Digital Ecosystems and insurance: Insights from Michael Davies
Article information and share options
At the Shaping Modern Underwriting event in London digital ecosystems were a key focus area. One of the experts sharing his insights was Michael Davies, Founder and Chairman of Endeavour Partners and Lecturer at MIT and London Business School.
The interview took place following the conference and covered a wide range of topics, all them of them squarely in the context of the insurance industry. He talked about challenges and opportunities, key virtues insurance players need to succeed … and a compelling theory to explain why this industry has been slow to embrace change.
The big tech threat
Michael Davies pointed out that he often talks about the threat first, as it seems to be a bigger motivator for many people. He put things in perspective by explaining that digital ecosystems don't necessarily care about making money with insurance. They may step into this field to enhance their ecosystems services and, by doing so, vastly increase their share of customer data. This, Davies said, could become a battle ground between big tech players – and it is up to the insurance industry to step in and avoid that scenario.
The digital ecosystem potential
The potential for insurers, in collaborating with digital ecosystems, is vast. Davies explained that digital ecosystems offer constant touchpoints with consumers in easy ways. Plugging into such ecosystems enables insurers to grow in ways that are cost effective and that bring insurance coverage much closer to the customer. In his talk he showed that, despite the growing global economy, the insurance protection gap is increasing – embedding insurance in digital ecosystems would not only reverse that trend but lead to significant growth.
A perasive focus on the downside
When asked why the insurance industry was slower in adopting change, Davies shared a simple and compelling theory: the industry is pervasively risk averse. He suggested that, as the industry is all about risk, it attracts, and has always been attracting, people who love understanding what could go wrong.
The distance of insurance
The lack of touchpoints between insurer and customer is something that's well studied, and the industry has long been trying to make insurance more than a once-a-year engagement. Davies highlighted that new technologies in general and digital ecosystems in particular, will bring about transformative change that will happen whether insurers avoid or embrace it. In his talk he shared that, in the future, there will be fewer insurers, namely a small number of very big players and a number of niche specialists. He suggested that the changes would be particularly hard for generalist middle-sized companies. For reluctant adopters an obvious question might be to ask by when such disruptive changes must be expected. Davies had no comforting answer. He said that things often look fine (i.e. non-disruptive) for a long time, until they suddenly don't.
The 6 most important virtues
Asked to highlight what insurers need to change successfully, Davies offered six main elements: Humility, Ambidexterity, Acuity, Audacity, Quantitative Chops and Agility.
- Humility: In essence, realizing that we don't know it all. It means learning from specialists, learning about technology, learning about changing leadership traits and business models. Learning to collaborate instead of aiming to control everything.
- Ambidexterity: Doing two things well at the same time. In terms of the insurance world, continue to successfully operate the traditional business while, at the same time, build a new one.
- Acuity: A sharpness of thought and vision with a realization that it is more important to look outside, at the world around us and how it is changing.
- Audacity: Talking risks and accepting that things will fail. Davies suggested that this may be the most critical one for the insurance industry.
- Quantitative Chops: Something that the insurance industry has always excelled at – the understanding of statistics and the ability to run numbers.
- Agility: The pace of change is dramatic – and thus also has to dramatically increase in the way insurers do business, operate and innovate.
More from digital ecosystems
Watch the plenary panel discussion video with an "industry outside-in" perspective that addresses the emergence and role of digital ecosystems in the insurance industry of the next generation underwriting conference event.