I don't know about you, but I can't easily contemplate the future without examining the present and the past.
The word future conjures up all kinds of thoughts about innovative, revolutionary ideas, technologies and capabilities that are only envisioned in movies, books and other branches of the entertainment world. ("Meet George Jetson...Jane, his wife...") But somewhere along the line, there must be a kernel of past and present in the future in order for it to come to fruition. Is it a need that's unsatisfied? Is it a capability that can be built upon? Is it both?
The life insurance industry's future is more often talked about in the context of decline than innovation. That's not just depressing, it's boring, too.
So as you read this, I will ask you to put aside the lament about shrinking and aging agent populations, underinsured middle America, and the fact that the public would rather listen to Suze Orman than you.
Instead let's look at the opportunities that exist for companies and entrepreneurs that can put this all in context and embrace change. And keep in mind that these thoughts are not recommendations; they are merely intended to stretch our minds, so we can imagine a future state that doesn't yet exist.
The Napster moment
The title of this section suggests the consequences of a company or industry that fails to continually stay relevant. Someone else, often with little experience, comes in and changes the game. Napster cleared the decks for Apple to own the record industry. Travelocity moved the cheese of the airline industry and travel agents. Netflix, PetMeds, ZipCar, Legalzoom, LendingTree and a host of others also made their mark in a similar fashion.
It reminds me of the saying, "You can't read the label when you are sitting inside the jar." "Napstered" industry leaders were all smart professionals with tons of experience. They knew all the pitfalls, mistakes, fears and so forth, but they couldn't read their own label. This is the reason inexperienced industries can own mature industries practically overnight.
While the life insurance industry has historically worried that banking and investments might take over insurance, that hasn't happened yet. That's not to say it won't, but my colleagues and I are betting on different horses: social and mobile.
Mark Zuckerberg is a smart, powerful and very rich person who is capable of just about anything. Now that he is 27 and probably no longer covered by his parent's medical policy, who's to say insurance isn't on his radar?
All LOL-ing aside, Facebook has the elements of the past, present and future that could potentially reinvent life insurance. If you get nothing else out of this, please get that this is not about having a social media presence as some kind of futuristic solution. It is about the potential to create new insurance pools from social networks. Why? Well, to answer that question, it helps to take a look at the past and present.
From hats to iPhones
Back before insurance, communities dealt with destitution with a method that is known as "pass the hat." When the breadwinner of a family died or became severely sick or injured, communities would respond by taking up collections to help the family get by, avoiding the burden on society. Then the idea to collect in advance became premiums, and only those who contributed their fair share would be eligible for any benefits.
The concept was more effective than passing the hat, and the innovation of insurance was born.
Premiums were collected weekly, with agents going to homes and collecting a few cents from policyholders. What isn't spoken about much is that this system created significant social interaction and higher involvement in the product than is present today with more modern billing methods.
The social aspect has gotten lost, and social networking has the ability to bring that back. While some may not care if insurance is part of the social fabric or not, a low involvement level is partly what drives the lack of awareness and interest that plagues our industry, labeling it a "sold, not bought" product.
Facebook and other forms of social media have three key elements that are required for insurance to work:
- A large, diverse pool of people.
- The ability to track and store large amounts of data and make predictions from it.
- Awareness of the burden of uninsured risks.
And it has four things that today's insurance industry does not have, but probably wishes it did:
- Significant levels of involvement and engagement by users.
- Viral marketing power.
- Instant feedback about what people like, dislike and what is attracting the most attention at any given moment.
- A natural hedge against anti-selection. (More on this later.)
Over $24 million was raised for Haitian relief after the earthquakes in January 2010, and it was all done with text messaging in a few days. A bank never touched the money. The telecom companies were the ones that got to handle it for a moment. On an informal basis, "pass the phone" activity like this is happening in small, underinsured communities, and they often leverage social media to do it. It's reminiscent of the past, but with present-day technology.
Now, if you combine the ability to collect and distribute funds quickly with the power of a social network, the Napster Moment in insurance is possible. It might look something like this:
From anti-selection to social currency
Think about the effect of increasingly better data on insurance rate making. The better we can predict claims experience, the more precise rates will be. What Facebook, Groupon, Mint.com and other emerging innovations have in common is the notion that individual data is even more valuable than money. And it is not more than a stone's throw away for the insurance world. Progressive is now offering devices for cars that measure one's driving habits and can adjust rates accordingly.
