We Gotta Get on It

Let’s talk about trust. How can technology play a role in helping fix the trust problem that has long plagued the industry?

Trust has always been a central part of the insurance industry. We’re making a promise to be paid tens or twenties of years later. When you make a promise like that and you take the money up front, you almost certainly have the definition of a trust problem. And you do it in a complicated and hard to understand contract. There’s an understandable perception that develops that it’s really kind of a game stacked against the buyer.

Everything we have that creates complex legalese around it is unfortunate. And anything we can do to cause the product to function in a simpler way so that any chunk of that legalese can be taken out is a good thing. Because the clearer it is in the customer’s mind what’s going to happen, the more trust we’re going to have.

Having said all that, the reason the industry stubbornly remains a relationship-oriented business is because what we’ve been doing is substituting structural trust with relationship trust. So the fact that I don’t trust the stack of paper is fine, because I do trust Sally and Sally is on my side and Sally read it all and has told me what it means and I trust that if something bad happens I can count on Sally to make it right. So we add relationship trust to overcome structural distrust. That’s fine, but I think there’s an opportunity at hand because of the insight technology can create and therefore the modeling it creates and therefore the different tools we can use. We could use this era to create products that are more inherently trustworthy.

Can you give us an example?

The best-functioning example in the industry is any time you see a parametric trigger. In other words, there’s a specified event that causes a payment of a specified amount, and there is a third party, often a government agency or someone described as the party whom we trust to declare whether or not the event happened. Those parametric triggers are very effective at increasing trust in the product. And the models themselves, which give us the ability to create lots of studies of events: that’s a technology all by itself. But that, combined with the use of parametric triggers, has created a whole change in how the entire industry’s financial foundation rests. It’s brought a lot more capital into the business—a lot of it non-traditional—and has enabled clients to buy into those non-traditional providers in a trusted way, where they couldn’t have before. That’s a perfect example of technology taking on a trust problem, allowing for a new business model and creating quite a lot of disruption.

Underinsurance is a huge problem in the United States that people don’t necessarily know of. Why?

I find it so interesting that so many of us as professionals don’t spend as much time thinking about this as we should. You would think the fact that there’s a huge uninsured marketplace that we’d be all fighting each other to figure out how to create products that help those people and do what it is we exist to do. Instead, we seem to prefer to spend all of our time honing pennies of profit out of existing markets rather than creating new markets. I think we could do better.

When I chaired the Geneva Association, a think tank working on insurance issues globally, we did a lot of work on underinsurance. That work helped spawn the Insurance Development Forum and enabled us to partner with governments and other sectors to come up with ways to attack profound underinsurance. It’s important for us to remember that underinsurance is not just true in less developed economies; it is rampant throughout the industrialized world.

So you can think of underinsurance as the fact that we can’t find a solution to really get at the core risks of technology failure and data theft. You can think of underinsurance as the way we handle flood in most countries, where data clearly could allow us to provide insurance-based solutions. You can think of underinsurance in terms of countries whose legal infrastructure is insufficient for the kinds of products we have now. And instead of asking how can we mature your legal structure, you might want to ask how could we change our product so that it actually works for you. These are the kinds of opportunities. And they’re imperative if we’re really going to make the difference we can in the world.

What do you think about the impact of climate change feeding into flood, for example?

We humans are very recency-oriented. For example, that flooding in Houston was positively biblical—just an extraordinary event. But scientists wouldn’t say that that means now we’re fully experiencing climate change. They would say there seems to be a pattern right now of larger storms. Could be. But the models of climate change are not themselves perfect enough to really know.

What we do know is these kinds of events historically have come in cycles. While I am personally a believer that there is real climate change going on and believe that we should be doing what we can to make the situation better, I don’t view any of the recent events as somehow proof. If it’s going to get worse from here, we’ve got a lot of work to do, because we’re not ready. And we’re going to have to get ready because there’s nothing we’re going to do next year or the year after that’s going to do anything about this at all in the 30-year or 50-year horizon that really matters. So we gotta get on it.

Do you think the insurance industry has a role to play in helping—regardless of the cause—prepare people for these cycles of natural catastrophe?

