I sat down with Nigel Walsh, a true visionary in the Insurance space from our Deloitte UK practice for a dialogue on exponentials as it pertains to the world of Insurance.
To provide a bit of context, Nigel specializes in the area of insurance disruption, which more often that not is digital transformation, major scale transformations whether its core systems moving outwards or client facing activities whether it be broker, consumer or insurtech moving from the outside in.
Will Insurance exponentially change in the near future?
There are 3 trends that I see in the insurance space:
1. Consumer trends
2. Technology trends
3. Insurance Trends
If you triangulate the aforementioned into a push and pull model, you can quickly work out the directionality of the triangle. For example, from a technology perspective it can be argued that the Cloud has been around for years, and insurers are now playing catch up and realizing that they could use Cloud to take out intermediaries to get to our brokers and consumers. On another note, consumer trends pertain to sheer appetite for information overload, ability to engage and interact, the use of the smartphone and how we can now use it as an engagement tool for a product on the insurance side that everyone thinks is menial, or not nice, or whatever else. If you take all 3 things together, we have an opportunity to leverage the technology, understand the consumer better, and drive for a better product.
What about further ahead? How do we relay the impact of exponential change to insurers?
If you think further ahead, you'll take data and manufacture it based on your understanding of risk and you plug in those 3 things (technology trends, insurance trends, consumer trends), even if you plug in consumer trends and technology trends, you end up with a direction of travel that says actually self-driving cars are coming no matter what, IoT is here and will only scale, the sharing economy is here and now, all these trends outside of insurance have happened and will continue to do so, what do we do to immerse ourselves in the new world society?
My children, both 7 and 4 will probably never need to drive, they will be driven around in self-driving vehicles summoned through their app or through other means. With insurance companies they need to understand the impact of the fact that if they want to stay within the same industry, whether it be offering a motor, commercial, or fleet policy it will not operate the in the same way it does today.
So they'll drive to leveraging data like micro-policies, or things that you switch on and off in a heartbeat either manually or automatically. I think exponential change will be embedded and invisible into the things that we buy, and it'll just happen to include insurance.
I agree. How do you then feel if I make the statement that the way insurance is conducted today is quite reactive?
Completely, if you think you're going to buy a policy for a year, a day, an hour, the existing model would deploy someone to sit here and wait till you make a claim or don't make one - which I believe is a model that will die. The shift then will be towards a proactive or rather predictive model. What if I as an insurer call and invite you to the risks you are facing today, next week, next month and indicate the steps you could take to change that or mitigate you having that risk in the first place.
It might be health, motor, home, commercial, but more importantly it will move out of the siloes of products into the horizontal customer.
So, the model may say, "Nigel these are the things you're doing today, if you do these things you have lower risk" It can truly insight driven and proactive rather than sitting there and being reactive.
Absolutely - we're already seeing these trends in machine learning and IoT with predictive analytics. On the theme of connectivity, I would also go as far to say that we're living in a connected world already, but would you say that its smart?
Completely, we live in a connected world today, but it is not smart just yet. I think that we have taken the evolutionary step to the connected space, and you can connect everything. I would question as to what point would we become a smart world where we actually engage and interact seamlessly into the environments we work in. And I think that is the more shift towards human machine interaction.
How do you think connectivity and the production of all this data will affect whether exponentially or not, the insurance space?
It really boils down to you can't respect what you can't inspect. The challenge really becomes what are we going to do with all this data we produce to affect change? Take the smart device on my arm for example. 5 years ago we didn't know our steps, sleeping patterns etc, so what are we going to do with that data to make or affect change? Will we change our behavior? The answer is likely yes. The same is then true for insurance. We have all this technology coming out like smart cars, smart buildings, smarter environments, and if you put all that together we can either sit on our behinds and do nothing - which is a travesty because then someone else will. Someone else who owns the engagement with the broker, consumer or someone who has been trusted and has the ability to scale with the data. I would argue that we are actually better with it. We understand the risk better than anyone else.
How do we then use that to drive things going forward in the insurance industry? What would be your exponential moment?
I believe that is the exponential moment right there. When you take individually all those technologies and concepts - self driving car, sharing economy, IoT, Blockchain etc., and then apply them all together. A great example of the art of the possible is when you get into a smart or semi-automonous vehicle, you have a drink in your hand, you get into the car and as you put your hands on the steering wheel the AI recognizes that you've been drinking and it immediately applies surge pricing because your reaction times will be slower. It also realizes that you have been drinking over the limit and tells you the car won't start - flipping to autonomous and taking you home.
We have a lot of the technology to implement these kinds of use cases today. I was in another conversation recently discussing insurance fraud on uninsured vehicles. Irrespective of whether or not a car is insured or uninsured, it has to go to a gas station to get fuel - why aren't we proactively monitoring uninsured cars if we cameras implemented at the gas station and the technology in place to detect the fraud? We have the ability to stop these things and we can turn it off immediately. We have to get more comfortable with the fact that this technology is not in place to control our lives but rather there to make our lives safer. If you look at the next generation after millennials, that of the digital native thinkers, they will say that they are happy to share everything with you if you make them healthier, smarter, safer, and allow them to spend their time on things they enjoy doing more than anything else.
