To understand the power of the new paradigm, one needs to understand just how much data there is and how much can be done with it. Welcome to the world of data monetization (blue sector of the diagram below).
- In 2012, there were 2.8 zettabytes of data, and it will have doubled by 2015. (Don’t worry about what a zettabyte exactly is: it’s big!)
- Facebook alone has 111 megabytes of video and photographic data stored for each user—that’s an amazing 100 petabytes of personal information stored by one, albeit very large, company.
- In the United States, the whereabouts of 87 percent of adults is on record thanks to location information from their mobile devices.
- With enough data points and intelligent computing power, analysts can glean amazing information—and even predict the future. In 2013, Adam Sadilek, a University of Rochester researcher, and John Krumm, an engineer at Microsoft’s research lab, predicted an individual’s approximate location for up to 80 weeks into the future with 80 percent accuracy.
All of this has tremendous implications for personal privacy. Big data allows companies and governments to do more: to learn more about consumers and citizens based on the information they personally contribute, as well as on observations captured both on- and offline (as we move towards an Internet of Things the amount of “observed data” will increase exponentially). It places huge power in the hands of the people who control that data. And of course with great power comes great responsibility.
As regards business, we now find ourselves at the point where data-driven business models are becoming more mainstream—although not yet in insurance. Business has started to see just how potent data can be, and how data can enable it to operate much more competitively. The big disruption is that it’s starting to look like the companies that can access the most data will soon be in a position to dominate what once were separate industry verticals.
In the world of insurance, this was foreshadowed in the rise of the aggregators, which have used data to redefine the basic mechanics of the industry. Increasingly, though, insurers are expecting a much more disruptive breed of competitor: the online giants like Google and Amazon. (The Accenture 2013 Consumer-Driven Innovation Survey reveals the reality of these fears.)
The threat of Google and Amazon—and I use their names as standard-bearers of this new competitor—is that they have access to virtually unlimited data, and already have the computing power and technology to turn it into insight. They can use these insights to understand insurers’ customers and their needs more and more precisely, and thus to craft the solutions to meet those needs.
It’s important to be aware that the focus here will be on solutions, not on particular products. That means that the entity being asked for advice (Google or Amazon, for example) would be the one to present the options to the customers—and one of the factors in that decision could be how much the competing solution providers pay them. (Of course, if they do this too blatantly, they will forfeit the trust they have worked so hard to build up.)
In this new business model, data becomes the “currency” or store of value. Those who control the data will understand the customers, and build ecosystems of partners to fulfill those customers’ needs better. As I and some of my colleagues have argued, insurers will have to work hard at positioning themselves as integral parts of these emerging data ecosystems. (For more on this topic, read my previous blogs Insurers as accelerators of innovation and Big has its uses: Insurance’s potential to become a disruptor.)
More about life in the blue section of the diagram next time.