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Life Companies Should Follow Tesla’s and SpaceX’s Example and Create Their Own Future Instead

Rather Than Guessing Where Disruption Will Come From, Life Companies Should Follow Tesla’s and SpaceX’s Example and Create Their Own Future Instead

By Jeffrey S. Shaw, CLU, ChFC, Executive Director, Life Insurers Council
From the LIC Bullet, October 2015

Disruption seems to be the buzzword of the year. Everyone’s concerned about it. Everyone’s looking for it. Everyone is trying to figure out where it’s going to come from. I’d like to suggest that predicting the future isn’t just hard—it’s nearly impossible. Who among us could have predicted twenty years ago what our world would look like today? For context:

  • Amazon launched in July of 1994 and didn’t go public until three years later. Who knew how dominant they would become—especially considering they only sold books until 1998?
  • Apple’s market capitalization in 1995 was just under $5B. Who could have predicted it would be well over $600B twenty years later?
  • There was no Google—they launched in 1998. And Google Maps didn’t come out until 2005—who could have predicted that we would all have access to free GPS?
  • Netflix didn’t start until 1997 and didn’t offer streaming services until ten years later.
  • There were no social networking options—MySpace launched in 2003, Facebook in 2004, and Twitter in 2006. Pinterest, Snapchat, and Instagram were all nearly five years later.
  • Even Napster, the once illegal file-sharing website that singlehandedly disrupted the musicindustry, didn’t start until 1999 and was ordered to shut down a mere two years later.

The point is that no honest person could admit to foreseeing such dramatic transformation. Part of the problem is that change is never linear—it’s exponential—especially when it comes to technology. A major reason for this is Moore’s Law, which is attributed to an observation by Gordon Moore, cofounder of Intel, in 1965. Moore observed that the number of transistors per inch on an integrated circuit had doubled each year since the invention of the integrated circuit. He predicted that this would continue for the foreseeable future—and so far he has been right.

That’s why there’s more computing power in your smartphone than NASA had available to execute the 1969 moon landing.

Speaking of smartphones, the first iPhone came out a little over eight years ago on June 29, 2007. Now that nearly everyone owns a smartphone, it’s hard to imagine a time when phones merely made calls, sent texts, and took pictures. It must have been obvious to everyone what a tremendous breakthrough the iPhone was going to be, right?

According to an article on digg.com titled “What Did People Think About the First iPhone,” there were a lot of naysayers. It’s interesting to note that many features on the iPhone that we take for granted today were so revolutionary they had to be explained. The article quotes Yahoo Answers: “iPhone is a revolutionary new mobile phone that allows you to make a call by simply tapping a name or number in your address book, a favorites list, or a call log. It also automatically syncs all your contacts from a PC, Mac, or Internet service. And it lets you select and listen to voicemail messages in whatever order you want—just like email.”

Crazy, right? It’s hard to believe we suffered through times when we actually had to dial numbers and listen to messages in the order they were received!

In hindsight, those who questioned the usefulness of this new device had some valid points. Because it combined “a cell phone, a music player, a camera, a Web-enabled device, and much more,” with a conceptually new touch screen interface, NPR referred to it as “high tech bling you might not need.”

Another reviewer predicted the phone’s failure for reasons that appear quite reasonable, given the uniqueness of the concept at the time. “First, the iPhone ignores the main reasons that the iPod succeeded: simplicity and ease of use. Second, the iPhone crams too many functions into a single box. Third, users will detest the touch screen interface due to its lack of tactile feedback.” Ah, but we all knew better, right? We all saw the genius behind the smartphone the moment it was launched! To be fair, there were certainly a number of supporters, but unless you were one of those early adopters who stood in line for days to be one of the first, it’s fair to think that most of us also harbored some skepticism about whether or not we needed all that “high tech bling.”

If most of us couldn’t have predicted transformational technology that came out barely eight years ago, how accurate are our crystal balls going to be in this era of exponential high-tech innovation? Rather than attempting to predict the future, companies may be better served to try to create it instead.

Elon Musk’s two innovative companies, Tesla and SpaceX, provide excellent examples of this.Tesla is a fitting place to start since their impact on the auto industry is often compared to the iPhone’s impact on mobile phones.

