Applying a very broad brush to history, societies throughout time tend to move through four bases of living: agricultural to industrial to information to networked. Of course, no base gets entirely left behind. The latest society becomes a mixture of past and current bases. However, more people are drawn to work in the newer base and/or a larger share of a society’s GDP tends to be generated by the newer base.
My description of a “base” encompasses how (most of) society makes their living and/or creates and/or consumes the physical (or digital) artifacts created by various industries in the “base”.
As an insurance industry analyst with a focus on the impact of technology on insurance industry structure, commerce and operations, I’m interested in the societal inflection points that occur within the broad brush bristles of each base and their implications for the insurance industry.
I’m more focused on the implications for the insurance industry over the last decade or so but I’m also intrigued by the implications over a longer time period. Seeing longitudinal trends and patterns of implications emerging from societal inflection points on a base or the evolution of bases threading through the major insurance lines of business – and key segments – makes me happy … I’m weird that way.
Ode to “how did we get here?”
Although the existence of insurance is a social good, I think it is backwards (and very dangerous) to first begin thinking how the insurance industry can provide a social good regardless of any risk that exists or presents itself. The rational economic approach is to first consider what risks exist (or emerge), holding the continual understanding that the insurance industry is a profit-seeking industry, and then realize that only when the insurance industry determines it can profitably offer coverage for that risk does the insurance industry become a social good.
Using the above paragraph as context, this blog post is an ode to “how did we get here and how could insurers conduct profitable commerce at this time?”.
Currently, our “here” is a mix of societal inflection points (and non-inflection point technological advances) that have fused together into a mobile, digital, cloud-enabled, web-accessible video-streaming, increasingly real-time networked environment. This environment has an ever-changing mix of physical assets and digital assets which are becoming (inter)connected and interdependent. The environment is replete with a plethora of legacy and new processes – and skills, experience, equipment, information technology and telecommunications technology – that involve one or both of physical and digital assets.
Some folks call “here” the Fourth Industrial Revolution. I call “here” the Fifth Technology Era. I discuss each of what I call the five technology eras in my book “From Stone Tablets to Satellites: The Continual Intimate but Awkward Relationship Between the Insurance Industry and Technology published by Wells Media Group, Inc last June, 2022 and available as a Kindle, Audible, paperback or hardcover at Amazon.com.
Sections of this blog post
In this blog post, I discuss:
- Description of societal inflection points
- Examples of societal inflection points
- Attributes of societal inflection points
- Insurers’ challenges with societal inflection points
Description of Societal Inflection Points
A societal inflection point is an event, an invention, or a discovery that alters how society behaves, including but not limited to how people live, communicate, work, entertain, travel, or shop. Some inflection points impact society immediately while others cause societal change over one or two (or more) decades after the inflection point emerges. Some inflection points turn out to be Black Swans; other inflection points are the (desired or logical) result of human initiatives delving into any variety of fields actively looking for new inventions or discoveries.
A few examples of an event, a discovery, and an invention: The event could be caused by natural forces or by human effort. One event caused by human effort (well, a lot of human effort) was the emergence of the Baby Boomer demographic cohort after World War II. A very recent example of a discovery is a vaccine for COVID-19 based on mRNA biotechnology (although biologists have been working on mRNA biotechnology for more than a decade). An example of an invention is the iPhone.
Examples of Societal Inflection Points
I list 20 examples of Societal Inflection Points in the table below. Obviously, this is not an exclusive set of societal inflection points. Most of these are information or telecommunications technology-enabled but not all. But each one did cause, is causing or could cause, recognizable changes in one or more aspects of societal behavior.
Each of the societal inflection points share one attribute in common: each of them altered the risk landscape by introducing new risks or changing existing risks.
As examples of risks, there are the:
- Risks of the inflection point itself (airplanes, cloud capabilities, mobile devices)
- Risks emanating from the use of the inflection point:
- media liability from use of the printing press [not so much when Gutenberg invented it, obviously]
- product liability from a satellite not entirely burning up in the Earth’s atmosphere and its remnants crashing into something or on someone
- product liability from malfunction of electric vehicles
- medical / product liability risks of antibiotics not performing as expected
- AI applications having unacceptable societal bias when used to get-and-keep customers (or for a variety of other applications).
