About Juan Mazzini

Looking at insurance through a different lens

This year at Celent we ran a few scenario analysis sessions with different audiences, covering all lines of business. Some interesting findings came out from those scenarios related to changes in product . These scenarios covered different situations where basically products become more transparent, more flexible and more service oriented. Celent's latest report on the subject: "Redefining Insurance: A Scenario-Based Analysis" is already available.

workshop-auto-summit

In the scenario analysis sessions, participants were asked to evaluate each scenario against multiple considerations: market size, customer relationship, required skills, and the competitive landscape. They were also asked to give their opinion as to the urgency of the scenario.

What's extremely interesting of this analysis is that results have a great difference depending on the lenses you are using. For example the main reflection, of audiences with interests in the Latin American insurance market, is that a new approach in product will mean a larger primary insurance market. This is mostly attributed to the low insurance penetration in the region. New products, for example moving away from indemnity to preventive propositions and PAYD/PHYD type of products, will make the size of the pie bigger and not just shrink the market (premiums) as we see it's the forecast in mature markets when we run these same scenarios.

We heard things like:

  • "Today customers put value on insurance when they have a claim. If this [change in product] helps them reduce risk, then they are going to put more value on the product and buy more"
  • "I think this is about to change from a risk taking business model to a service business model. This is very different. We need to figure out how we are going to make money from a service business model"

Latin America has an extremely low insurance penetration. This is not new; it has been like this since I can remember. And the gap continues to grow between Latin American countries and countries such as UK and the US. This gap means people and companies without insurance, which being more widespread would allow greater financial inclusion and collaborate in the growth of economies.

Decades of trying has not given us any tangible improvements in this area, so maybe it's time to try a different approach. Working on designing smart distribution models, innovative and flexible products that consider changing lifestyles and behaviors of risks, and that also provide a benefit beyond indemnity; this may be the way to achieve higher insurance penetration ratios. Technology and consumer habits are changing in this direction, so I say it’s worth trying. What is there to lose? A couple of decades more with low insurance adoption ratios?

Under the lenses of insurance penetration there's optimism about higher insurance adoption through innovative products. Insurance professionals agree that a change to the product is underway and that action is required to expand the product offering; be this a defensive strategy or a strategy to increase insurance adoption the call to action is now.

insurance-penetration

 

 

 

A positive note for Brazil: A few insurance market developments to follow with interest

The world seems convulsed these days. No matter where you live, something significant is developing around you or about to burst.

Brazil has not been the exception. Economic slowdown and corruption allegations involving high officers in government and the private sector, have led to massive social protests. The Panama Papers only to continue to build a lack of trust on things changing easily. But Brazil is a huge economy, with very talented people and industries that can compete at world-class level. Some things need to change for sure; with a trusted leadership is just a matter of time for Brazil to come back to the right path.

On a specific note about insurance, some positive insurance market developments in Brazil were top news this week and I thought it was worth sharing with you:

  • SUSEP – Superintendência de Seguros Privados of Brazil approves use of Digital Certificates for regulatory purposes
  • SUSEP resolution establishes new rules and criteria for Vehicle Popular Insurance
  • Project of creating a Regional Hub of Reinsurance to be sent to the Finance Ministry

Brazil writes ~45% of the direct premium of the region and more than triples the Mexican insurance industry premium, the second largest insurance market.; so anything happening in Brazil will have an impact in the Latin American insurance market as a whole.

SUSEP, responsible for the control and supervision of insurance markets, private pensions, capitalization and reinsurance, published in the Diário Oficial da União, Instrução n° 79 which regulates about the use of digital certificates in the standard public key infrastructure of Brazil (ICP-Brasil).

Electronic signatures produced with ICP-Brazil certificates become mandatory for decision-making content documents with external circulation, for regulatory acts of the supervised and for other procedures that require proof of authorship and integrity in an external environment to SUSEP. Electronic files produced within the scope of practice of SUSEP will have authorship guarantee, authenticity and integrity ensured in accordance with the law.

