Disruptive Technologies in the Insurance Industry

On 13^th November, 2016, Mr. Sunny Bindra wrote an article in one of the dailies that echoed my thoughts. In his article, he illustrated how the recent developments in global technology that might disrupt the insurance industry and find the conventional players unaware. Before you think it’s farfetched, recall the disruption caused by Uber and Air BnB. Both are global companies that identified a gap that transcends countries and cultures. Startups are leap frogging the archaic claims processes, static premiums and poor customer service and inventing in dynamic premium computation methods, numerous customer service channels, seamless onboarding and easy to follow claim procedures. In the current market, products are difficult to explain and covered in legal jargon that is too complex for customers to understand.

The risk of customers is treated equally, without considering the different attributes of individual customers, corporates or assets. A reckless driver is more risky in comparison to a careful driver, a moving vehicle is more risky in comparison to a stationary vehicle in a garage, goods stored at a warehouse in a war torn country as at a higher risk in comparison to goods stored in a peaceful country. These elements of risk are not captured in the product of most insurance firms. Most Kenyans are unaware of the merits of insurance and only take insurance that is required by law, namely motor vehicle insurance and national hospital insurance fund. In fact, based on the Association of Kenya Insurers report for 2015, the insurance penetration in the local market had worsened for the three years in a row, dropping to 2.79 per cent in the year 2015 from 2.94 per cent in 2014. What global technology trends in the insurance industry that could change this trend?

Use of location awareness of property and assets is a unique value proposition that would appeal to corporates. If the premium for an asset, fixed or mobile, is based on location then corporates can observe caution and prudence on how they place assets with an aim of controlling costs. In essence, this would lead to reduced claims hence improved profits for insurance firms. Most companies in the insurance industry shoot in the dark when looking for sales. There would be better rewards if companies would engage in customer intelligence and analytics. Gathering demographic data and understanding customer behavior is key in customizing products for various market segments. Social media platforms provide an opportunity to understand customer behavior in a dynamic way. Insurance firms can invest in social miners to gather trends and mentions from which needs in certain market segments can be identified and solutions created.

Brick and mortar presence has been overtaken by events. However, most insurance firms still require you to walk to a branch to sign up for policy and lodge a claim. Soon, there will start ups that would allow you to sign up remotely and policy deliver at your door step. Mobile applications can be used for viewing policies, policy inquiries, paying bills, filing claims, finding agents, quick notifications and updates.  How about covers that are less than 12 months and dynamic? Pay as you drive for instance, would make economic sense. Why should I pay for insurance for the car in the garage while am on holiday? Using Internet of Things, insurance firms can monitor assets and only charge a premium while they are in use. Imagine the savings that would be made if a firm leasing heavy machinery only pays a premium when the machinery is in use. As long as the machinery idle, no premium would be charged hence reducing the fixed costs.

Insurance firms need to contemplate investing in core business systems that allow integration to government agencies and partners that are stakeholders of the insurance industry. Wouldn’t it be great if your insurance firm had access to police records of reported accidents? Once you report and accident, the firm would pick out your number plate and process claims, repairs, courtesy car and all the value adds without you intervention. A seamless customer experience is a possibility that would give a competitive advantage to the firm the offers it first. The penetration of the insurance service in Kenya does not interpret to lack of need for it in the market. It’s an opportunity lingering for next innovator, a solution provider that will meet the needs of the 97 per cent.

Virtual Reality, Accelerated

Samsung recently launched the Samsung Edge S7 accompanied by the Gear VR, the virtual reality component. There is a new war front for smartphones, neither is it a sleek design nor a water proof nor battery life, its virtual reality. Consumers want to interact with devices in a natural way, as if they were part of their environment. The race for virtual reality has been on for a while. On March 25, 2014, Facebook purchased a company that makes virtual reality headsets, Oculus VR which was founded by Palmer Luckey, for $2 billion. There have been several virtual reality devices that seek to enter the market to complement Oculus Rift to enhance the game experience. In March 2015, HTC partnered with Valve Corporation announced their virtual reality headset HTC Vive and controllers, along with their tracking technology called Lighthouse. In July 2015, OnePlus became the first company to launch a product using virtual reality. They used VR as the platform to launch their second flagship device the OnePlus 2, first viewable using an app on the Google Play Store, then on YouTube.

