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May 1, 2018

Will insurance avoid its own Blockbuster moment?

Summary:

Now, more than ever, insurance executives should be seeking out opportunities to have their assumptions challenged, to understand how technologies can be applied, to embrace the idea that even the most incomprehensibly advanced innovations are easily grasped through the lens of consumers. 

Conferences such as the recently concluded Global Insurance Symposium in Des Moines have managed to establish the ideal environment for both the distillation of actionable information and for fostering very candid discussions.  Such events are part of a larger ecosystem that, for the first time in modern industrial history, has formed in advance of massive technological change and that gives insurance an advantage that other industries haven’t had as they’ve faced major change over the past 20-plus years. 

We can examine cautionary examples like Blockbuster, which in 1994 had a valuation of $8.4 billion. Ten years later, Blockbuster still had 84,300 employees and nearly 10,000 stores, but it was a dead man walking. Its valuation had, in fact, fallen to $4.7 billion by year end 1997, and by 2004 it was too late for Blockbuster to reverse its fortunes.

What happened? Amazon was founded on July 5, 1995. Netflix launched Aug. 29, 1997. YouTube launched on Feb. 14, 2005. But the video store industry was focused on the video store industry and didn’t see that it was doomed almost the day that Blockbuster hit its 1994 peak. None of the global video rental brick and mortar chains invested in the launch of any of those new technologies because the chains didn’t see the massive effects the startups would have.

If Blockbuster had had a warning system in place, might the outcome have been different?

Consider the adoption curves represented in these two charts from the World Economic Forum.

The chart on the left renders the adoption curve of household technologies, pre-internet. The adoption curves on the right are primarily post the emergence of e-commerce, as well as depicting the advent of mobile technologies. Note the exponentially shorter adoption curves.

Those charts show that, while we can use Blockbuster and other cases to learn from the past, we also have to realize that the pace of change is increasing and that we need to accelerate with it. Although it’s generally accepted that the insurance industry is in the early stages of a sea change, the great irony is that the momentum is building based on business models and technologies that represent relatively incremental progress.

Insurtechs represent significant improvements in the practice of managing known risks. But that’s not enough for the insurance industry to keep up. There is a tsunami of risktechs coming that are dedicated to reinventing risk. These are the firms, funded with nearly $350 billion in 2017 alone, that believe the losses we have experienced for the past century, or two, need not continue. These companies, like those that devastated Blockbuster, rely on technological breakthroughs that have been in the works for over a decade already, by the way.  

Again, no industrial sector upended by technology had the opportunity to benefit from the ideal trifecta of capital on hand, advance notice and the emergence of an ecosystem totally dedicated to the success of the incumbents. Insurance has all the tools needed to identify and deal with the fast pace of change that the emerging risktech competitors represent. What remains to be seen is whether existing insurance industry firms will leverage vision, capital, technologies, time and a support ecosystem to create the next great growth cycle. 

This is a time for giant killers, historic circumstances that level playing fields, filled with opportunities that favor the focused. Time will tell if the unique circumstances favoring success through action will be leveraged by those who commit to clarity and growth and see past the hype and chaos.

Guy Fraker
Chief Innovation Officer
Insurance Thought Leadership

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