Plausible Science Fiction and Its Insured Future
A version of this article was previously published on Insurance CIO Outlook
By Chris Wake
If you can quantify a risk, there will be someone willing to underwrite it. This fundamental value swap ensures the persistence of the insurance industry as we know it.
Insurance predates the computer, let alone the Internet. Given its long history, it is no surprise that every new wave of technological advancement has brought with it the onslaught of bold proclamations for the industry's outright demise or amazing ascendance. The reality, however, is always tempered.
Computers did not replace humans, and neither the Internet nor embedded insurance have put brokers out of business. Instead, these tools have grown the market. Emerging waves of technology, including the latest in artificial intelligence, give humans new superpowers. The industry will grow from the proliferation of Al, just as it did from prior technological advancements. How much, is an open question and one that requires a hard look at the accumulated technical, operational and data debt in the industry.
Insurance is nothing if not idiosyncratic. Each carrier, each product, and each customer is unique in multitudinous ways. To solve for technical debt and to realize the full benefit of technological innovation will require a unified data language for insurance. This is akin to the Extensible Markup Language (XML), which was created in 1998 as a markup language and file format for storing, transmitting and reconstituting arbitrary data — and now a core element of the Internet itself, and many of the services we take for granted every day. So, how do we achieve this?
“If you could snap your fingers tomorrow and realize a 2x increase in your current market share without time, effort or dollars spent battling for that share from your competitors, would you do it? That is the prize in front of us: the recurring dream of insurance being bought, and not sold."
Legacy insurance products run on legacy systems. To require an overhaul of every legacy system at every carrier is untenable. Similarly, cloud and APl delivery of legacy products is a non-trivial technical lift; arguably, too much work is put into making each product APl into a panacea that encompasses quotes, knockout rules, and even marketing copy. Carriers do not need to become software companies; rather, they need to be able to receive data digitally, and propagate that data through existing systems. That does not happen today.
There is a natural inclination to build capability, rather than buy. It makes sense. The internet is a massive, largely untapped opportunity. Embedded insurance was supposed to tap that opportunity, but it is similar to a tiny leak in an otherwise dormant firehose. That leak is a single APl for a single product from a single carrier. Create more leaks (i.e. new APls for new products) and you can start to amass something of substance. Unfortunately, no combination of leaks will ever harness the full power of that firehose. One APl to rule them all is not the answer either, that is like the AOL homepage pointing to every website on the Internet. Growth will always be constrained.
On the other hand, a unified data language means that software can start to understand insurance as data instead of being built to replicate the actions of centuries of human underwriters. This is the firehose. This unlocks tremendous value and entirely new modes of distribution.
To build, in this case, is a zero-sum game. One will spend inexorable time and money to realize marginal shifts in the existing balance of market share. I contend that a step change in the size of the insurance market is not only possible, but probable. And to realize that will require positive sum thinking and a unified data language that will be built outside of your organization.
If you could snap your fingers tomorrow and realize a 2x increase in your current market share without time, effort, or dollars spent battling for that share from your competitors, would you do it? That is the prize in front of us: the recurring dream of insurance being bought, and not sold.
The infrastructure to realize this dream will power the rapid integration of any insurance product from any carrier into virtually any digital workflow or transaction. Integrations can go live in minutes, rather than months. New carriers and new products can be switched on or off with ease. All of the plumbing happens seamlessly behind the scenes — premiums are collected near instantaneously, and the process of checking that integrations remain compliant moves from a static state to dynamic.
At scale, this technology aligns incentives for policyholders and underwriters alike. And the real magic emerges as individual products from different carriers become interoperable and composable. This means that a consumer can purchase different insurance products from different carriers in a single transaction (e.g. you are an expert in home, and someone else is an expert in life) — this is a state change for the competitive landscape, but one that will dramatically increase the size of the industry.
This is not science fiction. As the author William Gibson famously said, the future is already here —— it’s just not evenly distributed.