- Risks from not having the skills or experience to properly use the inflection point or the follow-on applications from the social inflection point’s existence.
I added “metaverse” quite reluctantly. The portfolio of immersion technology applications including augmented reality (AR), virtual reality (VR), and the metaverse have spilled significantly more digital ink than enabled actual applications.
I believe that both AR and VR have applications for the P&C insurance industry (e.g., underwriting, claims) and the metaverse has applications for all lines of insurance (collaboration, communications, onboarding customers, onboarding producers, assisting with policy forms or claim forms) but I’ve yet to see any statistics that show more than hype on any of these immersion applications.
Perhaps 3, 5, or more years from today we will realize that the immersion technologies were, indeed, social inflection points. Or I’ll realize I should not have put them on this list.
Each of the societal inflection points share one other attribute: just because they introduce new risks or alter existing risks does not mean that the insurance industry must provide coverage for any of these risks.
Attributes of Societal Inflection Points
There are four attributes of societal inflection points I want to discuss (realizing that there are many more than these four attributes including length of time since any societal inflection point emerged into society):
- Areas of society impacted by the inflection point
- Impact order of societal inflection points
- Impact spectrum of societal inflection points
- Insurance loss event frequency / severity gradient (due to the emergence of the societal inflection point; points 1, 2, and 3 on this list; and the time since the inflection point emerged into society).
Areas of Society Impacted by Societal Inflection Points
Inflection points, either alone or in combination, impact one or more areas of society. The number of impact areas may compound, and as we know looking backward in time at some of the inflection points, by expanding to increasingly more areas of society.
Below I’ve shown a visual of 12 illustrative societal inflection point potential impact areas. I realize that this is not an exclusive list.
We need to take into account that each of the above potential impact areas exist because of products and services from one or more industries. Each industry is itself replete with a portfolio of its own ecosystem of associated and related industries.
For me that means thinking in terms of the NAICS industry taxonomy system that encompasses 20 sectors at the 2-digit level and 1,012 industries at the 6-digit level.
Note: From census.gov/naics “The NAICS (North American Industry Classification System) is an industry classification system that groups establishments into industries based on the similarity of their production processes. NAICS was initially developed and subsequently revised by Mexico’s INEGI, Statistics Canada, and the U.S. ECPC (acting on behalf of the OMB) to provide common industry definitions for Canada, Mexico, and the United States that will facilitate economic analysis of the economies of the three North American countries.”
Impact order of societal inflection points
For me, impact order is simply a method of identifying what happens first, then second, then third, then … because of the impact that one or more inflection points have on one or more societal areas.
The impact may be immediate or later. Moreover, each society area impacted is enabled or supported by one or more industries. And, of course, each industry has its own ecosystem of firms that may be within the same industry or an adjacent industry but irregardless will be impacted by the societal inflection point at some time.
There will always be situations where there are multiple impacts happening simultaneously or fair close to happening at the same time.
One example, take the (electrical) telegraph. The 1st order of impact the telegraph needed telegraph poles (and wiring between poles). The 2nd order of impact is people needed to be trained to use it. The 3rd order of impact is that it put the Pony Express and its riders and horses out of the business of carrying messages coast-to-coast. The 4th order of impact is that it needed (for some time) people to ensure that the telegraph poles were not destroyed.
Second example, take the internal combustion engine for motor vehicles. I’ll let you create your own orders of impact on society (from the need for materials and skilled professionals to build the motor vehicles to the fuel and fueling stations needed to keep the vehicles operating to the ability for people to leave a central city to the need for building materials to be sourced to construct homes to …).
Third, and a more recent example, take (public / off-premises) cloud infrastructure. The orders of impact on society could include:
- the hollowing out of corporate data centers
- a reduction in staff (of people who worked in corporate data centers)
- the migration of business systems and/or decision systems to the public cloud
- the ability to enable the company’s employees to work remotely (and have the flexibility to go shopping or go to medical appointments)
- the ability to provide better service to customers 7/24
- and enable a set of CSRs to cover customer requests 7/24
- and create or acquire software solutions to answer customer requests 7/24
- the need for businesses to hire / train people to manage outsourced systems to the cloud as well as manage two or more cloud operations
- perhaps a need to hire or train a business / systems architect to operate the company on a multiplicity of clouds (including moving business systems or decision systems from one cloud vendor to another
- the need to manage and mitigate cyber risks of the business operating in the cloud(s).
