Insurance firms, both incumbents and startups, have been continually told that they are not ‘innovative’ and the industry must be ‘transformed’ or ‘disrupted.’ It is hard, if not impossible, for insurance firm executives not to hear, read, or see those messages all around them (perhaps even in their sleep?). Become ‘innovative’ or you will be ‘disrupted’ or ‘transformed’ specifically by startups using new(er) technology. Day in and day out, these messages pervade the insurance trade press and the general business and news media: transform, disrupt yourself, innovate or you will lose market share and become extinct.
The expanding numbers of what I call technology-dependent insurance startup firms – and their ‘pump and dump’ conferences in Las Vegas and around the globe – with their messages of ‘doom-and-gloom’ to incumbents (as well as their advice to incumbent insurance firms to partner with them [I always get a few chuckles out of that request]) continue to remind me of Hans Christian Andersen’s parable called “The Emperor Has No Clothes.”
(BTW People who know me know full well that I refuse to use the ‘I” term because there is no legal, insurance regulated entity called that “I” term.)
The parable: The Emperor Has No Clothes
Here is the parable directly from a Hans Christian Andersen web site (https://andersen.sdu.dk/vaerk/hersholt/TheEmperorsNewClothes_e.html). I include my very opinionated comments in light red boxes to align the parable to my insurance and technology point-of-view:
“Many years ago there was an Emperor so exceedingly fond of new clothes that he spent all his money on being well dressed. He cared nothing about reviewing his soldiers, going to the theatre, or going for a ride in his carriage, except to show off his new clothes. He had a coat for every hour of the day, and instead of saying, as one might, about any other ruler, “The King’s in council,” here they always said. “The Emperor’s in his dressing room.”
For untold numbers of decades, the insurance industry has been offering its value-add to society to manage and/or mitigate risk. The industry knows that is the reason why it exists in the first place: manage and/or mitigate risk according to the insurance regulations in each jurisdiction it conducts insurance commerce. However, lately – since the emergence of the Internet Age and being immersed in the continual drumbeat of ‘disrupt, transform, innovate’ messages – there are insurance startup firms, and some incumbent insurance firms, concerned with improving the applications of emerging technologies to their customer and market facing systems in order to disrupt or transform the industry or themselves. (Whatever ‘disrupt’ or ‘transform’ actually means to existing and target customers.)
In the great city where he lived, life was always gay. Every day many strangers came to town, and among them one day came two swindlers. They let it be known they were weavers, and they said they could weave the most magnificent fabrics imaginable. Not only were their colors and patterns uncommonly fine, but clothes made of this cloth had a wonderful way of becoming invisible to anyone who was unfit for his office, or who was unusually stupid.
VCs, along with their similar-minded gaggle of entrepreneurs, have invested in new insurance startup firms and emerged in the insurance marketplace all promising ‘new’ ways to ‘transform’, ‘disrupt’, or ‘innovate’ the insurance industry, specifically by using various flavors of AI technologies augmented with mobility and web capabilities. They proudly – and loudly – state that the use of these technologies and their applications will remake the insurance industry in unimaginably wondrous ways. Incumbents who ignore these ‘weavers of the future’ are unfit to remain in the insurance industry.
“Those would be just the clothes for me,” thought the Emperor. “If I wore them I would be able to discover which men in my empire are unfit for their posts. And I could tell the wise men from the fools. Yes, I certainly must get some of the stuff woven for me right away.” He paid the two swindlers a large sum of money to start work at once.
Incumbent insurance firms have always used technology to get-and-keep customers. Always. But perhaps, you can hear incumbent insurance firms telling themselves that they should get ‘some of the stuff’ being offered by the VCs, entrepreneurs, and owners of the insurance startup firms. ‘Yes, that’s the ticket: let’s part with large sums of money to these messengers before we disappear from the industry.’ And they think to themselves ‘we will gain a competitive advantage over any of our rivals who can’t see the benefit of listening to and using the services of these new ‘weavers.’
They set up two looms and pretended to weave, though there was nothing on the looms. All the finest silk and the purest old thread which they demanded went into their traveling bags, while they worked the empty looms far into the night.
‘Finest silk and the purest old threads’ indeed. New insurance startup firms – and their VCs and other investors – want incumbent insurers to partner with them and preferably share their client list with them.