I agree, and would add to your point by indicating that there is an exponential increase in the trust of technology in future generations. One of the points that Peter Diamandis made yesterday was that we acknowledge that exponentials are altering our reality, however, 99.99% of the world is asleep. If that is the case, how do we get the masses to subscribe or order to encourage an exponential growth and adoption?
Its' really interesting. I sit with clients and tell them about ongoing exponential activities and there is an abundance of people, culture, and companies that are slowly turning around. There is always a curve of people that are the early adopters, however, I do believe that for this what you need is education. We need education about the trends that are ongoing and education about insurance.
In my experiences, people do not know what they are purchasing when it comes to insurance. I've noted college students that graduate from college and want to drive a car, which also means that they have to go and buy insurance. Because it has not been packaged nicely as of yet, people do what they're buying other than the enablement to drive a car.
Agreed, so if you ask them about what they're covered for, whether their coverage is right, and what happens if they have a crash, The answer is that they likely do not know
Precisely, they do not know what they do or don't need and would seek advice from family and friends, or social channel or wherever else to get that insight
Agreed, in Deloitte Canada we found similar results through a quantitative research study we conducted by interviewing 1057 participants across all ages and found that majority rely on friends and family for insurance related advice
Agreed, in the past people would give DNA samples (blood or urine) to get insured, which tells me that today we're not selling on value, we're selling on price. If consumers are buying based on the cheapest price then if you're not the most efficient manufacturer you're out of the game which means that startups could come in and are coming in to take over that space.
Yes, but what about traditional insurers that are not necessarily resistant to change, however, have conducted their business in a manner which has been historically favorable to them? how do we get them on board and bridge the gap between them and these new age fintechs?
That's a great question. I fight this on a daily basis, and I see two camps:
1. I see the insurers that are in the space and recognize that there is a new way to operate in which things can be better or different. It's not necessarily going to say we're going to replace the broker, but how do we enable the broker in a different way? It's that enablement piece that says insurers can be more efficient and spend more face time with customers rather than spending time completing manual tasks that have always worked, that in itself is priceless. The insurers that understand this concept are really exciting because I sit there going we could try this, and if it works, great, if it doesn't then let's try something else
2. The other insurers are more traditional and say they have done this all their life and it won't change. I find this scary because the status quo does not stay the same. Doing nothing has never been an option. We have to keep up with the pace of change and the outside in pressures like changing what we are buying, how we are buying, and where we are buying. There is no longer the local brokerage that is down the street and closed for lunch but rather operates on social channels where everything is open 24 hours. Even with that said, there are some folks that will never change as they are happy doing what they are doing and are persistent on not changing.
I think part of the struggle is that they don’t realize that this will affect them in their lifetime. It's from the camp that believes why bother caring about something that will not affect you
Agreed, I don't bucket people by age, I bucket them by mindset. I know people that absolutely get it and want to drive the industry forward and be a pillar of society. Insurance is still needed. I think as time progresses forward, my kids won't need to drive but they will still need insurance, that Is not going anywhere, it's a mandatory requirement to protect people as they use public and private services. So there has to be a new mechanism or business model that supplies that.
How do you think insurers will approach these new technology trends emerging?
I think they need to ask themselves why. Do not come to us and say that we need want to implement AI because we think it is really cool, come and say we want to do something that is going to change our business and drive some of our core objectives whether it be attract new customers, take out costs, enable people to spend more time with customers. There is an insurer for example in the UK that has been talking about robotics and has said this will replace jobs. They have marketed that if you feel like your job is going to be replaced by robotics, machine learning, or AI then let's talk and figure out the future of your business. It's a non-threatening way to say this is how you can adapt to the new world.
How do you think these new technologies or insurtechs will affect the insurance value chain?
You can break down the insurance value chain and find a startup or cool idea or technology that has the ability to change how we do things today. I think if you have a broken process that is cumbersomeand can be automated, digitized, made slicker as an evolutionary process, it will make all the difference. The exponential change for me, same as autonomous vehicles, is basically replacing the things we would do ourselves. The exponential change with autonomous vehicles is taking the driver out of the equation, not the fact that we're automating the driving process, taking out the person behind the wheel that used to cause 90% of the accidents, is the exponential piece.
Agreed. When we think and operate incrementally we are making things better, however, when we think and operate exponentially we are making things different and that is the true driver of change. Just because we have always thought of our industries and processes the same way, doesn't mean we always should. With the cars example, we started out with something that would help us get around and have found ways to incrementally improve the user experience over time. Whether it be: manual transmision, automatic transmission, bluetooth, heated seats, air bags and safety precations etc which is making the user experience of driving much better, but when we take out the driver completely, that is enabling us to be different and driving towards that exponential mindshift that will then bring us exponential value. You need to start questioning why things are the way they are and push buttons to get your answers
It's probably one of the most exciting spaces to be in, I mean, unless you're at a dinner party and tell your friends that you work in insurance.