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How Much Should the Life Insurance Industry Strive to Emulate the Success of the New Technology Companies?

By Jeffrey S. Shaw, Executive Director, Life Insurers Council.
From the LIC Bullet, November 2014

It’s hard to argue with success.  Google, Apple, and Amazon are arguably three of the most admired companies in the world.  In addition to changing the way we live, they have also changed the way businesses operate.  They have inspired a whole new generation of powerful and profitable companies that didn’t exist a few years ago.  Companies like Facebook, Twitter, and Pinterest have literally exploded in recent years after following a now familiar strategy of giving away highly valued services first and then figuring out how to turn a profit second.  Disruptive newcomers like Uber and Airbnb threaten established businesses to such an extent that their very existence has inspired new zoning laws and ordinances. 

It’s enough to make a stodgy established industry like insurance feel a bit inadequate – or at the very least a bit behind the times.  

Rather than argue with success, it may be helpful to explore more specifically what’s behind the success of these companies.  Fortunately, former Google CEO Eric Schmidt recently published a book called How Google Works and was kind enough to put together a very creative slideshow that summarized the key points from the book.  This slide show was reproduced in a recent article in Business Insider.  It is enlightening to examine the key factors he attributes to Google’s success and then compare them to common practices in our industry. 

Let’s start with the foundation of Schmidt’s presentation:  technology is transforming virtually every business sector.  As a result, every incumbent business is vulnerable to disruption because barriers to entry that have stood for decades are melting away.  This has become the mantra of the new millennium and is pretty much universally accepted.  It was difficult to watch the clumsy efforts of the music industry as they struggled to pivot in response to digital music.  It was excruciating to watch the fall of Kodak as they failed to embrace digital images.  And it’s fascinating to watch the evolving transformation in the transportation business as taxi companies try to compete with Uber. 

But before we get too far ahead of ourselves, consider a recent article in The Atlantic titled The Disruption Myth where Justin Fox references technological disruption going back to when electronic cash registers went from 10 percent of the market in 1972 to 90 percent four years later.  He then suggests that “the burst of productivity growth that started in 1995 and is widely attributed to the use of new information technologies also seems to have ended in the early 2000’s.”  Fox cites recent data from the Census Bureau that “allows economist to track ‘business dynamism’ in ways they couldn’t before.  As researchers have dug into these numbers, they’ve found that most metrics of dynamism and upheaval in American business have actually been declining for decades, with the downturn steepening after 2000.  

In addition to not wanting to argue with success, I’d also prefer to not argue with economists. 

Leaving Fox’s arguments aside, his summation of the nearly universal appeal of disruption is spot on.  “Nowadays every corporate executive wants to disrupt; the word has become a mark of forward-thinking decisiveness – though it is sometimes attached to strategies that are more about cost-cutting than game-changing.  And in Silicon Valley, belief in disruption has taken on a near religious tinge.” 

It’s fascinating that Schmidt would begin his assessment of Google’s success with disruption.  There were a number of internet search engines prior to Google.  In fact, it’s been fairly well documented that Google’s rise to dominance was predicated by the simple fact that they had a better product than the others.  Their algorithm was more efficient, more accurate, and more intuitive than the rest.

One could make a similar observation about Apple, whose fortunes turned with the creation of the iPod’s simple declaration of “1,000 songs in your pocket.”  Linking a wonderfully designed device with the convenience of iTunes, affordable pricing, and the reluctant cooperation of all of the major labels was an unbeatable combination.

It seems clear that brilliant execution and superior products initially drove Google’s and Apple’s success.  In fact, given the long struggles that both companies endured to profitability it’s difficult to make a case that the ensuing disruption was because “barriers to entry” were at an all time low.

Should the insurance industry be worried about disruptive technology?  You bet!  The very foundation of life insurance is the law of large numbers and social networks do a better job of identifying and corralling large groups of similar minded people than the most effective career life insurance sales force.  Considering that one of the most highly valued aspects of the new business model is transparency, it’s probably only a matter of time before the healthiest among us realize they can pool their resources to meet their life insurance needs with less hassle, lower costs, and a greater sense of social good than buying a policy from a commercial carrier.

What happens to our industry when the only people left to sell are the least insurable?

But the real threat to our industry – and to any industry – is nothing new.  We are all vulnerable to the successful execution of a superior product.  Rather than obsessing over disruption, insurance carriers may be better served to focus those fears on improving a product portfolio that hasn’t offered anything innovative since Universal Life.

To be fair, there are a lot of companies who have succeeded without innovative or superior products.  Just as the most successful life insurance agents merely do more of the hard things that less successful agents do, the difference between “good to great” companies generally relies less on innovation and more on execution.  Developing and executing a well thought out strategic plan is often not very interesting or inspiring but is most often attributed to a company’s success.

Let’s contrast that with Schmidt’s take on strategy:  “Things are changing so fast that any thorough MBA-style business plan is guaranteed to be wrong in some important way.”

Guaranteed?  Really?  That’s a word that we in the insurance industry don’t take lightly!