“Insurers have a strong interest in digitization based on their planned budget increases between 2015 and 2016. The increase between insurers’ 2015 and 2016 budgets is reflective of the fact that most insurers are at the basic stage of digitization with much room for growth and innovation” said my colleague Colleen Risk in her recent report: You’ve Got Mail: Two Decades Later, Why Are We Still Talking About E-Delivery Rather Than Doing It?. The research shows that challenges related to e-Signature include compliance, legal, risk management, agency, IT and insurance operations. SUSEP support to the use of digital certificates will have a positive impact in the industry enabling higher levels of digitization and efficiency.

Continuing with SUSEP, its resolution establishing new rules and criteria for the operation of the Vehicle Popular Insurance was well received by the National Confederation of General Insurance, Private Pension, Life, Health and Capitalization companies (CNseg) and the CNSP. The National Council of private insurance (CNSP) adopted, in a meeting held on March 30 2016, the provisions for vehicle popular insurance that will have as primary market the owners of vehicles with more than five years of use. The new insurance policy will primarily feature the use of parts from disposed vehicles at auto salvage yards for vehicle repair, which will be possible thanks to law 12977 of May 2014, which regulated the disassembly of vehicles across the country.

Despite aimed to cars manufactured more than five years ago, the popular insurance will not be restricted to that segment. Any insured can opt for the new product, provided it is advised that the repairs will be made with parts used or second-hand. The rules also provide that these pieces cannot be used when involving the safety of passengers, such as the braking system, suspension, seat belts, among others. The minimum coverage should guarantee compensation for damages caused to the vehicle by collision.

While there are some points that can be enhanced, so as to make possible a greater penetration of the product this comes very handy in order to offset the effects of the country's economic moment by expanding insurance market and protecting the assets of the people that see their purchasing power affected. Some suggested enhancements to the rule could be allowing the use of generic parts, non-original parts, but certified by the manufacturer. Also looking to the effect in cost that working with out of network repair shops could have. Market estimates indicate a potential reduction of up to 10%-30% in value compared to traditional products depending on the age of the vehicle.

In the same line of looking to expand the insurance market, the President of the National Federation of Reinsurers (Fenaber), Paulo Pereira, announced on April 5th at a news conference during the 5th Reinsurance Meeting of Rio de Janeiro, the project of creating a Regional Hub of Reinsurance that must be sent to the Finance Ministry before early June. If the hub is implemented, he said, could help double the size of the Brazilian reinsurance market. "We are creating conditions for reinsurers to settle in Brazil to sign out-of-country risks, mainly from Latin America. The Brazilian reinsurance market today is $ 2.5 billion, and that of Latin America, of $ 21 billion. So if we can attract 10% of this market, we will be doubling in size" he estimated.

Pereira pointed out, however, that it will be necessary to provide a good reason to appeal to great players to the country. He believes changes need to be made to the labor environment, to regulation and to taxes so they become an important incentive for bringing the world's largest reinsurance companies to the hub.

Efficiency and market growth are two underlying principles in these market developments. It’s good to see that from the insurance perspective, Brazil does not stay arms crossed waiting to see what happens. This is a positive note for Brazil, at a time where the good news does not abound.

 