There could be a game changer in the VR scene, graphene. Let’s put this into context. The most popular material used in manufacturing smart devices has hitherto been silicon. Silicon has its limitations. Even though silicon has been shrunk to allow approximately 2 billion transistors in a chip, scientists predict that it will reach its threshold by 2020. The other limitation is that silicon is thick, from a VR perspective. What is graphene and could it be silicon’s replacement? What difference does it make in the VR world? Now, if you took your pencil and rubbed it on a piece of paper, you will get graphite. Graphene is graphite’s relative, made of carbon elements arranged in hexagonal shape and is one atom thick making it 2 dimensional. Try to imagine a honeycomb that is too thin for you to see using your naked eye. Despite being one atom thick, graphene is also one of the strongest materials in the known universe. The material was discovered, in 2004 by Andre Geim and Konstantin Novoselov at the University of Manchester. The duo won a Nobel Prize in Physics in 2010.

The most important properties of graphene are transparency and flexibility, apart from its electrical conductivity. This is ideal for smart devices of different shapes, even more appealing for surface computing. You can manufacture a glass pane with a layer of graphene and suddenly there is a smart window of your house. In future, we could have smart tables in restaurants with menus to choose, newspapers to read or game to play.  Devices such as plasma TVs and phones often have screens that are inflexible and breakable. Manufacturers are actively seeking alternatives that could cut costs and provide better conductivity, flexibility and transparency. Graphene is an emerging option. It is non-reflective and appears very transparent. The material presents possibilities to create wearables that fit appropriately and are comfortable. Visualize a contact lens with an interactive inbuilt screen, probably giving you details of a painting as you walk through a gallery or an artifact in a museum.   How about smart clothes? We could have newspaper vendor walk around with adverts or a group of dancers with images changing on their clothes.

Another perennial problem has been battery life. Graphene could dramatically increase the lifespan of a traditional lithium ion battery, meaning devices can be charged more quickly - and hold more power for longer. Batteries could be so flexible and light that they can be stitched into clothing or into the body. Solar panels can utilize the material for higher power output and durability. Carrying less weight and using batteries that can be recharged by body heat or the sun would allow for more applications in wearables. Heat dissipation is a major challenge in electronic devices. Now researchers have proposed a complex 3D structure made from a 2D material, known as white graphene, which may provide a solution to this problem. Its heat transfer capabilities are superb, but it’s also an electrical conductor. Graphene oxide can be used to create 'smart' food packaging products. Packaging which has been coated with graphene has the ability to detect atmospheric changes caused by decaying food. The possibilities of the graphene are endless and particularly exciting for the virtual reality world. 

Do we need still a CIO in a Company?

Recently, during one of my management classes, the lecturer said something very shocking. He predicted that in the next five years, most companies will not need a CIO. In fact, he joked about it and said it might stand for “Career Is Over”. In his view, majority of the youth are techno savvy and as they grow to the CXO level, there will be no need to demystify technology since it will be inherent to them. They will know what technology to use when and where in order to achieve the company’s strategy. I belong to the school of thought that feels that the IT department has been long marginalized, usually place under the care of the CFO. The two are acutely antagonistic; one is out to save money while the other is out to spend it on technology. Given, sometimes the spendthrift IT department needs to be controlled, looking for the latest high end appliances for data storage, security, and unified communications. Before I could criticize him, I paused and remembered that 10 years ago, there were colleges in our neighbourhoods teaching courses in Microsoft Word, PowerPoint, Excel and Access. Now they are extinct, there are needed any more. A child will simply log into a laptop or a smart device, go to Facebook and start chatting. To him or her, typing in any application is inherent, just like walking. Get the picture?