Impact spectrum of societal inflection points
Every societal inflection point has an impact on one or more societal areas. But what impact? I suggest thinking in terms of a minimal, moderate, massive, or mega impact. I’ll even let you define each of them.
One challenge is to identify the level of impact when the societal inflection point appears. It may be any of the four levels.
A second challenge is to understand that the level of impact will change over time for most of the societal inflection points. Here are two examples to think about:
- Cyber risks emergence and impact? Cyber security began in the 1970s with ARAPNET and the Creeper (sounds like a title for a very bad movie). Our you could go back to the late 1960s as the birth of cyber with ARPA’s initiatives. Either way, I’d be surprised if you thought the impact would be more than “Moderate” at that time. Now in 2023, the impact level of cyber risks on society (really, every potential societal area is impacted with the possible exception of life expectancy) is probably slightly to the right of “Massive”. (Yes, I’m a pessimist.)
- mRNA emergence and impact? mRNA was essentially a savior to vaccinate society during Covid-19 (which was not a fraud, was not the flu, was not a government conspiracy). It seemed to be an overnight sensation. However, mRNA can be traced back about 30 years to a Hungarian-born scientist and her refusal to accept failure: Katalin Kariko. I won’t go into the time-line of her research and her colleagues involved with experiments that led to Pfizer and Moderna having it available during the global pandemic. However, 30 years ago she knew that she was on to something important. Let’s jump to the Pandemic to think about impact: I put it at Massive. But even if you suggest “Moderate” I’ll counter with mRNA becoming a platform for other drugs and vaccines for a host of conditions and diseases. Time will prove if mRNA’s impact is actually far to the right of “Massive.”
A third challenge is to identify the impact level when the inflection point emerges and over time as it impacts a growing number of societal areas.
Insurance loss event frequency / severity gradient
I hypothesize that each societal inflection point introduces one or more risks in society. In turn, each risk will have an accompanying loss event frequency and severity.
Again, keep in mind that it is not true, though, that the emergence of the risk set or any risk within the set, regardless of how many risks exist in the risk set, were or should be covered by an insurance contract (e.g. policy) from an insurance carrier. Simply put, insurance carriers do not have the responsibility to offer coverage to every risk that could impact members of society (even if that risk impacts all members of society and at times, like terrorism, especially if the risk does impact all members of society).
I mention the above point because insurers will, or should, be monitoring the loss frequency and severity of the risk as insurance coverage of the risk progresses through time.
An exercise: If you were to identify an inflection point, the risk(s) emanating from the inflection point, and the various attributes of the inflection point, where in the below visual would you plot the initial insurance loss event frequency / severity when the inflection point appears in society and also plot it over time?
Finally, I can get to the “why did I write this thought piece”.
I submit that societal inflection points have occurred and will continue to occur throughout the months, years, and decades ahead in the future. However, not every inflection point’s impact cascades through all segments of society at the same time. The world is not really flat (although that was a great book title) but rather is bumpy and discontinuous.
You can bottom-line it and state that change happens quite frequently even though not every person either knows about it or is impacted by it immediately (or even in the short term) when it happens.
Insurers, though, have the constant challenges of not just recognizing that a societal inflection point has happened somewhere in the ‘here and now’, but also need to decide what, if anything, they should do about it: offer coverage for it (if they decide they can do so profitably), hire new talent to offer and price coverage for it, train existing talent, or create partnerships or alliances to manage the risks from the societal inflection point.
The insurance industry has proven over and over for many hundreds of years that they can manage or otherwise mitigate the risks regardless of whether the risks emanate from societal inflection points or other types of emergent change.
Insurance companies don’t stand outside of change. Insurance companies do not operate in some kind of “otherness” immune from societal inflection points or other societal changes. They continually perform their fiduciary responsibility for society because they realize they can not jeopardize or ignore their commitment to their societal value-add (regardless of whether they are hammered for not moving faster, for not moving at all, or for not taking on risks [because they alone know which risks they should offer coverage]).