“I’d like to know how those weavers are getting on with the cloth,” the Emperor thought, but he felt slightly uncomfortable when he remembered that those who were unfit for their position would not be able to see the fabric. It couldn’t have been that he doubted himself, yet he thought he’d rather send someone else to see how things were going. The whole town knew about the cloth’s peculiar power, and all were impatient to find out how stupid their neighbors were.
“I’ll send my honest old minister to the weavers,” the Emperor decided. “He’ll be the best one to tell me how the material looks, for he’s a sensible man and no one does his duty better.” So the honest old minister went to the room where the two swindlers sat working away at their empty looms. “Heaven help me,” he thought as his eyes flew wide open, “I can’t see anything at all”. But he did not say so.
Both the swindlers begged him to be so kind as to come near to approve the excellent pattern, the beautiful colors. They pointed to the empty looms, and the poor old minister stared as hard as he dared. He couldn’t see anything, because there was nothing to see. “Heaven have mercy,” he thought. “Can it be that I’m a fool? I’d have never guessed it, and not a soul must know. Am I unfit to be the minister? It would never do to let on that I can’t see the cloth.”
So, the incumbent insurance firms sent their CIOs, CTOs, and other technology professionals to the pump-and-dump confabs that the new weavers produced – both for their supplicants and their marks (I mean target clients) to view the wondrous new threads. The technology professionals also talked with the sparkling new technology-dependent insurance startup firms and were thrilled by their wondrous hockey-stick growth.
“Don’t hesitate to tell us what you think of it,” said one of the weavers. “Oh, it’s beautiful -it’s enchanting.” The old minister peered through his spectacles. “Such a pattern, what colors!” I’ll be sure to tell the Emperor how delighted I am with it.” “We’re pleased to hear that,” the swindlers said. They proceeded to name all the colors and to explain the intricate pattern. The old minister paid the closest attention, so that he could tell it all to the Emperor. And so he did.
Many of the incumbent technology professionals were impressed with the canned demonstrations, pretty facades, and magical words about ‘what could be if only, if only, if only…’ And they didn’t want to bring back any discouraging words to their executives who have been and are constantly bombarded with the ‘transform, disrupt, innovate’ messages. So they advised their emperors to put on the new weavings to distant their companies from their rivals … rivals too cautious to try on what the weavers were offering.
The swindlers at once asked for more money, more silk and gold thread, to get on with the weaving. But it all went into their pockets. Not a thread went into the looms, though they worked at their weaving as hard as ever.
The Emperor presently sent another trustworthy official to see how the work progressed and how soon it would be ready. The same thing happened to him that had happened to the minister. He looked and he looked, but as there was nothing to see in the looms he couldn’t see anything.
“Isn’t it a beautiful piece of goods?” the swindlers asked him, as they displayed and described their imaginary pattern.
“I know I’m not stupid,” the man thought, “so it must be that I’m unworthy of my good office. That’s strange. I mustn’t let anyone find it out, though.” So he praised the material he did not see. He declared he was delighted with the beautiful colors and the exquisite pattern. To the Emperor he said, “It held me spellbound.”
All the town was talking of this splendid cloth, and the Emperor wanted to see it for himself while it was still in the looms. Attended by a band of chosen men, among whom were his two old trusted officials-the ones who had been to the weavers-he set out to see the two swindlers. He found them weaving with might and main, but without a thread in their looms.
“Magnificent,” said the two officials already duped. “Just look, Your Majesty, what colors! What a design!” They pointed to the empty looms, each supposing that the others could see the stuff. “What’s this?” thought the Emperor. “I can’t see anything. This is terrible!
Am I a fool? Am I unfit to be the Emperor? What a thing to happen to me of all people! – Oh! It’s very pretty,” he said. “It has my highest approval.” And he nodded approbation at the empty loom. Nothing could make him say that he couldn’t see anything.
“I can’t really see how these new weavings will change or transform the metrics of financial success of my industry … or how they will nullify loss events or fraud from happening but I must try them on if I am to ever transform, disrupt, or innovate my company” the insurance emperors convinced by the weavers tell themselves.
