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LO and BEHOLD
You must see this, unless you already have the answer to the following question: where the connected world will lead us? I am still looking for the answer and I think I will continue for a while I guess. In the meantime this movie gave me a clue, something to start thinking on, a seed.
Everyone I am hearing speaking of IoT and Insurance for example is saying that there will be a shift of risks in the area of liability. Everything will be driven by the liability of the programmers and or manufactures, we will live in a world of Product Liability.
After watching this movie I am not so sure anymore. Actually I think that liability will disappear, machines will learn by their own mistakes, computers will generate a world where errors will be reduced and deviations either.
The connections among machines will be the new sea, the new sky, the new air, it will be simply there, invisible to our eyes. So who’s going to be responsible for the wave of the seas, for the clouds? Probably we will move forward a new form of mutual insurance. I am still thinking on it.
Will the concept of liability be applicable to a connected world?
This is the next question I will articulate .
I am working on it, stay tuned.
10Q
How much Facebook and Google are interested in the insurance industry?
Everyone working in the insurance industry is fascinated and scared at the same time by this question.
Fascinated because we think this could change our old old world and we could work in a more exciting environment; scared because this could change our old old world and we could be replaced by more exciting workers.
I would like you to help me to understand if companies like Google and Facebook have a real interest in enter in our world and what would be their approach.
Let’s start from some key figures, just to set up the landscape.
Facebook and Google together make more than1 trillion USD market capitalization.
The first 10 insurance companies together make less than 1 trillion USD market capitalization. Only the first insurance company (Berkshire) has the same magnitude of Facebook and Google in term of market capitalization.
The insurance premium collected every year is about 4,5 trillions USD in the world. But how much of it goes into premium reserves and actual claims to be paid? How many players are sharing the pie?
The ROE of Facebook is around 25% and Google’s 13% in 2017. ROE in the insurance industry reached 9 (Non-Life) and12% (Life) in the 2013, one of the latest best years.
Are you getting the picture? They are bigger than any other insurance company, together they made 99% of their market, they have a very good ROE, why they should mess with insurance industry?
Ops I was forgetting something very important: regulators and financial rules.
Is there anything like Solvency II in the digital world? Is there any specific regulator? Is jurisdiction a real issue for a cross border company in the digital industry? Do you see them sharing any of our industry pains? Data protection of course and anti trust are common pains for sure, but these are common to any industry nowadays.
So if you were Mr Facebook or Mr Google, would you be so anxious to enter in the wonderful world of insurance to make some real money?
Hey don’t get me wrong, I am not saying they won’t come, I am saying that they will arrive probably in a way we do not expect and as a consequence of strategies where insurance is not the main goal.
Let’s see now the thing from a different angle, the customer’s angle.
Customers are anxious to see Facebook and Google (FBG going forward) stepping in the insurance world, they want them to bring innovation in our world, FBG gained their trust and set up a level of customer experience that it is THE benchmark.
Google customer satisfaction rate is 82% as internet search engine (market average 76%), Facebook is 68% (against 73% of market average in social media). Insurance customer satisfaction index is below 50%.
So we think FBG have a treasure in their hands, they can sell everything, they can reach anyone in the right way in the right moment. That’s probably true, but again they want to use this power for selling insurance products?
Ok it’s time to show my cards. Let’s examine some options.
FGB could set up a captive insurance company like some financial institution are doing to vehicle PPI products, they could use it as direct carrier or reinsurer. In this case they would have to set up a range of products to satisfy their customer base, that is very large and spread across different countries with different specific rules on insurance.
So I don’t see them to be a direct insurer, maybe a reinsurer working with a mix of global and local carriers taking care of all the typical insurance pains, but in that case who would provide the customer care? Who would shape the customer experience? The old fashioned insurance carriers? Again, not so sure this would be the right direction.
Maybe they could act as distributors, MGAs? They would maintain total control of their customer base and leverage all the information they hold, they could set up products using their knowledge, but again not all the typical pains of our world would go away. Insurance licensing issues would remain, the business couldn’t be global. It could work in some selected markets like the US, but even there the rules are very fragmented state by state.
So they will not come?
Actually Google already made a test in UK and US with Google Compare during the period 2011-2016. Some acquisition were made and a motor insurance aggregator was launched, but they gave up….. it was a first test.
I think they will put in place some partnership in future with both carriers and distributors that will be able to meet them half way. This partnerships will be complementary to their main strategies and insurance services will be considered ancillary products like in the travel industry.
Let’s take for example Google and its project of self driving cars. At a certain point they will need a specific insurance product that today doesn’t exist. They will have to partner with a carrier to develop it and come to a solution for a global distribution of the product. The insurance partner could be in the position to ask Google to share the risk or not.
In a few words FBG will need to deal directly with the insurance industry to provide insurance services associated to their core products, at that point they will look for partners that are ready to serve their customer base at the same level they are doing and have the ability and flexibility to use information to shape new challenging insurance products.
When Google will launch self driving cars in the mass market they will need a specific insurance solution for that and they will look for an insurance partner speaking their language.
When Facebook will allow to small groups to create voluntary target customer bases and selling their profiles to the best service offerer then they will need trusted insurance providers to be part of the game.
Are we ready?
Connected Insurance | PROJECT 10Q 