Flashing blue disco lights, pop music, a half dozen very large TV screens, and thousands of people. Sound like insurance? It’s insurance disrupted. This morning at ITC 2018 Rick Chavez, Oliver Wyman partner and the head of the America’s Digital Strategy Acceleration Practice gave a keynote describing the opportunities for legacy insurers trying to transform their business. How will this industry come to grips with fast-evolving technology like AI, big data, and blockchain? And where can they turn for lessons in dealing with the disruption that these technologies often bring?
Chavez kicked off this third annual gathering of innovators, insurers, and investors by asking what “creative disruption,” so often bandied about in the media, really means for the insurance industry.
His first key point: disruption is not just about new technology, but a collision of “mega trends” faced across a range of industries, in technology, in regulation, and perhaps most importantly, in customer expectations. To meet these trends, companies need to begin their transformation process by carefully considering what problems their customers face. “People vote with their wallet and their attention,” Chavez reminded the audience.
Next Chavez highlighted the effects of disruptive shifts in other industries, looking at how new players have almost caught up to, and in some cases surpassed established companies in size and scale. For example, Amazon’s $280 Billion market capitalization has surpassed Walmart’s $280 Billion market capitalization and Airbnb’s $38 Billion market capitalization has almost caught up with Marriot’s market capitalization at $45 Billion.
Chavez told the audience to start taking on these disruptions by identifying businesses and product lines that are not meeting a genuine consumer need. Look for an unmet problem from customers’ perspective, rather than an executive’s point of view. New digital technology, Chavez says, presents an extraordinary opportunity to connect with customers in a new way. Say, by providing genetic analysis as an entrée into a larger conversation about healthcare insurance.
But starting new business lines means taking a critical look at incumbent businesses. Which not meet a genuine customer need? Are there ones that have not kept up with the times and are operating several years in the past? Companies should devote less resources to these business lines and eventually move into more profitable pursuits. Perusing new business models is also a way to retain talent. The best talent is drawn to “brain candy,” he said.
Importantly, companies also need to incubate new businesses, nurturing new ideas rather than hanging on to legacy models. These businesses should be “loosely coupled with the mothership,” meaning that they should nurtured on their own, not as part of an existing operation. The new idea or technology should then be tested in a very limited way or systematically perused and then rolled out more broadly.
“Companies should not be swinging for the fences, but trying to move the runner through a series of base hits,” he said.
By finding technology that their customers need, incubating new businesses, and then systematically rolling these new businesses out, a company may be able to grow them, so one day they may even surpass the original products or business lines. This has happened in other areas of the economy and is likely to happen in insurance too.