I had the honor of participating on a panel at the I&T Elite 8 Summit last week at a new hotel in downtown NYC just around the corner from where my parents’ printing company used to be, and it reminded me of a story my dad told me recently about the effect of technological change on established industries.
The neighborhood where the event was held used to be home to dozens and dozens of color separators, technical specialists that supported the printing industry. The two years before they were all wiped out by desktop publishing were the most profitable two years they had ever had — because they adopted the new technology and changed their cost structures but not their value propositions or pricing. As soon as the customers got their hands on the technology themselves, the color separators were all gone within a couple of years.
The insurance industry may be at a similar inflection point. Communication and analytical capabilities, as well as the ability to access data, is changing more rapidly than ever before. Insurers are just now learning to embrace these technologies fully in order to radically change the efficiency of the risk protection service they provide. In the short term, these insurers will have a huge advantage over their laggard peers.
But in the long term, access to information, analytical capability, and capital is being democratized. While regulatory frameworks may provide some temporary protection, insurers must prepare to adjust their value propositions to account for a different world – one in which the barriers to entry in pricing risk and accessing capital are much, much lower.
While that world may well still be years or even decades off, what happens when the best retailers can compete with personal lines and individual life insurers? What happens when large businesses can package their own risks efficiently for the capital markets? Insurers need to start thinking about that world, and figuring out what their niche will be where their expertise and capabilities will continue to create customer value.