Other parts of this series:
What can insurance leaders learn from disruption in banking and wealth management? Plenty. Lex Sokolin, futurist and fintech entrepreneur, explains why customer-centricity is the key to insurance innovation.
- In this episode of the Accenture Insurance Influencers Podcast, we speak with Lex Sokolin, a noted futurist and fintech entrepreneur.
- Insurers naturally focus on the trends within the industry, but there is much to learn by looking elsewhere—for example, to see how banking and wealth management have dealt with digitization and disruption.
- Within insurance, corporate venture arms have enabled incumbents to invest in insurtech, rather than be threatened by it.
- Small steps across the insurance industry—such as creating venture arms or assigning a junior analyst to millennial trends—can collectively move the industry toward a more innovative future.
Welcome to the Accenture Insurance Influencers podcast
Digital transformation is remaking insurance. In this new podcast, we let you eavesdrop on conversations with the industry’s changemakers about how they navigate disruption, manage change and come out the other side.
In season one, we look at the big questions that insurers are asking themselves. Do self-driving cars really spell the end of auto insurance? How is technology enabling—and hindering—insurers’ anti-fraud efforts? And when it comes to innovation, what small steps can create big opportunities?
Lessons learned from fintech, with Lex Sokolin
In the first episode, Lex talks about how fintech, insurtech and artificial intelligence (AI) have, and will, change the insurance value proposition. In subsequent episodes, we’ll look at how to apply AI to specific points in the insurance policy lifecycle, and we’ll dig into the ethics of AI, namely: what happens when you apply machine algorithms to human data?
The following transcript has been edited for length and clarity. When we interviewed Lex, he was the global research director at Autonomous Research; he is no longer with the company.
Tell me a little bit about your role at Autonomous Research and what you’re focusing on there.
I’m the global director of fintech strategy, and what that really means is trying to parse out how innovation is going to change both incumbents and start-ups. While we do spend time on insurance, we also look at banking, asset management, payments and exchanges, and so on.
Right. There’s probably lots to learn as you flip between the different verticals within financial services (FS). Do you see any overall trends within FS?
This is definitely something that observers and industry participants miss. There’s a danger of just seeing the symptoms that are relevant to you. So if you’re in banking you might see neo-banks, if you’re in insurance it’s insurtech. If you’re in money management it might be robo-advisors.
But all of these things at their core are very much connected, and the overarching trend is just raw digitization which has happened to different parts of the economy.
When you look at the implications on incumbents, and how incumbents are reacting to these new entrants, do you see common tactics that are either more or less successful?
That’s a great question. I guess you have to start with who you’re really rooting for. Do you want the incumbents to do well and defend their market share? Or do you want the start-ups to build new businesses and new services? Or do you want the artificial intelligence companies, whether from the west or from China, to come in and redefine the roles of different actors in the value chain?
If you think about the financial services industry broadly, you can say there’s the “factory” where the financial product is made. Think of that as a manufacturer: in banking that would be deposits, and insurance that would be the underwriting. Whoever is focused on distribution is the store and that store can be in a phone, it can be in a branch, it can be a social network. Everything in between, the stuff that glues it together, is the middle office.
In the middle layer there’s actually quite a bit of commonality. So once you figure out a CRM for insurance, or a CRM for financial advisors, you can take a very similar approach to building a platform in a different but adjacent industry, like banking.
When you look across the different parts of the industry, the challenges are surprisingly similar: the large incumbents generally don’t know how to be customer-centric.
They tend to be very manufacturing- and product-centric and have large salesforces to push that stuff out. But they don’t know how to design digital products that are customer-first. You see this challenge across each one of the different verticals.
That’s really interesting, especially as industries and companies tend to silo themselves or feel like their problems are unique to themselves. Of banking, insurance and wealth management, do you feel like one has dealt with some of the issues better than some of the others?
I think insurance has had an easier time dealing with the insurtech threat. When most people think about the core threat––and I don’t think this is necessarily true––but people categorize the idea that your customers will be taken away by fintech companies, or will be taken away by the large tech firms.
I think the insurance incumbents have had a chance to watch this unfold in the other verticals. As a response, we’ve seen corporate venture arms spin up to invest in early-stage insurtech, and essentially co-opt innovation. The start-up sector is outsourced research and development for the incumbents.
If you’re able to get corporate venture up, you’re able to redirect a lot of the energy that the start-ups bring towards helping you become better. This language of partnership and collaboration and B2B2C models––that’s all happened in the last three to four years. And because insurance was attacked later, they’ve been able to essentially put up this honeypot, put up the walls, much more effectively than the other verticals have.
It sounds like the banking and wealth management industries have learned some lessons early. What’s one big lesson that insurers should take from their financial services peers?
With banks, we’ve been watching the decline in the number of bank branches, especially in Europe and certainly in Asia, in terms of how people interact with payments and their money. With banking and deposits, I think the erosion of the bank branch has been very, very acute.
