Jamie Bisker was up after lunch talking about Insurance 2020: Innovating Beyond Old Models. Jamie used to be a Tower Group analyst and now works for IBM in their Institute for Business Value (I blogged about his reports before). Studied future customers and their needs, how automation is flattening the competitive environment, what fundamental trends and strategic challenges are shaping the market. The 15 year time horizon helps counter the industry’s tendency to use a 3-5 year planning horizon, which can have a strongly status-quo based impact. The study does not focus on trends but develops a vision and potential disruptors. A very different approach from traditional future planning.
The study found that, whereas only regulation has forced innovation in the past, the mega trends will force innovation in the future and today’s thinking threatens the capacity to innovate. In addition, interlopers will take business and new operating models must be tried and tried soon – experimentation must be rewarded despite the risk. It is new models that will drive things forward, not more automation of the same. The historical lack of change is a boat anchor that inhibits this. Optimization, of current processes, has replaced and been mistaken for innovation. Apart from pay-as-you-drive (covered in this blog) and some telematics (discussed here), there is hardly any innovation.
Four mega trends:
- Consumer Expectations – informed consumers will reward new entrants and will be loyal only in return for convenience and service.
Particularly those who were young during the growth of the internet and grew up with customized online experiences who will want very different experiences and who will tell their parents and grandparents how to use this technology for their benefit. In particular products like TurboTax might start to cover insurance and more complex financial instruments.
- Insurance Operations – technology lowers barriers to entry and virtualizes the whole value chain
In particular this means not just trying to drive down costs but trying to manage the value chain to provide a better experience so as to compete with new entrants who don’t have the same baggage as the established vendors.
- Business Performance – wider range of dynamic products such as much longer or much shorter terms
- Regulatory Response – regulatory coordination across borders and industry standards make it easier to thrive across borders.
Evolution to integrated risk management that is proactive, not reactive, and integrated across products and partners.
Jamie did point out that the basics of actuarial science are not going to change, despite the amount of change in products, customers, distribution etc. They will need to offer new customized products, allow customers to manage their relationship and get a customized experience and so on.
Three technologies are key – ubiquitous high speed network, deep computing allowing complex calculations in real time for more transaction centric optimization, intelligent systems (or smart enough systems) that take more advantage of unstructured data in particular.
Scenarios include things like Pay as You Live and Active Risk Management (where proactive actions are taken to reduce total impact of risk) as well as changes to reflect the higher profitability of smaller, more specialized companies.
Ask yourself if you have a 15 year vision and if you are making investments in technology and organizational change and new metrics to make that vision real.