Silicon Valley? No, Chilecon Valley

In previous blog posts regarding fintech in Latin America my position was, and remains, that one of the reasons for being behind is that it lacks of a “Silicon Valley” equivalent. Efforts to create a fintech ecosystem, as Finnovista is doing, become a good alternative to overcome the absence of a geographical pocket of innovation. Particularly consider the market fragmentation of Latin America comprised by 19 countries, some of which have 3M inhabitants to Brazil having +200M. People in most countries may speak the same language but markets are far from being similar just for that. Under (or against?) these circumstances, Chile is working to become Latin America’s Silicon Valley. One of its most attractive initiatives is “Start-Up Chile”, created four years ago to transform the Chilean entrepreneurial ecosystem. It began with a question: “What would happen if we could bring the best and brightest entrepreneurs from all around the globe and insert them into the local ecosystem?” The initiative offers work visas, financial support, and an extensive network of global contacts to help build and accelerate growth of customer-validated and scalable companies that will leave a lasting impact on the Latin American ecosystem. The idea is to make the country a focal point for innovation and entrepreneurship within the region. Start-up Chile, with only four years, is a start-up itself but it has a good starting point and great potential:
  • Chile has demonstrated for years its entrepreneurial spirit, with Chilean companies competing successfully in various industries (air transportation, financial services, and retail, just to mention a few) and a stable economy.
  • This year two Chilean start-ups were the winners of the BBVA Open Talent in Latin America: Destacame.cl, aiming to financial inclusion by creating a credit scoring based on utility payments; and Bitnexo which enables fast, easy and low cost transfers between Asia and Latin America, using Bitcoin.
While other countries and cities in the region are working in offering support to start-ups, it seems Chile is leading the way. Hopefully this triggers some healthy competition in the region, which in the end will benefit all. In the meantime, let’s meet at Finnosummit in Bogota – Colombia next February 16th. Join financial institutions, consultants, tech vendors, startups and other digital ecosystem innovators, to learn how startup driven disruption and new technologies are reshaping the future of financial services in the region. Remember to use Celent’s discount code C3L3NT20% for a 20% discount on your conference ticket.  

Kanban Insurance will replace UBI as we know it

The Internet of Things (IoT) has evolved and matured to a point where pilots and programs are already in place around the world for every major line of business: Auto, P&C, Life and Health. The most mature market unarguably is auto insurance in part because sensors have been in place for many years and the auto industry is driving the use of telematics for its own sake, not just insurance. But it is not just telematics; vehicles are becoming smarter. Collision avoidance and secure driving aids are more common now, and not only in luxury cars. At the end of the road we already know that vehicles will evolve to the extreme of being smart enough to become autonomous. A Celent Report “A Scenario: The End of Auto Insurance” by Donald Light back in May 2012 predicted the end of auto insurance as we know it. Donald’s prediction is now a reality. Smarter vehicles make smarter (and safer) drivers reducing significantly the driving risk. Autonomous vehicles take away the driving risk almost entirely (we still have the risk of the system being hacked or that there is a flaw in the programming). All this is happening while telematics driven auto UBI hasn’t yet become the norm in the insurance industry; and already has an expiration date. So should we continue to invest in auto UBI programs to cover driving risk knowing it will inevitably be disrupted? Is there another approach to consider? Some of you may be familiar with Kanban; a method (and term) used in manufacturing, first introduced by Toyota, for a scheduling system for lean and just-in-time (JIT) production. Is a system to control the logistical chain from a production point of view, and is an inventory control system. I believe insurance is changing in a way it will be lean and just in time also; think of “Kanban Insurance”, driven by IoT and digitally delivered and serviced. Kanban insurance is not limited to auto insurance but can be applied across all LOBs, moving away from the traditional concept of insurance pre-defined products where the customer chooses from a limited set of options (and within an existing LOB), to flexible insurance solutions which are a bundle of coverages, regardless of LOB. Kanban insurance is digitally sold and serviced, tailored to the specific needs of each customer with the solution being created automatically on the fly. Kanban insurance allows customers to easily opt in/out and connect devices and sensors to activate the insurance and monitor in real time the changing aspects of the risk. Imagine a solution that is created on the fly based on your specific needs and will follow your daily journey. A solution that for example could cover your commute, whether you use public transportation, Uber/Lyft, an autonomous vehicle you own or share, or that you decided to drive the old fashioned way (manually). This solution will activate a set of coverages for your home which is in autonomous mode as you left the house (as nobody is at home and sensors are active) which are different coverages to the ones you have when people is there; while your life insurance coverage and insured sum (and premium) automatically adjusts depending on what driving mode you are using (or if you are in a train, cruise or air trip). Kanban insurance makes more sense to me than just UBI programs. Insurers that agree with my view should focus on the implications and requirements to be able to support this approach. These will include core systems functionality, digital solutions, data integration, analytics, machine intelligence, 3rd party partnerships, and deciding on infrastructure and data ownership.  

