Part 2: From Big Brother to Mindful Mom
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21 January 2014
Part 2: Transitioning from Big Brother to Mindful Mom Remember the old story about shipwrights working on an ocean liner at an East Coast shipyard? The workers hear a noise above them and look up to see a transatlantic airliner heading for Europe and can’t foresee how it will affect them. Although a bit melodramatic, the metaphor about an entire industry not knowing about, or taking heed of impending change wrought by new technology could be apt for the insurance industry. In our case, the airliner is digitization and the likely effects it will have on the business of insurance as it is pursued today. The ongoing digitization of the world around us is both subtle and ubiquitous. It may be felt within the financial services industry to a greater extent among higher income echelons and specialty groups before others. In a more global context, the changes may mimic the POTS (plain old telephone systems) versus cellular phone service rollouts and economic impacts that were felt in places like India and Africa. Emerging economies were held back in some cases where the roleout of traditional phone systems met with various combinations of unyielding terrain, politics, or infrastructure issues. These seemed to condemn these places to glacial roll-outs of phone services and spotty capabilities at best. Enter cell systems that surmounted these challenges and opened the door to services that sometimes eclipsed those available in much more mature economies. In general, these groups do not confine their thinking to old patterns and constraints of cellular emigrants versus their open thinking as cellular natives. So, what of it? How will these trends and capabilities lend themselves to a new paradigm for insurance? Let’s explore one version of this likely future. Those familiar with some of the themes used in conversations about the future of the financial services industry will recognize the basic ideas being put forward here. Succinctly stated, the time is fast approaching when the business of insurance will recognize that simply wringing additional efficiencies from existing products and services is a zero-sum game. The following is an overview of one of the new mechanisms that could provide financial protection for our lives and property. The aforementioned scope and power of digitization is the key to this particular mechanism. In the same way that automation is clearly being applied with great success to inherently risky situations (flying aircraft, global navigation, driving automobiles, or complex process control for example), such automation can be applied to the establishment of automated/adaptive personal risk management (APRM). A foundational aspect of this new insurance product means that individuals and business entities will have to embrace a fuller measure of digitization in our lives and society. It also means accepting the potential risk (ironically) of things going wrong that could range from negative “Big Brother” events to simple gaps in process. However, the intrusion into our digital lives that this new insurance mechanism requires will quickly be offset by the positive outcomes. Delivering this type of service requires that an insurer actively locates, collects, analyzes and uses the slices of Big Data that can define a person across multiple dimensions. This is the key difference between APRM and what the best insurance agents or brokers might or even could do for a client. It uses smart information technology (akin to artificial intelligence) and not simply process automation glued together with manual intervention. It creates a ‘protection advocate’ virtual avatar which actively monitors a client to provide broad and efficient coverage that balances cost and the management of risk requested. This service could happen in real time (i.e., as often as sufficient change in conditions or situations occur) using a ‘power-of-attorney’ mechanism to purchase, change, or discard coverages to support the needs of the client. In this illustration, servicing could be accomplished via the use of just-in-time or micro-duration products up to more recognizable macro-duration products of today During the course of the APRM contract, a prototypical younger client would have several conversations with the protection advocate avatar about loss events, opportunities and things she wanted to accomplish. Some of the activities taken on the client’s behalf were signaled to her, all were recorded and had to be anonymously vetted against other APRM companies’ products every 9 weeks. The carrier and its avatars monitored her digital life and kept her risk as managed as possible by working within the parameters to which she and her folks agreed (‘Mindful Mom’ setting). Her out-of-pocket losses were minimized, gains secured, and she retained the carrier for another period with some updated goals and plans. Finally, this scenario highlights the emerging concept of holistic or functional risk management. Much like its counterpart in the medical field, functional risk management works to manage the multiple dimensions of risk in everyday life, not simply a few for which a single carrier has products. It is truly consumer and human centric and will soon be offered at a carrier near you.