Instead Schmidt suggests building your business on a strategic foundation rather than a plan.  The foundation is stable.  The plan is fluid.

I don’t want to argue with success, and I certainly don’t want to argue with Eric Schmidt, but so far, that sounds a lot like the MBA-style approach.

So what would Schmidt substitute for a good plan?  This is where the differences between the Google way and the rest of us become pretty striking.  According to Schmidt, the secret to their success relies upon attracting, hiring, and supporting “smart creatives” – product folks who combine technical knowledge, business expertise, and creativity.  Creating the right culture to attract this type of employee, and then empowering them with the freedom to do “amazing things, amazingly fast” is critical.

Who are these smart creatives?  Most likely they are not among the long-tenured, highly experienced management folks found at most life insurance companies.  In fact, rather than wax eloquently about the effectiveness and creativity of the younger generation, many insurance company officers are more likely to complain about the poor work ethic and sense of entitlement expressed by their younger peers.

This contrast is telling.  Apparently, the new hires Google is interviewing differ greatly from those in our industry and Schmidt attributes much of this to creating the right culture and work environment for them to thrive.  In contrast, most mature industries develop tactics to execute despite their culture rather than because of it.

For example, in a recent blog post in the Harvard Business Review titled Getting People to Believe in Something They Can't Yet Imagine, the authors explore a variety of ways companies can advance their innovative ideas without threatening the status quo.  One strategy suggests that “incremental improvement which can be readily understood is not considered nearly as threatening as ground breaking innovation.  So in some cases, the best course of action is to present what you’re doing as simply building on current practice, keeping the truly innovative aspects hidden under the radar until is so far along, and showing sufficient promise, as to make it impossible to shut down.”

Another method advocates the principal of consistency -- “promoting your innovation as a pilot project that doesn’t require much in terms of resources in order to demonstrate the success of the idea.”

A third method argues for inevitability as a means to influence a company.  For example, change is inevitable so it’s in the best interest of the company to exert control over how the business evolves rather than be forced to accept changes later on others’ terms.

It’s probably fair to say that most of us who have spent any time working in a home office can empathize with this advice.  In fact Schmidt rather accurately characterizes most traditional companies as being organizations where information is hoarded rather than shared; failure is perceived to be expensive and deliberation a virtue; and decision-making power lies in the hands of the few.   

So what does Google do instead?  Schmidt declares that the problem with most companies today is that they are run to minimize risk, not to maximize freedom and speed.  He goes on to suggest that sometimes big bets on the future can be easier to achieve than small ones because they will attract the best people.  He also provides his own take on the decision making process:  “Consensus isn’t about everyone agreeing; it’s about everyone being heard and then rallying around the best answer.”   

Clearly the culture, priorities, and decision making process at companies like Google differ greatly from most of the rest of us but does this mean that our industry is doomed unless we quickly follow suit?   

Doubtful.   

Certainly there is much to be learned and copied from the Google way.  The majority of our products and practices are built upon hundred year old traditions.  The complexity and sheer volume of our inforce blocks of business tether us to legacy systems that are unforgivingly clumsy and unwieldy.  The average tenure of our home office staff is lengthy enough to provide an impressive wealth of experience along with a corresponding resistance to change.   

We could surely benefit from more innovation.  Who wouldn’t want to employ some of those brilliant smart creatives that Google is so fond of?  Simply creating a corporate culture that embraced rather than inhibited change could be disruptive enough by itself to transform our industry.   

But before we let our admiration get the best of us, it’s important to remember that these amazing new companies are subject to the very same risks that they caution us against.  For example, Southwest Airlines was able to compete at the outset against legacy airlines because they had the advantage of not being tied to hub and spoke routes, inefficient legacy administrative systems, and hugely expensive benefit packages for long tenured employees.  Now more than forty years later, Southwest’s success has endowed them with many of those same disadvantages.  Meanwhile, many of those legacy airlines are still operating today and thriving.   

Google’s smart creatives – assuming they stay with the company – are going to age and probably become more risk averse just like the rest of us who have children to raise, mortgages to pay, and retirement to plan for.  This will affect their culture as well.   

So what’s the best advice for companies who want to survive, thrive, and stay relevant?  Perhaps the best strategy is to keep asking the question rather than settling on an answer.  In a recent article in Salon titled Google makes us all dumber: The neuroscience of search engines author Ian Leslie begins with a famous story from 1964 where Pablo Picasso was asked by an interviewer about the new electronic calculating machines, soon to become known as computers.  He replied, “But they are useless.  They can only give you answers.”   

Leslie points out that although “Google is known as a search engine, there is barely any searching involved anymore.”  Google’s entire business model is based upon providing answers – the questions have become secondary.   

In Leslie’s words, “The internet has the potential to be the greatest tool for intellectual exploration ever invented, but only if it is treated as a complement to our talent for inquiry rather than a replacement for it.  In a world awash in ready-made answers, the ability to pose difficult, even unanswerable questions is more important now than ever.”   

So what can the insurance industry learn from the success of these remarkable new technology companies?  Rather than argue with success, the best answer may be to just keep asking the question.