Archives for knowledge

(Another) Top insurance executive misses the point shock…

January 20, 2012 by tim in Observation | Leave a comment

Update 9/2/12:  Joe Plumeri (Martin Sullivan’s boss – see below) makes the same 300 year old speech but (naturally) more colourfully at InsiderScope…  ”The golden age of insurance is upon us” – apparently…

I have just read a report (subscription required) in The Insider (an excellent London market based insurance magazine @InsuranceInside) about a speech Martin Sullivan gave two days ago to an Insurance Institute of London meeting at Lloyd’s.  Though Sullivan is currently Deputy Chairman of Willis, he is better known as the former head of AIG.

Now, because I wasn’t at the speech, I may be about to be very unfair to The Insider or to Martin Sullivan because either;

  1. the report was dreadfully incomplete or
  2. the speech was dreadfully incomplete.

Can someone please tell me which is true?

Here’s what I mean.

According to the report, Sullivan’s speech seems to have been celebrating the 350th (or so) anniversary of the ‘there are lots of scary new risks out there and we need to be innovative about designing new products for them’ speech.  Since new risks have always emerged, Sullivan seems to have inserted some nearly interesting if entirely predictable comments about volcanos, tsunamis, reputations, cyber, patents and IP, and supply chain risk into the blanks of the ‘scary new risk’ speech template.

Templates are very useful but when they get out of date, as this one has, they can be extremely dangerous.  The problem with the ‘scary new risks’ speech template is that the first half of its thesis (that there are lots of scary new risks) is unarguable – in the way the bleeding obvious is always unarguable.  This lulls listeners into accepting what sounds like a perfectly plausible second half of the thesis; that innovative new products are the natural response to new risks.  Except that they aren’t any more.

Innovation is something individual firms choose to do, sometimes for tactical, sometimes for strategic reasons and most innovation is incremental.  Even at a specific level therefore, Sullivan’s prescription for dealing with the new risks is flawed.  For example, incremental approaches won’t deal with the dynamism of some of the new risks, other new risks are networked so individual firms can’t hope to deal with them on their own and most of the new risks are to some extent the result of a new environment, where tools also from the new environment are necessary to deal with them – but I’ll come back to those points another day.

My point is that innovation is a logical response only in an unthinking ‘if new this, then new that’ sort of a way but its ‘straight on’ logic puts me in mind of the the kind of tumbleweed moment Wile E. Coyote has when he realises he has run off a cliff.  The logic appears perfect, yet is completely flawed because of the turn not taken.

The turn not taken?  This is where the prescription is more fundamentally flawed.

We are living in arguably the most exciting times since Gutenberg developed a workable printing press.  The means to generate, produce, add to, filter and disseminate information now exist in the hands of anyone with an Internet connection.  As a result, industries – particularly information industries like insurance – are being fundamentally re-shaped.  Some completely new industries and companies have started to emerge; think social media, Google and Facebook.  Some old industries have resorted to fighting tooth and nail to try to save themselves; think old media and SOPA.  And former titans of the old world are disappearing; 131 year old Eastman Kodak has just filed for Chapter 11 bankruptcy protection.

Information industries are being re-shaped because the value chains by which information based products and services are produced or distributed (or both) have changed beyond all recognition – many disappearing altogether.  The firms and industries that survive will be those able to adapt to the new information value chains, not those that just innovate better products.  Innovation is not nearly enough.  Kodak, for example, is in desperate trouble not because it was deficient in innovative capacity.  Its patent assets are its most valuable (only?) asset.  It was a deficiency of adaptive capacity that turned Kodak from the company that once had such an exciting future, it was a catalyst for Warren and Brandeis to write “The Right to Privacy“, into what now looks, waddles and quacks very much like a patent troll.  How the mighty are fallen…

Adaptation is something firms across an industry have to do in the face of a fundamentally new environment.  Unlike innovation, failure to adapt means certain death.  What has this got to do with the insurance industry?  I don’t know if you think data (the raw material of information and its yet more refined cousin ‘knowledge’) is ‘one of’ or ‘the’ core ingredient in insurance but it is one or the other.  Which if the two you think it is, is however unimportant because the extent of the change to information value chains is so significant.  Insurance is used to commanding and controlling data but data is now, and will increasingly become, user generated, networked and so open to direct customer analysis.

The insurance industry’s future won’t therefore be shaped by how well or not we develop innovative new products to flog to customers already disgruntled by our out-dated processes and approaches.  It will be determined by how well and how quickly we adapt to how our customers are already starting to develop their own risk knowledge, to share it freely among themselves and where differentiation will be determined by customers gradually learning how to apply their newly developed knowledge in their own interests.  It will also be determined by how well we meet customer demands for products they design, based on their expert and/or crowd-sourced analysis of the risk.  It is almost rude to mention this last challenge – last in this incomplete list that is – that customers will also be able to generate more, richer and dynamic information, more cheaply than insurers.

At the risk of repeating myself – as anyone who has been kind enough to listen to me or read this blog before will know – I expect the application of social/collaborative technology to better connect the networks that currently operate too distinctly across risk, risk owner and risk management systems will be our key adaptation challenge but I also acknowledge the challenge may come from another direction.

In an earlier post, I wondered if the insurance industry would learn from the mistakes of the old media industry.  One of their mistakes was not to realise what was coming; another was to respond inappropriately when ‘it’ arrived.

The insurance industry doesn’t have the excuse of not knowing what’s coming and yet if we maintain the ‘straight on’ strategy the report suggests Sullivan called for two days ago, we will innovate ourselves off a cliff.

So, who was I unfair to?

Cluetrain and the future of insurance

September 29, 2011 by tim in Insurance, Social technology | Leave a comment

This is an interesting article from ‘Confused of Calcutta‘, describing the lost promise of the Cluetrain Manifesto.  Maybe I should say delayed…

It describes how the hopes that Cluetrain engendered in believers like Confused of Calcutta (JP Rangaswami) and me of increasingly open conversations between companies and their customers – using the new technologies that 10 years ago began to enable such conversations – weren’t initially realised.

Instead of openness, companies ran from the new conversations and retreated into themselves.  They built technological barriers (firewalls) around themselves to/and so (delete as you see fit) cut themselves off from their customers.  Their customers on the other hand, excited at the prospect of more and better conversations, swallow-dived (with tuck) into the fora that enabled them – social networks – and talked to each other.

Over the ten years since social networks began to transform how we (customers and consumers) communicate, some companies have been extraordinarily successful adopters of the entirely new business processes and models that the conversational enterprise demands; Zappos (as described in Delivering Happiness) is my favourite example.  Most firms however, and even entire industries – insurance is obviously my particular bug bear – have have been spectacularly luke warm on the whole subject.

At the end of the article, JP suggests that what we are seeing now is companies beginning to visit the places (social networks) where their customers already are and how they are beginning to enter the conversations.

I agree with JP that this is an interesting development – and not before time – but for me the really interesting developments will start when we see more companies changing their processes and business models to take account of what they hear in those conversations.  If you join a conversation and enough people in that conversation tell you the same thing, you won’t be able to stay in the conversation unless or until you take on board what is being said.  For companies, I think this will mean more process and model change than many realise.

For an insurance example, consider this; risk and pricing knowledge – that which is most heavily guarded behind insurance company firewalls – is likely in the future to be generated faster, more accurately and in more actionable form in social networks than by insurance companies operating alone.  This will have fundamental implications for insurers used to a business model that is founded on exploiting their ‘better’ risk and pricing knowledge.