In the quest of making fintech a reality in Latin America

The fintech ecosystem has been evolving and maturing in Latin America for the last three years mainly due to the effort of some participants, including Celent, to connect all key players of the fintech ecosystem. Unlike the USA where there are geographical pockets of Innovation, as Silicon Valley, that brings the actors together based on proximity, nothing like this exists in Latin America Furthermore, the individual (country) market size is significantly smaller when compared to the USA. Fortunately technology allows business to be conceived global or at least regional and therefor provide the scale needed for a fintech start-up to be viable. For these reasons, it is essential to work an ecosystem, a network of participants, regardless of their geographic location in Latin America. I do not foresee a sustained and increasing development of fintech start-ups and initiatives in the region without the existence of this ecosystem. In this last three years we have seen many cases of “me too” fintech start-ups. While this is not bad, it doesn’t show creativity either. Happily we have also seen completely innovative ventures, especially around blockchain, but without this being the sole focus. There are all kinds of fintech start-ups; in payments, leveraging the use of data and focusing on customer experience; in loans, traditional and new models such as crowdfunding and Peer-to-Peer (P2P); in insurance distribution and risk management leveraging the Internet of Things (IoT) just to mention a few. How is this playing for the insurance industry? I believe that the insurance industry is at a tipping point in fintech although I see it more developed out of Latin America. I believe there is a great opportunity gathering and using data for underwriting, claims, and fraud detection; taking advantage of the IoT to develop new personalized products and working on claims prevention; in distribution enabling new channels and becoming more digital and technology reliant, and even using P2P models; engaging with customers in new and improved ways; and discovering how disruption in payments can be leveraged in insurance. In insurance (P&C, life and health) we are seeing that traditional players start moving towards digital environments and interactions, experimenting with technologies such as telematics and with the opportunities arising of the IoT. In Latin America this is incipient, but we see that it improves every year. According to our most recent research 41% of insurers in the region have a formal innovation program which has been running, as minimum, for 2 years and 35% indicated that it doesn’t have a formal program yet. The fact that only 8% of them are focusing on disruptive innovation allows us to think that change will be slow, mostly based on incremental innovation, unless some external factor can accelerate change. The main insurance companies globally are either funding accelerators, have created their Innovation labs, or have established funds to invest in fintechs. However, innovation is often difficult for established players and initiatives of new players appear seeking mainly to innovate in product, distribution, customer experience and looking to benefit from the IoT for both underwriting and claims. Ingenie, one of the pioneers in offering a pay-per-use model based on telematics alongside its strategy of risk prevention, is not really an insurer but a technology company that was forced to go direct as a consequence of the lack of interest from established insurers in adopting a pricing and underwriting model based on the use and individual behavior of the insured. This model is no longer a novelty and has been adopted by many insurers around the world; it is even being replicated in property, life and health insurance. Recently John Hancock announced the launch of an incentive program based on the insured to share data related to its health, but it is not the only one; Discovery was one of the pioneers to launch it many years ago in South Africa. Oscar offers it for health, along with a digital-only user experience. Friendsurance, in Germany, has adopted a model based on social networks and P2P insurance that although it is oriented to auto, it could be applied to other risks (including microinsurance). In parametric insurance (aka index based insurance) using sensors and data, we have seen initiatives as Kilimo Salama aiming to market agriculture insurance massively, in segments that otherwise was not viable to serve. This is indeed an interesting case of extreme digital, with innovation applied in all the insurance life cycle. An area that we still see relegated in Latin America is the widespread use of data, a historic deficit that in many cases can be represented by the difficulty of something as simple as not having a claims database at industry level. Blockhain, for its novelty, is another area where insurers haven’t yet stepped in. Distribution, in the region, is mostly not under the control of the insurer; the direct channel is insignificant in volume when compared to the intermediated business, therefore innovation depends to a large extent of the capabilities of the distribution channels to adopt new technologies and rethink their own models. In this sense banks distributing insurance, where bancassurance is permitted, as well as the largest brokers seem to be in a privileged position to capitalize this opportunity, but suffer the same challenges that other large established players and the final word has not been said yet. Could an external player, someone that understands digital, data and customer experience, change the market dynamics? They are certainly doing so in banking, especially around payments. Google has already entered the insurance industry, on the distribution side, in United Kingdom and the USA. The founders of Alibaba and Tencent Holdings Ltd acquired shares of Ping An Insurance Group Co of China Ltd in a deal valued at $4.7 billion of dollars in December 2014, in what I see as another major threat to the industry from the outside, but taking positions to be able to integrate the business, from distribution to assuming and managing risks.
Three Giants in Internet Finance

