The schizophrenic nature of innovation in insurance

The schizophrenic nature of innovation in insurance
I have attended various conferences on innovation over the past few years. In almost all of them futurologists of all kinds and innovation experts who are invited to present tend to use the same examples, such as Uber and AirBnB, to describe how new business models can disrupt an industry. The message to insurers is strict and clear: one day the insurance industry will have its own Uber that comes in and disrupts the traditional insurance business model. They present these models as forming part of social revolution where consumers come together to demand a new style of service, based upon social equity and reinforced by free-spirited democratic principles. In some respects, they’ve taken their lead from the Internet generation of superfirms that dominate our digital lives (such as Google, Amazon, eBay, and Facebook). While I fully agree that insurers have to innovate, anticipate, and adapt to changes impacting our industry, I have to confess that I find the usual message too simplistic. What particularly strikes me is the lack of criticism towards these firms. Indeed companies have been embracing and advocating non-discriminatory values for decades in various guises (e.g., gender equality, ethnical diversity, etc.). The US has been proudly supporting these values in the global economy, and the Silicon Valley companies have been keen to promote this message. Therefore I am surprised to observe that these companies have exported their business model but neglected its social impact in new territories. The recent developments around Uber in France are a good example of this. Taxi drivers have to pay a high license authorization to be able to do their job. Many of the taxi drivers have to invest their pension to get a steering wheel. This entry tax is compulsory and supports the community, like all taxes do in every country. Don’t get me wrong, these innovative companies have brought to the market great products, services, and added value. I think they contribute to helping their industry change in a positive way. However, I think they are schizophrenic in a certain way, as they tend to forget their social egalitarian values when economic value is at stake. I am maybe naïve enough to believe that the future of our industry is not only about innovation at all costs but also about responsibility of all economic agents, including companies as well as consumers. In a world where innovation experts place schizophrenic innovators as examples, I hope consumers’ responsibility and their sense of fairness will help our industry keep a critical mind on the future of innovation and innovators. Maybe there is an innovative business model to create out of this concept?

P2P Economy and the Uberization of Insurance

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.