Musk started thinking about electric vehicles (EVs) as far back as 1989 when he was convinced they were a far superior alternative to internal combustion engines. He also knew there were a number of obstacles that had kept EVs from catching on, most significantly the huge barriers to entry (the auto industry is dominated by a few global giants), and the high start-up costs to develop new technology. Although people think of Tesla as an expensive vehicle for those lucky enough to be able to afford one, Musk has been absolutely clear since the beginning that his company’s longterm mission was not to build toys for the rich, but to make EVs a viable alternative for the masses. In order to achieve that goal, he developed a three step process. Step One was to build a high priced/low volume vehicle for the rich and use the profits from that product to fund Step Two, which was to build a mid-priced/mid-volume car for the well-to-do and use the profits from that to fund Step Three, a low cost/high-volume car for everyone.

Few people remember the Tesla Roadster which was available in 2008. This car was fraught with problems not just in design and execution but also in timing since it came out shortly before the world economy collapsed. Still, it was successful enough to fund the launch of the Model S, which many Tesla owners may be surprised to learn is just Step Two in their corporate strategy. Already, the company is hard at work investing Model S profits towards the development of an affordable Tesla that will be suitable as a low-priced/high-volume vehicle for the masses. Someday soon, Teslas will be as ubiquitous on the highways as a Chevy.

Although their intention has always been to make EVs affordable and attractive, in the process they have positioned themselves as leaders in the next disruptive frontier of the auto industry. A recent NY Times article titled “Apple and Google Create a Buzz at Frankfort Motor Show” observed that “connectivity has supplanted ‘horsepower’ or ‘torque’ as the prevailing buzzwords in Frankfort. The talk is of self-driving cars, battery-powered cars, and information technology designed to link cars with data networks to make driving safer and more efficient. As cars increasingly become rolling software platforms, Apple and Google have depths of tech expertise that the carmakers would have trouble duplicating.” Although neither Apple nor Google have announced any plans to begin building cars, they have already put a scare into the major manufacturers. Dieter Zetsche, the chief executive at Daimler, (Mercedes-Benz) arrogantly declared “we created the automobile and we will not be a hardware provider to someone else,” while insisting that the brain of their cars will never be iOS or Android.

One can easily imagine Kodak executives having the same reaction to digital cameras or record company execs responding the same way to downloadable music.

It’s doubtful that anyone could have envisioned the impact that smartphones would have on cars, but Tesla didn’t need to. By merely aiming their company towards a future they hoped to create, they were able to reimagine the way we think about cars. Their revelation that they are a technology company first and an automaker second makes them the only company ideally suited to provide both the hardware and the software for the cars of the future. In fact just this month they downloaded a software update to some of their cars that enables them to drive autonomously.

SpaceX’s story is even more amazing. For those unfamiliar with this company, SpaceX is Elon Musk’s “other” company and it follows the same three-part plan as Tesla, although on a much longer and more ambitious scale. The goal of SpaceX is to colonize Mars with a million people. I won’t go into Musk’s reasons for wanting to colonize Mars, but for a very lengthy discussion, I highly recommend this Wait But Why article titled “How and Why SpaceX Will Colonize Mars.” For those who are interested, Wait But Why has published equally detailed and fascinating articles on Tesla and Musk’s take on artificial intelligence.

Musk’s SpaceX strategy is similar to Tesla’s in that a very long-term objective is achieved by a series of remotely related businesses that in turn fund the next stages. However, in this case, although Musk is smart, he’s no proverbial rocket scientist. His first task was to figure out how to launch things into space and this turned out to be much harder than they anticipated. Musk funded both Tesla and SpaceX from his personal profits made by selling PayPal to EBay. He had enough money to fund four test launches of their new rocket, Falcon 1. The company’s first three launches failed. Their final attempt on September 28, 2008, was not only successful, but cost about a third of any currently available rocket. NASA took notice of the cost savings and promptly signed a $1.6 billion contract for twelve additional launches and SpaceX was finally a viable company.

Profits from the NASA contract allowed them to develop a second-generation rocket, Falcon 9, which was more than three times larger than Falcon 1 and had an increased load capacity of 13 tons (over Falcon 1’s one ton limit). Mars, of course, is still many years away, but the company is hard at work on a prototype they call Raptor that can carry 100 people.

