November 8, 2020
The New Shape of Innovation
by Paul Carroll
Howard Schultz's conception of Starbucks as a "third place" provides an intriguing model for innovators, including in insurance.
When I interviewed Howard Schultz for a magazine cover in the late 1990s, I was struck that he didn’t just talk about imagining Starbucks as a chain of upscale coffee houses like those that had charmed him on a trip to Italy as a young man. He talked about Starbucks as a “third place.” We all have our homes and our offices, he said, but he thought we could all use a “third place” that was somehow positioned between home and office and that let us pursue business or leisure however we cared to.
That thought has stuck with me as I’ve pondered the forms that innovation can take, and the term resurfaced for me when I read a recent interview with Kevin Kelly, a co-founder of Wired magazine and one of the more intriguing thinkers on innovation. He, too, had heard Schultz use his “third place” term and was thinking that the idea of a “third” way could be applied in many areas today. For instance, he said, Uber drivers aren’t really employees in the traditional sense, but they’re also not non-employee contractors. They’re a third thing — and should be treated as something new in employment contracts, in insurance and in government regulations.
I think that “third” idea could be important for insurance in two ways. First, we need to be aware of how the industries we cover are changing, so we can be there to provide insurance for Uber drivers and other innovations as they occur. Second, we, too, can find new forms for doing business if we think beyond traditional boundaries like home and office, as Schultz did.
Although Kelly didn’t get into the implications for insurance in this interview in Alta, he noted all sorts of anomalous “third” things that provide food for thought. Facebook isn’t a publisher in any traditional sense, but it sure provides a lot of content — it’s just a new animal, whose users provide and even create most of what appears on the platform. “And free speech?” Kelly says. “When you say something on Twitter, is it public? Is it private? Neither; it’s a third thing.”
He even raises more fundamental questions. “The idea of ownership is overrated,” Kelly says. “In the world where you can have instant delivery of anything you want from this jukebox in the sky, this access is almost the same as owning [something]. In fact, many times it’s better than owning it. You don’t have to store it. You don’t have to catalog it, insure it, clean it. You don’t have to find it.”
Transportation networking companies are certainly betting on this sort of approach to ownership, especially as driverless cars move into the mainstream. You won’t have to own a car, but you’ll always have a claim on one, because you’ll subscribe to a service and be able to summon a ride any time you want to go somewhere.
Plenty of other goods and services could move into that sort of in-between world, where you don’t own something but you have such clear access to it that you don’t really not own it, either. My daughters have occasionally rented formal gowns for events (back when people were hosting events) from an online company that provided an easy way to ship a gown back the next day. While Amazon and other online retailers currently focus on distributing goods, there’s no reason they couldn’t pick the goods up again after they’ve been used briefly. Rather than buying a bunch of equipment and leaving it in the garage to gather cobwebs, why not just rent the tools that you need for a weekend project and have them shipped to you, then return them when you’re done? After all, as the classic Harvard Business School line puts it: Consumers don’t want to buy a quarter-inch drill; they just want a quarter-inch hole.
Kelly says the thinking about the future of work needs to be reframed in a “third” way, too. Rather than wonder which jobs will be done by humans and which by machines, he says, we should think about “centaurs” — in this case, part human and part machine, rather than part human and part horse. In other words, don’t imagine having some work done by machines and some work done by humans. Think of ways that human/machine combos can do work most efficiently and effectively. The contribution by humans and machines in each job will vary a lot, but all will involve some such combination.
“What I’m suggesting,” Kelly says, “is that we’re in this era now where we have a whole bunch of things that are the third thing, and we’re still trying to [look at] them in an outdated, binary way.”
As the world adopts pieces of this “third” approach, the insurance industry will find huge opportunities in covering the risk for the gig workers at places like Uber, for those who now share assets rather than own them outright, for companies that provide products and services in new forms, etc. The relationship will be symbiotic: Unless insurance can come up with creative ways to cover new risks, these new forms of innovation in business will proceed haltingly, if at all.
Innovators in insurance might benefit from conceptualizing their own work on new products and services as finding a “third” way.
I’ve covered many of my ideas on the topic in this space over the months and years. For instance, I see term life insurance as potentially being included in a mortgage, to make sure the loan will be paid off even if the mortgagee dies. Such a policy would be cheap because there would be almost no sales cost, and underwriting would be almost automatic, based on the demographics of the person taking out the loan. The amount of coverage could even decline over the years as the mortgage is paid down. Life insurance could also combine more with wealth management, breaking down traditional silos. And why couldn’t life and health insurance feed into each other? After all, they’re both designed to give you a long, healthy life. I see the data that is currently used to underwrite risk increasingly being used to decrease it; if you see a problem in a company’s cyber security, why not help the company address the problem, rather than just jack up the premium? And so on.
There are loads of clever people out there who understand the problems and potential solutions far better than I do. Here’s hoping they find a way, “third” or otherwise. Maybe a cup of coffee would help, even if you can’t get to your local Starbucks in these pandemic times.
P.S. In case you’re wondering, Schultz uses a French press to make his coffee. He also must have quite the constitution. It seemed to be a point of honor that he’d welcome each guest with a cup of coffee, and my meeting with him was mid-afternoon, so the pot he made for us in his office must have been at least his sixth or seventh of the day. Yet, while I would have been bouncing off the walls on the first such day and then sleep-deprived for the rest of my life, Schultz was as serene as could be.
P.P.S. Here are the six articles I’d like to highlight from the past week:
Paying claims needs to be the default, with AI and analytics ensuring that adjusters spend their time more valuably and have more interesting work.
Interest in pay-as-you-drive or pay-per-mile policies has increased in 2020 as more Americans are working from home.
Existing and prospective customers now expect prompt, appropriate answers via the channel of their choice, or they may look to your competitors.
Scenarios that previously seemed like nice-to-haves have suddenly escalated to urgent, and futuristic ideas may become critical.
Corporate IT, legal, risk and business leaders must collaborate on three steps before updating or acquiring new cyber coverage.
“From now on, nothing in risk engineering will ever be constant BUT change. If you can’t get used to constant change, you’d better leave.”