Well, we already do that. The flood program started mainly in concern with river-based flooding. And back in that day, it was the mansion on the hill and the folks without much that were living in the flood plain. And, you know, every couple of years they’d get a big flood, and they’d be wiped out. So the federal government took on the challenge of creating flood insurance. As the program has advanced, it’s become so distorted in the price signals it sends that it’s as much a tool for millionaires as it is for the people who are forced to live in the poorest parts of the country. It’s a terrible mistake.

We humans love to live where the land is interesting. We live there because it tends to be beautiful. Rivers are there, mountains are there, shorelines are there. The reasons those exist is because it has natural environmental instability. It’s beautiful to our eyes, attractive, and it creates byways of commerce and everything else. But we’re addicted to these places that are really unstable. If a person wants to live in a dangerous place and wants to bear the risk of that, that’s the point of freedom. But if that person wants to socialize that risk, you pay the real cost. We’ve completely mismanaged this. So price signals and investing in technology to create more resilience and keep people out of harm’s way are things that could really help.

The third thing I think about is how do we help be a part of the conversation at the national policy level about determining the right outcomes. How do we address the free ride or problem with carbon? These are really difficult questions. And I think the industry has an expertise that belongs in that conversation. We know how to create resilience at the back end, and we know what the risk factors are at the front end, and we know the real cause of what’s going on. That makes us an invaluable participant in the conversation, and we, through the Insurance Development Forum and other actors, have tried to take a bigger voice. But I think we could do a lot more.

Using things such as parametric triggers for payments.

We need to make things tech friendly. It’s got to be able to trigger a payment to your mobile phone in a way that works in your geography. And there’s no way we can litigate that claim. The cost of arguing about it means the product literally can’t exist. Because this is going to be pennies, right? So how is it that we create products that are that simple, that are easily understood by a population that may or may not be well educated and that has very little to spend? And living probably in conditions where every penny is absolutely focused. This is a real challenge.

When we’ve worked on projects in rural India, in parts of Africa and even in some of the urban areas of the United States, getting these products understood and accepted as useful and trusted has been super difficult to do. We’ve got to do [it]. Or else we’re just going to watch disasters happen, and we’re going to contribute nothing to the resolution, and it’ll be wildly inefficient because it’ll be post-event, government nonsense, and we’ll waste a lot of money, and a lot of people will get hurt. Everybody thinks when you say that, you’re talking about some horribly impoverished country. I’m talking about Houston. I mean, come on, it happened right in our own backyard.

In terms of digital transformation in insurance, do you think there are regulatory changes that would help foster that?

I’m a deep believer in level playing fields. The thing I don’t want to see is where the regulators—they keep talking about creating regulatory sandboxes where people can experiment. I think there’s a logic to that. You do want to encourage innovation. But there are two things the regulators really have to focus on. Number one, they have to protect data or else people won’t play, because they’ll be afraid of the competitive risk of data sharing. And the second thing they’ve got to do is give a great deal of thought to not allowing rapid-fire innovation to outpace the regulators. And the best example I’ve ever seen of that was Uber. By the time the regulators of the taxi industry and the car industry had figured out what was going on, Uber was so powerful they could just get their constituents to go change the law. Well, I don’t really think—in a product where there is so much dependency on the effectiveness of financial security of the product offer—I really don’t think letting a bunch of clever technologists come up with a whole new thing and let it go so viral that people are all into it before your realize it’s a sham—because it’s easy to compete with an insurer, you know. If they function like an insurer, they better be regulated like an insurer, or you’re going to have a real problem on your hands.

What are your thoughts on where we are in terms of data privacy?

This is a very serious, competitive environment. Economically, the most powerful nations in the world are increasingly trying to win the future.

I think we’re at an incredibly intense crossroads, and I don’t know where it’ll come out. I do know that there’ll be more privacy than there was before in the U.S. I think that’s unavoidable now. For all of us who handle others’ data and are at risk of it either being stolen from us or abused by us, we have a very high mandate to get it right. We shouldn’t be the regulator. You don’t lose people’s data, and you don’t illegally use what you know about someone. At the same time, we don’t want to lose our leadership, and I think this is the greatest industrial policy question the United States has faced since we built the highway system and invested in the colleges.

What do you think about data sharing within the insurance community? Do you think that would make for a better, more consumer-focused insurance experience?