The patient reader has no doubt been asking, “What does all of this have to do with life insurance?” and I’m happy to finally be able to answer that question!

Elon Musk didn’t try to predict where the next disruptive technology was going to come from and how it would impact different industries. In fact, he had no reason to predict that EVs would become a practical alternative and there certainly was no precedent to imagine that space travel would ever be accessible to the common person. Yet in working towards creating the future he envisioned, he has potentially transformed two completely different industries and anticipated the disruption that no one, including himself, could have seen coming. There’s no reason why life insurance companies can’t do the same thing.

What kind of world does your company envision?

How about the possibility of everyone having adequate life insurance inforce when they die? We give lip service to the importance of our products and we lament the sad fact that even our consumers admit they need more insurance than they own. We struggle with declining and aging distribution and search for alternative ways to help us identify and target potential customers. And so far no one has come up with any viable solutions.

Maybe we’re just not thinking big enough.

What would the world look like if everyone had adequate insurance? Generational wealth would be conserved, augmented, and transferred. Money would be available for higher education expenses for children. Family residences would be preserved. Retirement accounts would be funded. Lifestyles would be maintained and improved from generation to generation. In other words, the world would be a much better, more secure, and potentially happier place. Why doesn’t everyone buy adequate insurance? Although every agent has heard a myriad of excuses, the fact is that if life insurance were free everyone would own at least a million-dollar policy. Well, what if it was something close to the equivalent of free? What if that policy only cost a dollar a month? What if it was not only affordable, but inconsequential to purchase adequate amounts? Only an idiot or the truly uninsurable would turn down a bargain like that.

What would it take to make life insurance affordable for everyone? Is that goal any more audacious than affordable EVs or space travel—and wouldn’t the end result be even more potentially positive and transformational? As amazing as Elon Musk’s contribution has been, life insurance companies have the ability to have an even greater long-term impact on society.

Impossible, you say? How much will car insurance cost when autonomous cars significantly reduce or eliminate accidents? No one could have predicted how quickly self-driving cars would be on the horizon but wouldn’t it have been great if auto insurers had set their sights higher than just thinking about improving auto safety and considered a moon shot to eliminate accidents completely?

It doesn’t take a crystal ball to see similar dynamics lining up in the areas of life and health. The top five causes of death in the US are ripe for disruption. Heart disease and stroke (numbers one and five) are primarily influenced by a build-up of plaque in the arteries and we’re making great strides in early detection and treatment. Genetic breakthroughs are helping us better able to understand and treat cancer (number two). Smoking prevention efforts and improved attention to air quality in the workplace are impacting the effect of lower respiratory diseases (number three). And autonomous cars and smart houses will no doubt drive down the number of deaths from accidents (number four). Even more exciting are strides in the area of nanotechnology—manipulating very small bits of matter between 1 and 100 nanometers in size. A nanometer is a billionth of a meter. For comparison, a virus is 100nm in size and DNA is about 10 nm. The impact on aging and health as we improve our ability to treat illness on a molecular or cellular level is the stuff of science fiction, but it’s coming.

A world where life insurance is affordable for everyone because people are living longer and healthy enough lives to bring the costs down to negligible amounts is not realistic, right? Frankly, that’s irrelevant. The point we can take away from Tesla and SpaceX is that companies that are aiming their sights on long-term audacious goals often end up ahead of the curve over the short term.

Tesla and SpaceX have already achieved enviable success in their industries even though they are both still many years from achieving their ultimate goals. In fact, Elon Musk doesn’t expect SpaceX’s goal to be achieved in his lifetime.

How far down the road is your company looking?

Trying to predict where the next disruption is going to come from is a loser’s bet—we only have to look back a mere eight years to the launch of the iPhone to see how quickly the unimaginable now becomes reality. Life companies have a bigger opportunity and a bigger purpose but we keep thinking small and short-term. The good news is that we’ve spent decades in what Elon Musk would refer to as Step Two—selling a mid-priced/mid-volume product to a fairly limited market.

Now it’s time to begin investing some of those profits into Step Three and begin creating a new future rather than waiting for some disruption to invent it for us.Life Companies Should Follow Tesla’s and SpaceX’s Example and Create Their Own Future Instead.