My nomination for most overused word for 2015 is ‘disruption’ (along with its cousin, ‘Uberize’) with respect to insurance. I believe this word is used too casually, given that innovation is inherent in the insurance construct. Could we be creating a reversal of roles? I’d be interested in your thoughts.
Of course, disruption is real …
The history of electronic technology shows this in spades. A great mentor of mine introduced me to the concept of ‘the next generation of the previously unthinkable.’
When the first mainframes were introduced to commercial enterprises, business executives found it unthinkable that business would rely on machines.
My mentor called this the First Generation of the Previously Unthinkable. And it was followed by:
- The Second Generation – Personal Computers which allowed user to break free of monolithic computing;
- The Third Generation – The Commercial Internet which provided universal access to data and remote resources.
Each generation has changed the technology profile and, subsequently, business landscape. Some organizations who ignored the changes have been seriously disrupted.
And there is evidence, with the evolution of software and the advent of platforms, that we are likely approaching, or in, the fourth generation. This time, however, business might be the driving force.
Insurers have gotten a bit of a Luddite reputation
Common wisdom with insurers – as well as suppliers and customers – is that we have never been leaders is adopting new technology.
I have argued that this is too blunt a characterization. Regardless, we have been given the reputation of being conservative in our adoption of new technology and process solutions. I see two reasons.
First, until 10 years ago, the Canadian P&C industry was fragmented, with few organizations having sufficient resources to pursue leading edge technologies. This is changing, and several of the larger organizations have introduced formal innovation centres in Canada.
Second, and most significantly, I would argue that technology is just catching up to the requirements for some of our insurance products.
Insurance is continuous innovation
Insurance constantly changes to meet new requirements. Sometimes these are for regulatory requirements. Most times it is to meet the changing needs, created by dynamic risk and competitive environments.
And time is of the essence. As we have seen recently with overland flood coverage in Canada, when one insurer brings in new coverage, others follow quickly.
By and large, IT departments have limited capabilities to modify the systems to accommodate new underwriting, rating, processing, and servicing requirements that accompany these changes. New technology is being deployed, but this takes time.
So, who is disrupting whom?
As new technologies – such as operational analytics, XaaS and machine learning – are introduced and explained to the user community, I have heard underwriters, actuaries, and claims managers say “it’s about time”.
On this basis, the folks facing disruption are some of the existing technology providers who have not been investing in their own technology platforms and processes.
(As an aside, when I attended the Manulife hackathon earlier this month, the teams designing the prototypes were composed overwhelmingly with business users.)
So what happens next?
If this thesis is correct, we may finally be giving the insurance professionals the tools they need to align with consumer requirements. What do you think?
We will be featuring disruptive forces and organizations at the 2016 Insurance-Canada.ca Technology Conference and the 2016 Insurance-Canada.ca Broker Forum. Perhaps we can talk there.
Thanks, and …
On behalf of the Insurance-Canada.ca team, let me thank you for your interest and support during 2015. We wish you a wonderful holiday season and the best for 2016.
I agree with your thoughts that “disruption” is an overused term. That said, we need to look at this subjects in terms of who is using the word disruption and who is not.
Most of the people using the word disruption are those who benefit from the change or disruption; conversely those who don’t use it are those who benefit from the status quo.
Generally speaking, insurance is not broken. It functions well, keeps growing, and those in the positions of power feel very little incentive to change. “Why fix what isn’t broken?”.
The real issue is that insurance has remained stable while many industries have in fact been turned on their heads through disruption and largely technological disruption. Uber and the taxi business are just the most recent example of this. Media, advertising, hotels (via AirBnB etc.) are others that have clearly been disrupted and the lesson are that those who caused disruption won while those who resisted it largely lost.
So what does this all mean? It all comes down to tolerance for risk. Changing incrementally is a good strategy for a incrementally evolving world like insurance. There is innovation in the business and evolution is happening.
At the same time the are large risks gathering.
These risks really have the potential to be disruptive as they come from technologically advanced players e.g., Google and other large data companies. To ignore them and focus only on the status quo is to take on risk without properly pricing for it.
So what’s the answer? It’s to continue evolving but to simulataneously develop scenarios that deal with true catastrophic risk – and that is the disruption to the insurance business model. Smart insurers are doing this. And smart consultants are assisting them to do so. When it comes to disruption from telematics and the Internet of things, we’re happy to help.
Great points, Blair.
One clarification. My experience suggests that the insurance industry looks like a rock of stability, but there have been extraordinary challenges; some driven by unexpected risks, others driven by governmental and regulatory changes. And the industry has survived, due, in no small part, to innovative and creative professionals. We are seeing some of this with the evolution of cyber risk (which dovetails nicely with you role in telematics/IoT). Interesting times!