What Silicon Valley Is Saying About Disrupting Insurance

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OH at Insurance Disrupted 2015 - November 18 - 19 - Cosponsored by Silicon Valley Innovation Center and Insurance Thought Leadership:

"How did you go bankrupt?" ... "Two ways. Gradually, then suddenly." - The Sun Also Rises, Ernest Hemingway, as quoted by ITL CEO Paul Carroll

"Insurance has been in the gradual phase, the suddently phase is here." - ITL CEO Paul Carroll

"The future always happens." - Anonymous

"Moving at the speed of insurance" - Tongue-in-cheek comment by many

Eleven more takeaways

There were many loud-enough-to-be-heard, smart, rational and innovative voices calling for change to the historic model for insurance at last month's gathering of insurance disruptors in Palo Alto. And most encouraging is that these voices were coming from both traditional players and entrepreneurs behind an emerging insur-tech startup sector.

Close to 200 of these folks (as well as several hundred more via live streaming) converged at an Elks Lodge - of all places - to share insights and ideas about how to create new business models, more compelling and engaging client experiences meeting overlooked marketplace needs, new products, and new distribution methods. All are taking advantage of technological possibilities that may seem old-hat in other sectors whose stage of digital maturity is further along on the curve.

This post captures the main messages delivered by several dozen speakers and panelists during the event.

  • Insurance businesses able to see themselves in the prevention business, not just in the protection business, will be the ones who thrive. The potential to shape strong, compelling offerings that help people anticipate and avoid risk has great, untapped commercial potential, and holds the possibility of truly improving people's lives. But one of the biggest challenges for historically successful executive teams is being able to reframe a company's purpose away from its past greatness towards a different future. So many businesses end up dead or among the walking dead because they are unable to leave behind an outmoded definition of how they created value versus what it now takes to succeed. Technology is just the enabler - success is about mindset, vision, leadership and conviction.
  • Value beyond the product sales transaction will create massive opportunity for those able to act upon the possibilities. Many examples exist of companies in other sectors (and are also beginning to emerge within insurance) who add value before and after the transaction. Think of any brand you love because of the experience leading up to and following the actual purchase event. These same opportunities exist in the insurance sector. And, as one of my favorite, preeminent global innovators likes to say, "There's gold in them there hills."
  • Does anyone really want to buy insurance? No. People buy insurance to solve an "end-game" problem. We are entering the era where winners will be those who show they understand this. It's about clients, not products. Client-centricity is too often a fashionable mantra, but in reality is relegated to mere lip service. Insurance grew up as a sector engineered to push product through a distribution system where the incentives were to push more product. The connection between client focus and both a healthy P&L and balance sheet is well established in other sectors, and is no less true here. Incumbents face cultural, infrastructure, regulatory, metrics and talent challenges to execute this shift. In contrast, startups unencumbered by legacy issues are hard at work pursuing client-focused business models with such intensity that there will be breakthroughs at scale. It's only a matter of how soon. The winners will combine digital technologies plus advanced analytics and insight to define their future, and not be tied to a rear-view mirror perspective.
  • Think emergent knowledge, not big data. Does anyone really think they need more, bigger data? Frankly, as I meet with executives and discuss the challenges of competing in our world, no one complains about lack of data. A mentor taught me years ago that it's most important to know what questions to ask. In the big data era, too many people are going backwards from the data, setting themselves up to amass as much as they can, and then trying to figure out what to do with all of it. Meantime, they've increased their costs and security risks, and bogged down always-scarce analytics and IT talent in misguided exercises. Insurers possess via their actuarial capabilities some of the most analytically intense talent you'll find anyplace. Is it possible to redirect some of this incredible capability, and use it to ask the right questions? And don't worry about obtaining more data. Assume any data you want will be available at some point. These sorts of mindset shifts will set insurance sector participants on the path to accelerating knowledge that will lead to new opportunities.
  • The cloud is not about automation, The cloud is about the incredible new possibilities enabled by data transparency and availability, and by the synthesis of formerly unimaginable kinds of disparate data accessible through increasingly improving user-interface layers powered by smart algorithms and machine learning. Insurers who approach the cloud as simply automation driving cost savings will be left behind, not only by competition, but by clients who are becoming empowered by the ability to get their hands on their data, and as a result gain more understanding and control over what their insurance needs really are, and how best to meet them.
  • Data synchronicity can be an opportunity or a threat. Insurers have earned their keep by taking advantage of the fact that they had intelligence and insights that clients and distributors could never access. Think about it, the pooling of risk is built upon carrier ability to bring together disparate data about scale populations to foresee risks and price against the odds of them occurring. That advantage is eroding as data become more widely distributed and accessible. The habit of looking back at a decade's worth of data to assess risk and create actuarial tables will be replaced by constant test-and-learn in small chunks that drive continuous learning. Behavioral modeling will become real time, and acting with speed to execute on constant new knowledge will be the basis for competitive advantage.
  • Usage-based insurance - UBI - is driving towards hyper-specialization and personalization in underwriting, sales, and service. The industry will move away from the whole notion of insuring a pool, towards being able to price an individual based on her driving, health, property care and behavioral record, and insure her neighbor entirely differently. If the notion of pooling of risk goes away, the entire structure of the industry will evolve to something new. Don't just stay tuned. Tune in.
  • The smart home, smart car, smart-everything-in my-life are creating new data sources contributing to UBI capabilities, giving insurers the ability to help me anticipate and even prevent risk. The insurance sector in total probably knows more than just about anyone else about so many aspects of people's lives - this is the sector's opportunity to realize or squander. The sensors becoming embedded in every aspect of our lives will have profound implications for every aspect of the insurance sector, many of which are not identified, yet alone understood. See first point above, insurers must shift to being in the prevention business, not just the protection business. Respectful use of data that truly creates win/wins for clients will be a non-negotiable, especially in an environment where insurers can anticipate greater regulatory scrutiny.
  • Compared with Congress, whose overall approval rating is at about 14%, the industry's average Net Promoter Score of 46% may not look that bad. But it's a sorry state of affairs. One major carrier has a NPS that is actually negative, and others are in competition with the government for setting a low bar. One can only imagine the upside from raising the propensity to be recommended to others by current clients. Acting upon the points already shared above will directly contribute to achieving acceptable satisfaction levels. Action to create true multi-channel sales, service, and claims experience aligned with how clients really behave will take focused work and investment. And time. It's time to start, now.
  • In the US, a full 87% of people under 35 have no contents insurance. What is the societal risk of leaving a generation unprotected from the risks that invariably befall some of those among us? Insurance ownership has traditionally been part of the bedrock of an economically healthy society. If the under-35 crowd is not connecting with the traditional offerings of the industry, given the consequences, how will the industry step up and move to a position of relevance motivating enough for this important demographic to see it as worthy of a piece of their wallet?
  • Will you be an insurer that leverages marketing and technology, or reframe your self-image to that of a technology and marketing company that happens to sell insurance? One of the greatest inhibitors of transformation is the inability to reshape your business model and all of its many elements to align with where the world is going, not to where the world has been. As yet another mentor taught me early in my career, "You are who you say you are." Who are you?

The future always happens. What I overheard in Silicon Valley a few weeks back suggests that for some it will happen to be an exciting time of growth and renewal. Others continue to scratch their heads. Many (understandably) feel a bit bewildered. The good news about being late-to-the-game versus peers in industries already in the throes of disruption - think media, music, retail and the insurers' cousins in banking - is that there are meaningful models, execution paths, and stories of success and failure that can enable leapfrogging in a position of leadership and strength towards what this sector will become.