Three Giants in Internet Finance

I foresee that in personal lines insurance we will get used to buy from companies that offer the best digital shopping experience, being these insurers and intermediaries that were able to adapt by learning how to compete in a digital world, or new players coming from the digital retail sector. In commercial lines I don’t foresee a threat from the outside in the short or medium term regarding distribution, but a deeper use of technology by insurance companies to become more efficient in the marketing of insurance. The level of advisory and specialization required makes it difficult to envision it can be transformed into a digital experience of purchase and servicing in a short-medium time frame. Nevertheless, in both cases, insurers will continue to be the one assuming risks, just as how banks fund and service credit lines. In this sense insurers must offer flexibility and agility in creating new products, but mainly with the ability to do it based on the use of data, the IoT, and easily integrating with its ecosystem. We will be meeting on February 16th 2016 in Bogotá – Colombia at Finnosummit to discuss the opportunities and challenges for the fintech ecosystem in Latin America. Fintech start-ups can participate of the Finnosummit Challenge, a great opportunity and very interesting prizes for winners. If you want to attend Finnosummit be sure to use Celent discount code: C3L3NT20%. See you there!  

Innovation for dinner

In late August my colleagues Mike Fitzgerald, Fabio Sarrico and myself were in Sao Paulo, Brazil attending InsuranceTech 2015. The objective was to spend a few days looking where the Latin American insurance industry is headed in terms of business and technology and what level of success have some insurers already achieved. As the agenda of the event suggests there were very interesting cases such as Wibe (BBVA’s digital platform for insurance) and Rimac’s transformation process among others. Along with Mike and Mick Simonelli we hosted our innovation workshop for 3rd consecutive year and looked into the state of innovation in LATAM insurers (Report is now published). While there seems to be room for improvement, we are now discussing how to innovate and not just what innovations (or emerging tech/trends) insurers should be looking at, which was the focus for most of insurers when we first started these workshops. For me this is a huge improvement.IMG_1267 Mick’s experience as innovation practitioner at USAA and now collaborating with several leading financial institutions as innovation consultant resulted in many questions from audience. As for technologies and trends to watch we covered several, including IoT and machine learning.

Our research shows that despite much is being said about innovation there are still important barriers to overcome; noticeably “lack of top level leadership” stands out as #1.

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    Our research around digital also shows that most insurers are in a basic stage, but just to prove us wrong (or better said, the one example that shows it is possible to go beyond basic) BBVA Bancomer Seguros shared how they innovated by creating Wibe, their own digital brand and platform starting with auto insurance (even Uber coverage!). Wibe’s case is a good combination of digital, customer experience, execution, and leadership to bring all together in a short period of time and within an established insurer (and bank). Wibe already has +2.2 million visitors to their website, 61% using a mobile, and their youtube commercials were seen +1 million times each. This translated into +200,000 quotes and +3,000 vehicles insured since launching early this year. Rimac’s transformation case was also a great example of leadership, vision, execution and persistence in a Tier 2 insurer. Their journey started in 2010 when they defined the strategic plan. Rimac wanted to become a customer centric insurer and for that they required to transform and simplify their IT platform, among other programs which basically touched everywhere in the company. A total of 65 sub-programs were identified just in IT. Becoming more digital was one of the objectives, along with re-use: the idea to be able to create once and easily deploy in different channels. Rimac’s transformation is still work in progress (does any transformation program ever end?), nevertheless they shared several indicators of success already. Digital enabled sales represent 1% of premium but they expect this to grow significantly in following years; at least the IT infrastructure is ready and available for the business to take advantage. A common thread here seems to be execution and leadership; not time, not money (true that you need to be ready to invest; but how much will depend on the type of project). I also believe that execution and leadership are highly tied to culture; and as Mick usually notes: “Culture eats innovation for lunch”. By now I hope you figured out what I am trying to imply… Changing culture is also an art and it can take time, as transformation programs do (5+ years?). So be ready, and start today. Or start tomorrow and get there one day late. Tic Tac, clock is ticking and the world keeps moving.  

