Advertisement

http://insurancethoughtleadership.com/wp-content/uploads/2014/04/bg-h1.png

Facebooktwitterredditpinterestlinkedinmail

September 5, 2018

When the Silicon Valley Model No Longer Works

Summary:

Ever since the early 1980s, I’ve been hearing about how Silicon Valley was passé, soon to be duplicated in other parts of the world and ultimately supplanted. So I’ve become more than a little jaded as the years have passed and the valley has not only thrived but has spread south toward San Jose and positively taken over San Francisco. The valley has even spread across the Bay Bridge and is heading east. I have a daughter trying to find an apartment in Oakland, and…yikes, it’s expensive.

But Silicon Valley has planted the seeds of its own irrelevance, and it’s time to start planning for what comes next. Certainly, incumbents like those in insurance need to move past the Silicon Valley model.

I’m not saying that another location—Chicago’s Silicon Prairie or New York’s Silicon Alley—will take its place, but the sorts of communication tools developed in the valley make it a lot easier to communicate with investors, so startups don’t need to cluster around Sand Hill Road any more. The cloud, another gift from the valley (and its northern outpost, Seattle), means computing power is plentiful and cheap. Money is everywhere. The success of the valley’s venture capitalists has made sure of that, and hot startups have seeded certain areas—Doubleclick multimillionaires in New York, Groupon multimillionaires in Chicago, Baidu and Alibaba multimillionaires throughout China. Expertise and the entrepreneurial spirit have spread, too. Stanford and Cal no longer have a lock.

The expense of the valley will also tend to drive people away. If you don’t absolutely have to be in the valley, why not set up shop in places your people can afford: like Ohio, as Silicon Valley star Mark Kvamme did, or Washington, DC, as AOL’s Steve Case did? The bar at the Rosewood Hotel in Menlo Park is quite the scene on Friday night, but you can get your Clase Azul tequila for a lot less elsewhere.

Even more important from the standpoint of insurers, the Silicon Valley model doesn’t fit that well. For one thing, most of what we think of it is myths (which Vivek Wadhwa does a nice job of debunking here). For another, insurance can’t be transformed just by a bunch of computer scientists, no matter how smart. Industry knowledge is required more than in perhaps any field this side of medicine—as Zenefits learned the hard way. The Silicon Valley ethos of “move fast and break things” (as memorably summarized by Facebook) doesn’t work in insurance, either. Regulators won’t let you break things, nor should they when we’re talking about something like a person’s health insurance or life insurance. Finally, the valley’s alpha approach has led to rampant issues with sexism, as summarized in the recent book “Brotopia.”

Why, then, is there still so much “innovation tourism” to Silicon Valley as insurers look there for answers to their innovation questions?

A different model is needed. It must draw on the audacity of Silicon Valley and its ability to take out a clean sheet of paper and reimagine almost anything. But the model must also fit within the regulatory environment of insurance, within the structure of incumbents and their insurtech partners and within insurance’s peculiar constraint: that you often can’t know your cost of goods until years or even decades after you sell a policy.

Helping define that model is what keeps us excited about ITL and about our Innovator’s Edge platform. We hope you’re excited, too.

Have a great week.

Paul Carroll
Editor-in-Chief

description_here

About the Author

Paul Carroll is the editor-in-chief of Insurance Thought Leadership. He is also co-author of Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of a best-seller on IBM, published in 1993. Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.

+ READ MORE about this author ...

Like this Post? Share it!

Add a Comment or Ask a Question

blog comments powered by Disqus
Do NOT follow this link or you will be banned from the site!