From digitally disrupted to digital disrupter
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Last week, I made the point that certain types of disruptive innovation simply cannot occur without the active cooperation of regulators and those companies/ industries that act as their extensions, often insurers. I used the driverless car as an example of such an innovation, arguing that insurers can be key players in making the disruptive technology a safe and commercial reality: Nobody to manage and mitigate the risk, no industry, to put it bluntly.

My argument hinges on the belief that it’s useful to distinguish between two subcategories along the continuum of disruptive innovation. One is the software-driven, mashup type. As I noted in an earlier blog, they are quick to put together and perfect, and can explode onto the scene with explosive immediacy. While these purely digital offerings can be quite powerful, they will not individually disrupt entire existing industries.

The other type of disruption applies to the digital/physical blur identified in the Accenture Technology Vision 2014. This concept refers to the way in which the boundaries between digital assets and physical resources are blurring. At one level, this means that IT and business strategies are inexorably becoming intertwined; it also means that digital innovations such as I alluded to above are interacting with the real world—driverless cars with their combination of advanced digital technologies and physical vehicles are a great example.

The point I’m making here is that the disruptions creating digital/physical blur are the ones to be embraced by insurers. They offer insurers the chance to act as accelerators of the concept by actively steering it through its various phases in close cooperation with the relevant regulators. This approach will give the insurers concerned the ability to shape the way in which risk is managed in an emerging sector, like driverless automobiles.

In addition, they will be able to play a potentially broader role by incubating the new ecosystem that will be required to deliver the kinds of services driverless cars will demand, services beyond the confines of insurance. Safety standards are one area where they could provide leadership; equally, though, insurance carriers could also start to act as a clearing house for the volumes of data that these vehicles would generate, and to put together further services that would be attractive.

All the research, as well our personal experience in the market place, tells us that an extreme focus on the customer is the only sure route to success in today’s business environment. It’s this sort of focus, backed up by huge volumes of data, that will help insurers to generate the right ideas.

Another source of disruptive innovation in the digital/physical blur is wearable technology, and here too insurers could potentially work closely with regulators to shape a new industry. These devices will make highly personal information available to companies, raising huge safety and ethical issues that have to be resolved. Again, insurers are well placed to help guide matters given their experience in risk mitigation and their relationship of uberrima fides (absolute good faith) with customers.

A third example of a disruptive digital/physical blur where insurers could weigh in is 3-D printing, which has the potential to disrupt manufacturing profoundly. Check out this home-building example. I think 3-D printing is likely to disrupt totally the construction industry, with considerable social, political and economic ramifications.

Insurance could make a real contribution as an extension of the regulators in managing the safety (on many fronts) of disruptive innovations such as this, where the boundaries between the digital and physical are blurred. For example, homeowner’s insurance where the insurer had influence on the safety of construction could be viewed as quite a valuable brand message.

Insurance companies should also consider using their large balance sheet not just to offset policy risk, but to be directly involved in funding the innovations which they are helping to make safe. In this case, they would play a sort of venture-capitalist role.

Sounds like we are straying far from your core business? Next time, I want to argue that that’s perhaps one direction insurers might want to consider!

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