As social communities begin to behave in a structured and organized manner and they gain claims experience, they will start to select people in and out of the pool based on their social capital. Social capital is a function of one's responsible or irresponsible behavior and their contribution to the pool. So if Johnny has a bad driving record, his social community is going to require him to shape up, pay more or take less of a benefit. Built-in transparency.
If you don't believe me, Google Rachel Botsman. She talks about the concept of collaborative consumption and the idea of social currency that comes from the gathering of the reputational data that will exist on everyone. This score will become more powerful than a credit score in driving one's worthiness to participate in certain programs. This is relevant to the concept of insurance and anti-selection.
Insurance company leaders reading this would probably throw in the state regulation card as a reason why this could never happen. However, in the Wiki, Wisdom of Crowds, Freakonomic, World is Flat, Tipping Point times we live in, I could see this emerging as a new model before states could define it as insurance.
Because it is insurance for the people, by the people. Only someone who is out of the jar, or has a good process for getting that perspective, would have the courage and ability to do this. Mark Zuckerberg is out of the insurance jar, as is AT&T, Paypal and a host of other potential co-creation partners in this idea.
Traditionalists, take heart. After posting an article on this idea on various social media sites, the response from the out-of-the-jar world was telling. This quote, from a member of a LinkedIn trendwatchers group, sums it up well: "[This] gives me hope one day that I will actually 'feel' like I get a fair value from insurance. The billions spent on a 'Facebook' insurance company may be equally effective if the insurance companies paid the same amount to help their customers understand why the price they pay is legitimate."
The world is looking for the realm of insurance to change, but they are rooting for the insurance industry to do it. Could the insurance industry adapt its culture to lead this, rather than something like Facebook or PayPal? If so, where could it start?
Social movement -- Life insurance awareness on steroids
What I love most about this analysis is that there is an important element of the past that is at play in this future state but missing in the present. Back when insurance was an innovation, the working class understood it as a way to pool money to help those in need. That is, after all, how the word "mutual" became associated with insurance companies. Everyone participated for each other's mutual benefit. Today's consumer takes that for granted. They expect a more 1:1 result that sounds like, "Well, if I don't have a claim then it was a waste of money." What? Really? C'mon!
The only consumers who have any chance of knowing how insurance works are the 2.3 million people the Bureau of Labor Statistics says are employed by the industry. That's less than 1% of the population.
The other 99% have no clue and, frankly, no interest. But if they understood how companies price their products, how the public's good or bad habits impact rates, and how the law of large numbers works, perhaps they would behave differently. More importantly, one's social acceptance might be jeopardized if people don't exhibit the right behaviors around their insurance.
Is it time for a movement built around being a responsible insured? That may sound far-fetched, but social acceptance is the only currency in which a movement can be successful. Insurance companies cannot expect to teach this lesson to the public alone, simply by raising rates, rejecting applications or litigating. It requires peer pressure. And in this context, all types of insurance are at play.
I would argue that the concept of mutuality has been severely distorted over the last 100-plus years. Its definition, in spirit, is about reciprocity. But its definition today is described simply by how much profit is built in, or not, for certain stakeholders.
Is it possible to bring back reciprocity in a world where consumers are "all about me"? Think back. I can remember a time in the early 1970s when it was socially acceptable to throw trash out your car window while driving. But not since the Indian shed a tear in that memorable "Keep America Beautiful" PSA ad.
Remember a time in the '80s and '90s when people didn't actively take each other's car keys when they had too much to drink or weren't aware of the implications of second-hand smoke? Remember times even earlier in this decade when nobody would look at you crooked for throwing plastic bottles and aluminum cans in the regular trash, or driving a huge gas-guzzling automobile?
What do all these things have in common? It's changing behavior for the greater good. The acts of some can impact the rest. Isn't that how insurance works? Isn't that what mutuality really means?
Perhaps the life insurance industry could turn its deep knowledge and data outward in order to help the consumer understand not only why they need it and what they get, but also how it works for the greater good. Now that's awareness and mutuality on steroids.
Big ideas for the future can come from anywhere. It is aligning your process, culture and attitude so that the ideas have a better than average chance of success. If you don't do it, who will?
Maria Umbach, M.B.A., CLU, is managing principal, insurance and financial services, for Maddock Douglas in Norwalk, Conn. She specializes in helping large brands innovate new products, services and business models. Maria has spent 25-plus years as a marketing executive in the life insurance space and is now focused on what's next for the industry. She is a frequent speaker and the author of the upcoming book series "Flirting with the Uninterested: Innovation in a Sold Not Bought Category." For more, visit her blog at www.soldnotbought.com, or email her at maria.u@maddockdouglas.com.
