David A. Smith, Chief Executive, Global Futures and Foresight.
In the 1970’s the mainframe was the key information technology for commercial and financial enterprises and its main role was data management, accounting and cost control. Commentators of the day thought that five such mainframes could meet the entire computing needs of the UK. This was soon proved to be a massive underestimation as corporations realised the cost reduction and processing capabilities of these monolithic machines. The challenger technology of the day was the up-start mini-computer, closely followed by, what was originally termed, the micro. It was never imagined that the micro would become a personal tool let alone one we would personally own.
Ken Olsen of Digital Equipment Corporation (DEC) famously commented in 1977, ‘There is no reason for any individual to have a computer in his home.’ He was referring to having the computer run the house, with automated doors, voice-activated plumbing, windows, heating etc. He had a computer in his home for general use and promulgated the idea. Yet he was associated with the idea that the PC would not catch on as a personal tool. Today, we can control many of our household mechanical, electrical and plumbing services from our smartphones, if we want to.
So much has changed. There is one thing however that has remained constant and that is with each new technology, first we do things differently then we do different things. By that I mean, when we learn the true potential of new technology we start to reconfigure our business models to take maximum advantage of it, in other words we do different things. The insurance industry was an early adopter of information technology and remains so today. Yet surprisingly it is still challenged to identify the opportunities of new business models early in the life cycle of a new technology. Is this the fault of regulation, internal complexity, legacy systems or long-term products, such as life insurance and investments?
Maybe it’s a culture of risk avoidance and a focus on operational excellence. Whatever the reason is, the dam has broken.
New propositions are being created by entrepreneurial players that are beginning to provide real innovation and alternative insurance products to the market. Tom Watson, President of International Business Machines (IBM) from the 1920’s to the 1950’s said that ‘if you want to succeed, double your rate of failure.’ Yet in the UK our attitude to failure is punitive and those who have failed frequently find themselves cast out of the corporate fold or find themselves passed over for promotion in favour of the more conservative, risk averse, manager.
So if we want to find out the potential of each new technology maybe one of the key attributes we need to acquire is a culture of experimentation and trial, and move from being an industry of secure but slow learners to rapid adopters and fast failers. To a culture where to try and fail is more honourable than to never try at all. With so many new technologies emerging at the same time today, to not understand their true potential must pose a higher risk to an organisation than doing very little or nothing at all. No one wants to be at the bleeding edge of technological change but with the infrastructure, organisational and process implications of new technologies, playing catch up later may not be a viable strategy any longer either.
The explosion in the uptake and utility of tablets and smartphones is now helping the industry to speed up the processing of first notification of claim, even to gathering evidence to support or challenge a claim. It’s also beginning to be useful in helping the insured to be warned of impending risk and to avoid that risk.
Insurance is often a little trusted partner in people’s lives. Yet, without insurance who would take the risk of owning a house, car, factory or ship for example? Insurance is an enabling service that allows us to live the lives we wish for, and run the companies we want to build. Technology is beginning to facilitate a change of positioning for the industry, from compensator of loss to preventer of loss, and this is a shift that will reposition insurance in its true light - a life and commerce enabler.
The technologies that will enable this will blend mobile, internet, cellular, wireless, wearables, telemetry, sensors, image, video, voice, gesture, big data, augmented reality, analytics, predictive analytics, drones and 3D printing, closely followed by artificial intelligence, virtuality and thoughtware. To illustrate the point; organisations started offering their staff laptops ten or even twenty years ago but the rate of utilising these devices to encourage mobile and home working has been variably slow to non-existent. The laptop is inherently a mobile device yet the office hours, working practices and systems and applications to encourage this have taken ages to develop and deploy. Tablets and smart-phones have taken this potential further with their on-board capabilities, truly making mobile working practices attractive for many staff and organisations.
Some insurance players are embracing the potential of massive data availability to offer highly personalised underwriting on a mass basis. This degree of underwriting personalisation can only spread as more players realise that, whilst we may want to pool risk on some occasions, there are other occasions when we would rather have our specific circumstances priced and underwritten.
Massive, or ‘Big’ data availability, which is growing exponentially, is behind this change. More important is our enabler to turn mass information into usable insight and information against which we can price risk.
Social media is increasingly allowing us to gather a pool of reliable friends or business acquaintances to share risk with, relegating the insurer to the role of administrator, for pricing, underwriting and managing claims. Friendster Insurance in Germany is showing us the way in how to deploy this capability.
As each new technology begins to emerge and we start to understand its potential we adapt the business model, frequently becoming more productive. One consequence of this is we often add the new technology to the top of an existing ageing infrastructure, older legacy systems and networks. Our complexity then multiplies and we reach a point where we simply cannot adapt, innovate or adopt the true potential without enormous cost, risk and disruption. So the far sighted insurer acknowledges that technology is forever moving forward, designs their strategy for utilising IT accordingly and creates a nimble architecture. This
might include Cloud services, IT capabilities provided by third parties across the internet, partnership for innovation, the adoption of new technologies and a modular, even plug-and-play, topography for acquiring IT capabilities.
With each new technology, when we do finally embrace it, we change our business models and adapt, hoping that we’ve now created a stable platform for the foreseeable future. Then along comes another technology or more likely today, a combination of new technology, business practice, regulation and client and consumer expectation and we repeat the cycle all over again. The message is that technological change is constant, so is business model innovation and so are consumer and client expectations.
Two of the major barriers to adopting new technologies and innovative client and customer engagement models are internal complexity and ageing and out-dated legacy systems and networks. Mergers, acquisitions and the adoption of new technologies have emerged over the years, along with a frequent need to preserve information for a great length of time; leading to this situation. So the barrier in reality is an inability to make the business case to keep this IT environment up to date, to move it forward, and to fund the underlying infrastructure upon which new technologies and models can be deployed.
The CEO of one new bank in the UK has vouched that I.T. is too important to be left in the hands of a Chief Information Officer (CIO). So they will not be hiring one. He expects that he and the other members of the board should have sufficient knowledge to make wise commercial decisions about their engagement with and deployment of technology. Ok, so they’re small today and they have mostly cloud-enabled services, so their I.T. is simple. But isn’t that the point, it should be (relatively) simple.
So with sensors being installed all around us, in humans, buildings and everywhere else, with 3D printers producing a fully working human kidney in seven hours and drones flying all over the sky to assess damage and risk all around us, how will these technologies change insurance? Wearable technology such as Google Glasses is on the near horizon, with roll-out envisaged this year. With their arrival we will see the normalisation of the use of head-up-displays, augmented reality, real-time risk assessment and prevention for everyone at every turn. First we’ll use these technologies to do things differently... Then we will do different things.
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