With wealth management, robo-advice and things like Robin Hood or Betterment or Nutmeg have been quite damaging—or quite impactful—to the wealth management industry. But the way it’s had an impact has been very surprising. Instead of there being customer attrition, the product pricing has collapsed. You’re treating customers in a new way. Things are much cheaper because you’re delivering them digitally, and because the price points are lower on the distribution side, your product is 70 percent less expensive. You can look at BlackRock and Vanguard and Fidelity for those for those comparisons.
Certainly, this is happening in insurance in select products. You think about something like pay-per-mile auto insurance, where the whole concept is about reducing the total amount that you pay. But it’s a little bit surprising, because it starts at the customer, but the impact is on the product.
You’ve mentioned robo-advice and wealth management, and this is an area where you have some personal experience. About ten years ago, you founded a start-up focused on robo-advice wealth management company. Can you tell me about that?
In 2010, I was building Nest Egg out of out of Columbia, where I was doing an MBA and JD, and I was spending time all over New York City trying to raise money, trying to persuade people that this was important.
The key to robo-advice is obvious and true, which is that no matter how much money you have, you should be able to get good financial advice. And whether it’s $50, or $50,000, or $50 million, here’s a good answer for how to manage your finances, which is diversified asset allocation, being smart about risk tolerance and fitting that into your profile.
And I’m curious, in 2010, what was the reception like for something like robo-advice?
In 2010, the idea that somebody would want to take a $50 account or a $500 account into a firm like Goldman Sachs, for example, was nonsense. Today, Goldman is moving incredibly quickly into the retail space with their digital lender, with their neo-bank in the UK and certainly with acquisitions of robo-advisors as well.
There was a ton of pushback in 2010, from the wire houses, from investors, from VCs. At the time, the word fintech for venture capital wasn’t yet in the mainstream. But it was an amazing experience, because by 2013 all of that had shifted. My conversations went from me trying to pitch a value proposition of capturing young clients and millennials in the platforms where they live and the channels where they live. It went from that to prospects and clients pitching me on the same thing, saying that they needed it. The first month of 2013 we had more incoming interest than the three years before.
That shift created a sense of confidence in me, that even when you might be wrong in terms of your timing, or you might be communicating with people who are skeptical, at the end of the day a lot of that is just conservatism and a lack of a desire to take on risk. I found that experience, and then the shift towards needing these solutions, to be extremely educational.
I noticed that you describe yourself as a futurist, and I imagine that you’re maybe in a similar situation today. I certainly don’t want to put words in your mouth, but where you’re talking about emerging or current technologies and how they’re going to change the way that we live, are you still dealing with skepticism on the other side?
Absolutely. You could not have a more skeptical person than a hedge fund manager who buys and sells bank stocks based on cash flows and interest rates––and is doing so on a quarterly timeline, and in one of the most conservative parts of the industry you can find. These are people who are very much cash-flow oriented, mathematics- and accounting-oriented, and looking at an extremely regulated and slow-to-move space that so far has been damaged, but not truly hurt, by the innovation happening.
My idea is that the actual work is in persuading the harshest skeptic. It’s easy to go to a tech conference and say, “Everybody should buy a cryptocurrency, and bank in your pocket on a USB drive.” That’s not a difficult persuasion technique. But to do that to somebody who is in a position of power, both economically as well as relative to the organization they’re in, and persuade them, is very meaningful.
What I’ve learned is that you actually don’t need to persuade people at their core. You don’t have to do it fundamentally, about everything they believe. You can just do it a little bit. You move somebody 1 percent over, you chip away at their skepticism. And that leads them to open up a venture arm or put a junior analyst on understanding millennial investing trends. And you push people just a little bit towards what I think is the right direction for the industry as a whole—you end up having kind of an echoing effect across all these different players, and a ton of leverage off of the audiences and the assets that they control.
In my role is as a research director, I certainly try to get to an answer that I believe is true and then I try to tell the story in a way that the skeptic can internalize. And that means very data-oriented storytelling, backed by revenue pools, market-sizing economic cases, as well as the sort of vast amounts of actual activity that is happening in the space. If you just spend the time looking at what people are making, you can’t help but come away being extremely excited about what the future looks like.
Well, I’m excited for the next portion of our conversation, Lex. Thanks for making the time to speak with us, and I look forward to talking about artificial intelligence in our next episode.
Thanks for having me.
In this episode of the Accenture Insurance Influencers podcast, we talked about:
- The importance of looking sideways—to other verticals within financial services—for valuable lessons on innovation.
- Co-opetition within insurance, as corporate venture arms enable incumbents to harness insurtech.
- Challenges in moving the needle within risk-averse industries, and how small steps, made collectively across many companies, can enable innovation.
For more guidance on insurtech and innovation:
- Read how digital transformation is remaking insurance.
- Learn about the five distinct technology trends that will characterize the “post-digital” future in Accenture Technology Vision for Insurance 2019.
- Find out why insurers and insurtechs need to forge closer, more flexible ties.
In the next episode, Lex will explain the differences between automation and AI. We’ll also look at how AI could be applied to the insurance value chain, and talk about how chatbots can deliver services fast—or be so frustrating that customers don’t come back.
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