — and enable the cracking open of practically every secured database in the world.

Modern-day security systems are protected with a standard encryption algorithm called RSA (named after Ron Rivest, Adi Shamir and Leonard Adleman, the inventors). It works by finding prime factors of very large numbers, a puzzle that needs to be solved. It is easy to reduce a small number such as 15 to its prime factors (3 and 5), but factoring numbers with a few hundred digits is extremely hard and could take days or months using conventional computers. But some quantum computers are working on these calculations, too, according to IEEE Spectrum. Quantum computers could one day effectively provide a skeleton key to confidential communications, bank accounts and password databases.

Imagine the strategic disadvantage nations would have if their rivals were the first to build these. Those possessing the technology would be able to open every nation’s digital locks.

We don’t know how much progress governments have made, but in May 2016 IBM surprised the world with an announcement that it was making available a five-qubit quantum computer on which researchers could run algorithms and experiments. It envisioned that quantum processors of 50 to 100 qubits would be possible in the next decade. The simultaneous computing capacity of a quantum computer increases exponentially with the number of qubits available to it, so a 50-qubit computer would exceed the capability of the top supercomputers in the world, giving it what researchers call “quantum supremacy.”

IBM delivered another surprise 18 months later with an announcement that it was upgrading the publicly available processor to 20 qubits — and it had succeeded in building an operational prototype of a 50-qubit processor, which would give it quantum supremacy. If IBM gets this one working reliably and doubles the number of qubits even once more, the resultant computing speed will increase, giving the company — and any other players with similar capacity — incredible powers.

Yes, a lot of good will come from this, in better weather forecasting, financial analysis, logistical planning, the search for Earth-like planets and drug discovery. But quantum computing could also open up a Pandora’s box for security. I don’t know of any company or government that is prepared for it; all should build defenses, though. They need to upgrade all computer systems that use RSA encryption — just like they upgraded them for the Y2K bug.

Security researcher Anish Mohammed says that there is substantial progress in the development of algorithms that are “quantum safe.” One promising field is matrix multiplication, which takes advantage of the techniques that allow quantum computers to be able to analyze so much information. Another effort involves developing code-based signature schemes, which do not rely on factoring, as the common public key cryptography systems do; instead, code-based signatures rely on extremely difficult problems in coding theory. So the technical solutions are at hand.

See also: Dark Web and Other Scary Cyber Trends  

But the big challenge will be in moving today’s systems to a “post-quantum” world. The Y2K bug took years to remediate and created fear and havoc in the technology sector. For that, though, we knew what the deadline was. Here, there is no telling whether it will take five years or 10, or whether companies will announce a more advanced milestone just 18 months from now. Worse still, the winner may just remain silent and harvest all the information available.

How Is Marine the Heart of Insurtech?

Who would have thought marine insurance would be at the center of the insurtech revolution? The relationship between insurtech and marine insurance is not an obvious one for many people.

Marine is one of the oldest and most traditional classes of business, the origins of Lloyds of London, when from 1686 members of the shipping industry congregated in the coffee house of Edward Lloyd to arrange early forms of marine insurance.

However, two recent announcements firmly place marine in the center of the technology revolution affecting insurance.

First, Maersk announced they are building a blockchain-based marine insurance platform with EY, Guardtime, Microsoft and several insurance partners. Second, a U.K.-based technology company, called Concirrus, announced the launch of the first AI-powered marine insurance analytics platform.

At Eos, this was not surprising.

See also: Insurance Needs a New Vocabulary  

In the first half of 2017, as part of our thesis-driven investment approach, we highlighted commercial insurance as a key area of focus and within that our first product vertical to focus on was marine insurance. What led us to this conclusion?

Commercial marine insurance is a $30 billion premium market, it’s complex and fragmented, and through our analysis we identified a significant potential shift in profit pools over the next few years. Importantly, the emergence of IoT and other devices has created a wealth of data within the industry. Marine also sits at the heart of global supply chain logistics.

During our deep dive into the sector and having spoken with more than 40 market participants across various parts of the value chain, it became apparent that marine insurers (and shippers) have never had so much data (internal and external) available to them, and many don’t have the tools or skill set to take advantage of it.

Growing competition, underwriting capacity and downward pressure on pricing has given little room to maneuver, but we were intrigued and kept digging.

The ability to gather and analyze these new information sources is helpful, but more important will be driving actionable insights through well-informed decision making based on high-quality, real-time data and analytics to improve risk selection, pricing and claim management while helping the insured better manage risk. As with many parts of insurtech, the underlying driver is the move from pure risk transfer to risk mitigation, and from prevention to prediction.

The creation of marine analytics solution platforms provide tailored insights to users, which is an important first step. Currently, software and tech providers to the marine industry are fragmented, with no dominant vendors and no joined up, end-to-end solutions.

As the market matures, the ability to harness analytics capability at the front end with improved efficiency at the back end through blockchain or other initiatives creates an even more compelling story and is an area we will be watching with interest.