His whole retinue stared and stared. One saw no more than another, but they all joined the Emperor in exclaiming, “Oh! It’s very pretty,” and they advised him to wear clothes made of this wonderful cloth especially for the great procession he was soon to lead. “Magnificent! Excellent! Unsurpassed!” were bandied from mouth to mouth, and everyone did his best to seem well pleased. The Emperor gave each of the swindlers a cross to wear in his buttonhole, and the title of “Sir Weaver.”
Before the procession the swindlers sat up all night and burned more than six candles, to show how busy they were finishing the Emperor’s new clothes. They pretended to take the cloth off the loom. They made cuts in the air with huge scissors. And at last they said, “Now the Emperor’s new clothes are ready for him.”
The VCs and their startup insurance firms created use cases after use cases to show the emperor. They amazed the emperor with the market capital of their startups and with their magnificent hockey-stick growth. ‘Look, closely gaze, and wonder at our exponential growth’ they crow to the emperor. Your company can achieve these same magnificent results (either purposely ignoring or not realizing that insurance firms purchase a potential future loss at the same time the insurance firm sells an insurance policy).
Then the Emperor himself came with his noblest noblemen, and the swindlers each raised an arm as if they were holding something. They said, “These are the trousers, here’s the coat, and this is the mantle,” naming each garment. “All of them are as light as a spider web. One would almost think he had nothing on, but that’s what makes them so fine.”
“Here is your new CX system. Here is your new underwriting system. Here is your new broker management system. Here is your new claims management system, Here is your new product development system” the weavers tell the emperor. All ‘light as air with hardly any transition effort required from moving from all those nasty legacy systems” the emperor is told.
“Exactly,” all the noblemen agreed, though they could see nothing, for there was nothing to see.
“If Your Imperial Majesty will condescend to take your clothes off,” said the swindlers, “we will help you on with your new ones here in front of the long mirror.” The Emperor undressed, and the swindlers pretended to put his new clothes on him, one garment after another. They took him around the waist and seemed to be fastening something – that was his train-as the Emperor turned round and round before the looking glass.
“How well Your Majesty’s new clothes look. Aren’t they becoming!” He heard on all sides, “That pattern, so perfect! Those colors, so suitable! It is a magnificent outfit.” Then the minister of public processions announced: “Your Majesty’s canopy is waiting outside.” “Well, I’m supposed to be ready,” the Emperor said, and turned again for one last look in the mirror. “It is a remarkable fit, isn’t it?” He seemed to regard his costume with the greatest interest.
The noblemen who were to carry his train stooped low and reached for the floor as if they were picking up his mantle. Then they pretended to lift and hold it high. They didn’t dare admit they had nothing to hold.
So off went the Emperor in procession under his splendid canopy. Everyone in the streets and the windows said, “Oh, how fine are the Emperor’s new clothes! Don’t they fit him to perfection? And see his long train!” Nobody would confess that he couldn’t see anything, for that would prove him either unfit for his position, or a fool. No costume the Emperor had worn before was ever such a complete success.
“But he hasn’t got anything on,” a little child said.
Some of the insurance firm’s departments are having problems getting the new SoR, SoE, and SoF (systems of finance) to work properly – there are problems learning the new interfaces and operational functions. Some clients can’t get the new mobile apps to work on their devices – seems the new apps work best on Android and some apps need Firefox to be ‘at their best’. There appear to be claimants who actually want to talk with a person rather than use a FAQ site. There are even claimants having problems uploading pictures of their damaged property. Insurance firms find that they need to determine how best to tell customers their applications were turned down by the AI applications. Insurance regulators are calling to ask about the algorithms used to accept and reject customers.
“Did you ever hear such innocent prattle?” said its father. And one person whispered to another what the child had said, “He hasn’t anything on. A child says he hasn’t anything on.”
“But he hasn’t got anything on!” the whole town cried out at last.
The Emperor shivered, for he suspected they were right. But he thought, “This procession has got to go on.” So he walked more proudly than ever, as his noblemen held high the train that wasn’t there at all.”
The insurance emperor was very concerned that the weavers’ marvelous demonstration of hockey-stick growth would lead to hockey-stick losses and combined ratios. But time would tell, the emperor thought, and at least his insurance firm was being “innovative” and “disrupting the industry”.