Smartwatch adoption: don’t end up as a laggard

Timex-DataLink_04LLet me present you my first smart watch: Timex Datalink. My mom gave me this as a present when I was 23, back in 1995 (Oh my, I just gave out my age!). For those that haven’t seen one of these, it was the first watch capable of downloading information from a computer. Co-developed by Timex and Microsoft it was capable of data transferring from outlook calendar and tasks, No email, no voice unfortunately. It didn’t look very different than any other digital watches from that time (did I mention they were water resistant?), but they were unique because they could synchronise wirelessly through light (using the monitor screen) with the computer and data was transferred from the computer to the watch quickly and easily. It seemed revolutionary those days. Nevertheless, it was a complete failure (do you see them somewhere today?) While the concept was fine, they were too ahead in time so the functionality was very limited, and there was no integration with mobile devices and apps (they didn’t exist!). So when everyone started talking about smart watches (again) I remembered my old Timex Datalink. I don’t use watches anymore (smart watch or not), but back then I did. So this triggered my curiosity as what are the chances for smart watches to succeed. I decided to run a small poll between my friends and asked:
  1. Would you use a smart watch?
  2. Why?
  3. Under what circumstances would you consider using one?
This is what I discovered:
  • Some people (10%) don’t know what a smart watch is.
  • 10% said no, my smartphone provides me all I need plus if smart watches connect through Bluetooth they make batteries die fast. They would only consider using a smart watch if it is free (as part of a smartphone purchase for example) and technology improves (and battery life becomes a non-issue).
  • 40% said they don’t use watches today so why start using it now? They recognize that it needs to have a compelling advantage over the other devices we use today (mobile, tablet, laptop, etc.). If it is about health monitoring there are a plenty of devices in the format of wristbands that they would use instead. Video streaming would be another good reason to adopt it.
  • 10% answered that a watch is something related to fashion (and in some cases luxury) so unless an established well recognized fashion/luxury watch maker brand enters into the segment and makes them attractive, there is no way they would use it. Clearly this segment of consumers wouldn’t buy it from Apple, even if they come in gold and with diamonds, but they would buy it from Rolex for example. The good news for them is that Rolex is launching one.
  • 10% said they would use it out of curiosity (this reminds me myself back then with the Timex Datalink smart watch). If smart watches provide much more functionality and convenience than they did before, there is a chance that this segment may continue to use them after the “trial” period.
  • 20% said definitely they would use a smart watch. Even more, they believe that it will become an accessory required for many daily tasks and interaction with business as in health for example. If you get a discount in health insurance (or life insurance) associated to a healthy lifestyle, a smart watch seems an ideal device to combine the monitoring capacity with other daily activities as talking and mailing. For those that today carry a watch it will be a seamless experience compared to when we moved from landlines to mobiles. Insurers moving into the use of wearables, including smartphones, to monitor lifestyle and provide benefits associated to it, will encourage adoption by people in this segment.
Some conclusions around this small and targeted survey are that smart watches don’t escape to the same logic of any other product market introduction. There are clearly some early adopters (30%) but with risk of some dropping out if the product does not convince (those that would use it out of curiosity). Pragmatists, that would only use it if provides a clear advantage (40%). Some of these will fall into laggards (or not adopt it) if they don’t see a real benefit. Conservatives, more reluctant to change as they perceive watches to have a different meaning (and use) than smart watches. Finally, laggards that will see how everything evolvers before jumping in (20%). Bell curve We need to see what happens with wearables in general, as there may be other devices and interfaces better than a watch? In my opinion there is still a long way to go before having all the ducks in a row, but no doubt that if linked to real benefits such as savings and convenience the chances of smart watches to succeed increases. Insurers, if not doing it yet, should be considering smart watches and wearables in general as part of its products and its customer experience. Don’t wait to see who the winner is in the wearables segment of the IoT, or you may end on team laggard.

