I came across two interesting articles in the NYT recently that I wanted to share with our Council members and clients, since they nicely illustrate some of the themes of change and adaptability that have been some prominent in our recent discussions.
The first, The Insurance Market Mystifies an AirBnB Host describes the challenges that a homeowner had trying to secure coverage that would allow her to operate as an AirBnB host. As the Times sees it,
…this is mostly the fault of the insurance industry, which doesn’t always want to answer questions about this sort of activity, whose agents aren’t always as knowledgeable as they should be and whose own policy language can be incredibly confusing.
Whether or not you feel this is fair, or however you feel about the emergence of the “sharing” economy and its attendant risks, the article makes an important point. There are consumers out there who want to manage their risks, and the insurance industry is not helping them. Stuck in old definitions of personal v. commercial, and old product and distribution models, the insurance industry is missing this opportunity to be more demand-led.
The other article was actually from a few weeks ago. Called Welcome to the Failure Age, the article uses a story about the rapid turnover of innovation enterprises in Silicon Valley to make a larger point about the increased rate of failure that goes along with the increased rate of innovation. While many insurers have proclaimed themselves dedicated to innovation (Novarica research shows that more than 1/3 of large P&C cos now tie innovation to executive comp), few insurers have developed the institutional tolerance for failure that goes along with innovation.The article also talks about the way that information technology advances are changing the nature of corporations themselves:
Corporations “were created to coordinate and organize communication among lots of different people,” says Chris Dixon, a partner at the venture-capital firm Andreessen Horowitz. “A lot of those organizations are being replaced by computer networks….If you had to know one thing that will explain the next 20 years, that’s the key idea: We are moving toward a period of decentralization.”
This is an incredible challenge for companies in every industry, not just insurance. The central problem of the corporation, of coordinating the work and capital of thousands of individuals, is changing.
The article closes with this thought:
We are a strange species, at once risk-averse and thrill-seeking, terrified of failure but eager for new adventure. If we discover ways to share those risks and those rewards, then we could conceivably arrive somewhere better.
In my mind, this is a hopeful thought for the insurance industry. Currently, there’s no set of institutions better positioned to manage risk. But the way the industry manages risk in the future will not look like the past.