I don’t know the answer to that. I think data is a competitive space. And what you think is important, and how you collect it and how you harness it should lead you to a creativity in how you offer. To the degree you harmonize the data, I’m not sure you’ll advance anything. I think you’ll rob people of the opportunity for breakthroughs and insights that they’ll invest in. So you get less investment in data and you’ll get homogenized results, and that’s not good for the consumer, at least in my experience.

The brokers have operations that try to perfect that for the client. The [insurance] companies have teams that work on perfecting that for the client. The client has his lawyers. My guess is the thing the client really wants is a globally compliant product. They don’t want to pay all of us to do that one thing. At the same time, companies compete over the quality of their insight for creating something that really is both compliant and thorough. So I wouldn’t want to rob the client of that competition.

What would you say to brokerages that want to make digital transformation happen but don’t have a huge budget or resources to do so?

Couple of things. Be super clever at hiring. Not everybody wants to be at the high-flying, hard-charging firms. There are some things a mature, corporate environment can work toward that are better. And for some people that’s very important. You can offer a bit different equation around work/life balance. You’re mature enough to do some things that they don’t care to do. So there’s always a way to compete for talent at some level.

The second thing is make sure your culture is into innovation, into creativity, and that your people are tech savvy. Interview for those characteristics even when the job isn’t a technology job. Because otherwise you’re just hiring barriers to adoption.

The final bit is outsource and collaborate. Pull some resources and share knowledge. I see that in the way some of the regional brokers work. There’s all those different networks. They can all share insight. They can sometimes share technology investments. They can share on things that don’t go to the center of their competition.

Another hurdle is having an immature digital culture. It makes sense to look for certain skill sets when you’re looking to hire new talent, but what do you do if you’re trying to change what’s been in existence for 30 years?

People are wonderfully able to adapt and learn if they think they have to. If they don’t think they have to, they aren’t going to get with it. I know so many people that are in that stereotypical 50- to 60-year-old range, but once they start needing to know it, they’re amazing at it. They adapt because they need to. Show them the reason, show them the cause, help them with the education.

Can you think of a time in history when the industry has faced this kind of big, transformational change? And if you can, are there lessons to take that usher us through this?

When big-box computers first became meaningful and mainstream in the corporate business environment—the companies that adapted to those new tools, at the risk of taking off all their clerks, changing all the work processes—those were the ones that grew fastest and gained insight. So we’re not dealing with something we haven’t seen before. We don’t have to be so afraid.

Now, there are elements of today’s change that are different. We’re at such a rich level of information that data is not information. Data is just piling up all around us. How are we going to turn that into information? That’s such a massive trick. But we’re now getting tools together to start to learn how to deal with it. It feels uncomfortable, but it’s not crazy. We adapt. That’s what we do.

There’s expected to be a 10-fold increase in data from some 4.4 zettabytes to 44 zettabytes, or something like that. I can use no metaphor to make that make sense. But what’s interesting is today it’s expected that only one half of one percent of that data will be used. Think about it being like all the sand in the world—if there’s an ocean full of sand and you get one half of one percent, that’s still a lot of sand. I bet there’s something in there.

You have said that talent and technology need to be at the top. Those two things affect everything else. Can you elaborate on that?

To me, all strategies today have to start with how am I going to compete for talent and with tools that really make a difference and really create breakthroughs for clients. Good people are not going to work in environments where their tools are junk, and great people are going to be really excited about what they’re doing if they feel like they’re doing some work that is purposeful, which insurance almost always is. And then, if they’re able to do so in a creative way, rather than a rote way, they tend to get more engaged. So if you can bring people to the fold and let them use those tools to be really creative, you’re highly likely to lead a successful organization. I think that’s true in every sector. There’s more opportunity for change in insurance because we are so behind, but we’re also not going anywhere. We’re an established, important function of society. We’re really trying to help people’s lives be better. That’s a really important distinction.

Can you describe the successful brokerage of the future?

No. If I could, I’d be a broker. I know that their combination of understanding of risk and how the client actually feels about the risk will be radically different in the future than it is today.

How are brokers going to get smarter about how the client feels about the risk?

Using data, using research, using psychographic information. There’s a lot of information out there, and there are ways to get at it. What is the real sales trigger, and how do I package and address and monitor and teach and be valuable where it really matters?

Another thing is to be a part of the innovation conundrum. Don’t just assume it’s about you continuously reinventing your own process. Think about the end-to-end of how solutions are being created for customers.