P2P Economy and the Uberization of Insurance

We are getting used to the sharing economy to an extent where the term uberization is becoming part of our vocabulary to refer to the effect of disruption in a given industry by some sort of peer to peer business model, which seems to defy the rules by which incumbents compete. In the essence of this shared economy, motorized by peers connecting directly between them, is the concept of disintermediation. Disintermediation in news: Twitter. Disintermediation in travel: Uber and Airbnb. In the financial services industry there are plenty of cases around lending and crowd-founding, leaving banks wondering if they have to (or will) participate. Under this concept any industry where intermediation is heavily present should be looking into its next Uber… Insurance is no exception. Insurance is about risk sharing, so what better model to bring in technology and make that risk sharing as efficient and effective as possible? Insurance started in many cases by peers getting together to offset the consequences of a loss. This reminds me the story, told to me by an old friend, about how underwriting was born at Lloyds bar in England when captains started betting against their own ships to cover the potential loss of their cargo and vessel. The bookie would take note of the bets entering them one beneath the other on the chalkboard, hence the term underwriter was born. I hope my friends underwriters, whom I have just assimilated to bookies, continue to talk to me after reading this. Mutuals were created with this same concept of peer risk sharing. Risk management in the base of the pyramid has been found to follow the same scheme. More recently a German broker introduced the concept using the power of social networks and group risk sharing: Friendsurance. For more on that, check out this great case study by Mike Fitzgerald. In Colombia a very interesting initiative to take this concept even further: Wesurance, an initiative backed by Suramericana – the leading insurer in Colombia – looking to create groups of people to insure almost anything you want. Please check this video. Disintermediation by peers connecting between them directly, easily, efficiently, looking for those that share the same concerns (and risks) and being able to create a product as personalized as it gets. I don’t know about you, but to me it raises a lot of questions about how this will change intermediation in insurance as we know it and, much more, it raises the question of which is going to be the role of insurers. Want a hint? Banks are slowly starting to embrace the adoption of P2P as part of their business models. Suramericana in insurance is doing the same. My advice: get involved, try, fail, learn, adapt, and shoot for the moon. Even if you miss, you’ll land among the stars.  

The start of a new era: digital retailers and insurance

Insurers from all around the world are making great efforts to become digital. This shows in our research in terms of priorities and increased spending in digital initiatives. Nevertheless, it is a great effort to take a brick & mortar company and move it into the digital world. Ask retailers if not? It is true that there are some pure digital initiatives out there in insurance such as esurance (an Allstate company), Kroodle (an Aegon company) or Friendsurance (not an insurance company) but none today have the critical mass to compete head to head with brick & mortar insurers. In this scenario, digital in insurance is still today an aim but not an established reality. This is why I believe recent news become extremely relevant to the industry. Digital native companies – retailers that have disrupted the brick & mortar retail business – are jumping the fence. It is no news that Google has interests in the financial industry offering car insurance, credit cards and bank accounts in the UK and with all the potential to scale this business model globally. Though, still only playing on the distribution side, so not an insurer; but what happens when giant digital retailer Alibaba decides to cross that fence? The founders of Alibaba and Tencent Holdings Ltd purchased stakes in Ping An Insurance Group Co of China Ltd in a $4.7 billion deal in December 2014. Now Alibaba is seeking stake in insurer New China Life according to different public sources, such as Reuters. The potential of an integrated end to end business going from digital distribution and all the way back to managing and taking risks.  With the possibility of having an important say in which are the products that digital native consumers want to buy and how they want to buy them from these insurers and having the capability to create and deploy them, managing the entire value chain. Nothing will be the same if Alibaba manages the complexity of integration, achieves the potential sinergies of these businesses tied together, and decides to replicate this business model globally taking advantage of its existing positioning as an established and successfull digital retailer. Scary for established insurers (and existing distribution channels), but true. It is all a catch-up game for insurers now. In my opinion a new era for insurance.

