Lessons for Auto/Motor Insurers from Disruption in the Music Industry
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4 December 2013Michael Fitzgerald
They could feel it coming, but they couldn’t exactly see what was going to happen to them. Before they could react, a major part of their business disappeared and another large chunk of it was transferred to a new competitor. This is the experience of the music industry from 2002 to 2012 that was detailed by Thibaud Morin, Senior Vice President Innovation at Vivendi, during the keynote speech of Celent’s conference What's Next: The Search for Disruptive Innovation http://www.celent.com/node/31640 The final result? In 10 years, the music industry lost $10billion in revenue and $7billion of the remainder was transferred from existing, incumbent companies to new digital providers (most of it to Apple). The parallels with the automobile insurance market are striking. Telematics, collision avoidance, automated traffic law enforcement, and (to a limited degree) driverless cars are all here now and have the potential to radically change the automobile insurance marketplace (see A Scenario: The End of Auto Insurance). For guidance about dealing with disruption, insurers can look to the music industry and the changes that have occurred there over the last decade. Thibaud, pronounced Tee-bow, was working at Vivendi during this entire period. Vivendi is a conglomerate with $40billion in annual revenues which includes Universal Music Group, a $6billion business. (Celent clients can view his full presentation at http://www.celent.com/node/31882 ) Here is Thibaud’s sketch of the events of that period: Initially, when mp3 players first appeared, music companies did not see the new technology as a threat -- people still bought CDs, piracy was limited and occurring mainly on consumers’ home computers (and thus contained). The industry’s reaction was to invest in lobbying of politicians to strengthen penalties for intellectual property infringement. However, with the exception of some limited progress in France, these efforts were mostly unsuccessful. Lesson #1: Vivendi could not count on regulators to protect them. In 2003, Apple began supporting their .mp3 player, the iPod, with the iTunes platform. A new download music market emerged alongside the traditional one and all the new value that was created went to the new entrant. Now, Apple controls 80% of the global download music market. Lesson #2: Disruption came from a newcomer, not from Vivendi’s traditional competitors. Finally, Thibaud shared that he saw his organization go through denial and then panic. They were in what he calls a “denial trap” and had a very difficult time responding to the new challenge. Eventually, and rather recently, the company found ways to partner with the new entrant for mutual benefit. Lesson #3: The conclusion for Vivendi was “You have to cannibalize yourself or others will.” Having learned this painful lesson, Vivendi has taken aggressive steps to institutionalize disruptive innovation within their company. Thibaud outlined several of their interventions, including actions such as selectively acquiring startups, and moving their disruptive efforts out of the core business (in order to protect them from “too much love and too much money”). Now that they are on the other side of the digital music disruption, the main take-away for his company was summed up in Thibaud’s comment “When innovation comes, you have to live with it”. The insurance industry cannot exactly see the specific disruptions in the automobile line of business, but the signs are clearly visible. Those insurers which invest in building innovation as a corporate capability will be in the best position to react to disruptive threats.