There is another growing but worrying trend; outsourcing. IT and cloud services are becoming easier to adopt. As standards and policies continue to be defined, small and medium companies-in which most companies in Kenya fall in- will find it easier to deploy leaving out the need for experts in the organization. For instance, when a company decides to move to Google Mail or Office 365, do they need the guidance of a CIO? Maybe they don’t. What if a company decided to use Skype for Business for communication or Salesforce.com for sales funnel management? May they don’t? Location of a server running and enterprise application is no longer important, whether on private, public, or hybrid cloud; on a virtualized machine on virtualized storage, over a virtualized network and so on. The important factors are determined by cost, service-level agreements and regulatory requirements. These are decisions can be made without a technical expert in the room, especially where time and cost are of essence. Outsourcing is a game changer, given the large economy of scale achieved by centralized purchasing; the costs are lower. The effect of this is better response time, governance, security, redundancy isolation, and other operational requirements. The fixed costs will are shared across a broader base, lowering them making them variable.

Traditionally, the CIO has not been a breeding ground for upcoming CEOs. For CIOs to survive, they must evolve. Most organizations see a CIO as a cost center spending projected profits thus impacting the bottom line. Today’s CIO, more than ever, must be strategic; mapping the value of technology across different disciplines in an organization. All companies heavily rely on technology to be ahead of competition. Consumers demand the use of technology to ease their purchase and for a seamless experience. There is no alternative. CIOs must plan to grow to be CEOs. Learn how to evaluate and analyse financial statement, understand the mechanics of business operations, gain hands on experience on other areas of the business and acquire customer service skills. In other words, CIOs need to move out of their comfort zones. Historically, CIOs have grown in IT departments, often from programmer or network administrator to the top of the IT division, without much time spent in other functions in the company. This makes them narrow minded and lack a certain perspective of the business. Most often than not, they do not interact with external customers and may not understand the challenges of the market they are in. This is comparison to COOs for instance, who have to understand the end to end processes of an organization. As other members of the executive board become more empowered technology wise, the CIO may be irrelevant.

The 3D Printing Disruption of Manufacturing

Recently, the new Uchumi CEO Dr. Julius Kipngetich hinted that the company is eyeing at the e-commerce model of retail business. In essence, consumers will no longer have to walk to a store but rather have products delivered at their homes by placing a request online. This is following other entrants in the market like Rupu, Pigiame, Ticketsasa, Nunuauza, Jumia, Mama Mike and so on. The retail business is in the verge of a huge disruptive change and 3D printing is part of it. With more sophisticated and demanding consumers, customization is essential. It is not economical to customize and in a short notice for traditional manufacturing method. The methods are optimized for large volumes of consistent output and not for an individual custom made product. With 3D printing, the difference between a customized item and the non-customized one is the same. Big online retailers like Amazon are already selling customized jewelry, toys and gifts using 3D printing. How about a customized phone casing, key holder, clothe hangers, aren’t the possibilities are infinite?!

From a medical perspective, 3D printing is really revolutionary. We can now print prosthesis for patients who need artificial limbs in a customized manner to ensure they fit comfortably. 3D printing of biological matter using organic inks and super-tough thermoplastics can be used to regenerate failed organs or part of it. These capabilities will also have an impact in the art industry; artists can create sculptures using software and print. In fact, Adobe Photoshop now has adding 3D printing capabilities, allowing users to design three-dimensional objects and they can send them to 3D printers in the cloud or print by themselves. Well, not sure whether the typical artist or a computer programmer will draw our sculpture in the future. I look forward to a day when the mechanic can print a car part, like a bush nut or screw, instead of waiting for it to be shipped from Europe or Asia for months. This would affect every stakeholder involved; from the manufacturer, shipping company, clearing agent, delivery truck, and spare parts shop owner and so on. NASA will be able to install 3D printers on the international space station so astronauts can print replacement parts as needed.