From Her to Watson, and What’s Next?

Her is a 2013 American science fiction romantic comedy-drama film written, directed, and produced by Spike Jonze. The film follows Theodore Twombly (Joaquin Phoenix), a man who develops a relationship with Samantha (Scarlett Johansson), an intelligent computer operating system personified through a female voice. Jonze conceived the idea in the early 2000s after reading an article about Cleverbot, a web application that uses an artificial intelligence algorithm to have conversations with humans. I spent an entire day with Watson last Tuesday along with my colleague Dan Latimore (should read his blog about it! http://bankingblog.celent.com/2014/10/08/spending-a-day-with-ibms-watson/) and I could not avoid the resemblance, though IBM’s Watson is much more focused on the business side of the machine/human interaction and collaboration. Watson is a learning system that scales human expertise by extending our abilities to perceive, reason, and relate:
  • Perceiving: Watson understands the world as we do; it interprets sensory input beyond traditional data. Understands natural language; reads manuals, social data, blogs, consumer reviews, etc.
  • Reasoning: Watson thinks through complex problems; it deepens our analysis and inspires creativity. Makes inferences, evaluates pros and cons, and finds relationships between terms and concepts
  • Relating: Watson understands how we communicate, and personalizes its interactions with each of us. Responds in natural language, personalizes the interaction and provides reasons
  • Learning: Watson learns from every interaction, scaling our ability to build experience. Trains with experts and improves with feedback.
Imagine that you can take your best employee, your best agent, your best underwriter, your best adviser, your best risk manager and teach Watson, so it could be then supporting any other employee, business partner or even a customer,  24/7 across your organization. It is the most closer to cloning I have seen lately, without the moral dilemmas.  What if, based in its huge computing capacity and the ability to crunch and interpret TB of data in a very short time-frame it could provide you with more hypothesis and evidence than any human being you can hire? Imagine how accuracy and timeliness could save lives, assess risks better, lower your costs, provide a better understanding of what is going on, even under different circumstances. Watson’s aim is to become the best adviser to your employees, customers and partners while doing their job by leveraging the power and strength of search, analytic and cognitive capabilities. There is a real opportunity here to:
  • Amplify human cognitive strengths
  • Enable a deeper level of reasoning
  • Make decision trade-offs with higher levels of confidence
  • Democratize experience and knowledge within your organization and value chain
Financial institutions around the world are already working with IBM to make Watson smarter, covering more use cases and more languages. IBM has already made available and continues to work on content and APIs business ready on the cloud to make it easier for its ecosystem and clients to embed Watson services in their applications. IBM is already working on having Watson available for Japanese, Spanish and Brazilian Portuguese natural language interaction, and we should be hearing soon some news regarding the 1st Watson Client Experience Center in Latin America, replicating the one IBM has just inaugurated in New York’s Silicon Alley. IBM plans to open these centers in Melbourne, Sao Paulo, Dublin, London and Singapore. IBM’s Watson has already come up with a book of recipes and while I think it is true that the best way to a man’s heart is through his stomach, I don’t expect to fall in love with an avatar powered by Watson as in Jonze’s Her (I am happily married, thank you). I would like though to see soon how it helps me decide what are the best investments given my risk aversion profile or which is the best type of insurance (and coverages) I need given my needs and concerns. I would certainly love to see how underwriting capabilities improve and processes become more accurate and efficient, hopefully expecting better results for me, for the financial services institutions and why not expect to see some savings passed along to consumers? Today Watson is here; what’s next?   IMG_1080IMG_1046