The biggest headache of 3D printing is how to regulate it. What happens when people start producing counterfeit goods at their homes? Among its other challenges are that the machine consumes a lot of power, poses as a national security threat due to its capability to produce guns, lacks guidelines and standards that govern production and licensing loopholes. The benefits outweigh these challenges. They can build complex components and achieve greater precision and finer resolution at higher speeds and lower costs, taking manufacturing to beyond limits achieve before. Prototypes can now be built as ease during product development without investing in a manufacturing line thus reducing time to market. Engineering tools required to manufacture some of these parts are not available in most countries but with this technology, manufacturing will truly be globalized.

This is the time for traditional manufacturers to think differently. The 3D printing is now limited to complex designs and shapes but not for too longer. It’s poised to move to the mainstream market segment where day to day products will be produced by households and not mega factories. It is possible to integrate this technology as a subset of production to cut down on overheads and remain competitive. In a similar fashion to software development which became open source and community based over time, the development and production of physical goods are about to become community based rendering factories uncompetitive. Open source software lead to growth of applications that lead to significant disruption of the market and can longer be ignored. It is predicted that 3D printing will have a similar impact in the manufacturing sector in the next few decades.

Dark Side of the Technology Revolution

 
As I routinely took a glimpse of the BBC headlines before heading to bed, an interesting documentary captured my eye and kept me glued to the screen for thirty more minutes. It illustrated an interesting perspective of the negative effects of the technology revolution. An example given was the invention of the Google Self driven vehicle, which would in this next few decades lead the taxi drivers jobless. Tesla, a car manufacturer, says that fully self-driving cars will be ready for roads in just two to three years.  For now, the company has rolled out a software update that enhances cars’ autopilot and allows it to be remotely “summoned” in and out of garages without a driver.

Michael Osborne, an associate professor of machine learning at the University of Oxford, warned that the increasing use of machines in the classroom will mean that teachers will be less important when transmitting knowledge. Sounds farfetched? It’s not. Think about it. We have local scenarios where technology lead to the elimination of middle level skilled jobs. Remember how every big boss needed a secretary with the skill to write short hand, now they are no more. Looking into the future, remember how you had to queue to pay for electricity, water, driving license renewal and so on, while you can now comfortably pay for these services on your mobile devices. What will happen to the cashiers who used to attend to you, say twenty years from now?

Robots, mechanical or in software, are slowly taking on various tasks for humanity, not just the odd jobs but even the more sophisticated and complex ones. This phenomenon is known by scientists as Artificial intelligence (AI) takeover. It refers to a hypothetical scenario in which artificial intelligence (AI) becomes the dominant form of intelligence on Earth, with computers or robots effectively taking control of the planet away from the human race. Ask IBM Watson. IBM Watson is a technology platform that uses natural language processing and machine learning to reveal insights from large amounts of unstructured data. In other words, the system can analyse complex problems and compute a reasonable answers based on correlations and permutations. It is basically a brain. The IBM Watson Health cloud has a diverse range of health sources, cloud-based data sharing hub to assist doctors in diagnosis. At the least, we will need fewer doctors in future or may get rid of them in managing certain diseases and conditions. AI has gone a long in trying to create a robot that easily can learn and is self-aware enough to cast its human operators.

This marks a change in paradigm. The technology revolution is not just a threat to the repetitive tasks in a factory’s production conveyor belt; it’s a threat to every job.  The International Federation of Robotics says the number of robots in factories across the world rose by 225,000 last year, and will rise even further in the coming years. A few years back, tea farms in Kericho introduced mechanized tea harvesting methods and all workers were up in arms and the strategy had to be reverted. Well, that was a temporary measure but eventually, technology will catch as it clearly becomes more efficient to use mechanization in comparison to human labour. Advances in technology are moving too fast for most professionals to keep up. As some professions become obsolete, more knowledge may not lead to higher pay either, because everyone will be bidding for the same work, which could drive wages down. According to McKinsey Global Institute, by 2017, there will be 2 million industrial robots in operation worldwide. It has been estimated that by 2025, robots could produce an output equivalent to 40-75 million workers in both industrial and service roles. The good news is that more robots require more engineers to tend the robots. How about learning some robotics to be future proof?