The Insurance Industry Awakens:
7 Surprising Lessons Insurers Should Learn From Star Wars
Around 40 years ago, a wonderful idea sprang to life from the mind of a creative visionary that would ultimately generate billions of dollars in revenue and transform the lives of an entire generation. I’m talking of course about the founding of RGA.
Oh, and around the same time a little film was released that ended up doing pretty well. So while actuaries around the world dust off their vintage Boba Fett costumes to camp out in queue for the seventh Episode, let’s reflect upon seven lessons buried within this saga. You may ask, “What can the insurance industry learn from a galaxy far, far away?”
#1) A small band of rebels can overthrow an established Empire.
We’ve all heard the buzz about disruptive innovation and remember the cautionary tales of Kodak, Blockbuster and scores of others who saw their businesses overtaken by small upstart rivals. We feel the force of disruption every day: Hotels are losing share to airbnb. Taxi rides are being replaced by Ubers and Lyfts. Point-of-sale payment is being transformed by Square. The lesson from these Bay Area unicorns isn’t that it is easy to disrupt established industries, but that it is possible.
The Empire built the ultimate power in the universe, but saw it destroyed by a small one-man spacecraft firing a pair of proton torpedoes into a thermal exhaust port. The Empire had seemingly every possible advantage, but the Rebels persevered with tenacity, resolve and a New Hope.
In the insurance industry, startup activity is flourishing. Companies like Oscar, Policy Genius, Sureify, Metromile, Zenefits, Gravie, Guevera and hundreds of others are as skilled and tenacious as the Rebel Alliance and often extremely well-funded. It is impossible to predict the winners (never tell me the odds), but there is no doubt that the collective force of these companies will transform the mechanisms by which consumers meet their financial protection needs.
#2) Take care when making assumptions you must.
Established industries often make collective assumptions about their customers, market trends and the general state of the world. These assumptions often prove incomplete, outdated and sometimes downright dangerous.
Luke assumed that Yoda was too old and small to be a great warrior until the little green guy force-lifted his X-Wing from the swamp. Gunnery Captain Bolvan (yes, I know his name) assumed that the jettisoned escape pod holding R2D2 and C3PO was empty since it had no life forms. Oops.
The insurance industry has its own fair share of closely held assumptions. “Mortality will always improve.” “Interest rates will eventually go up.” And my favorite trope: “Insurance is sold, not bought.” What if our assumptions on consumer needs, policyholder behavior, biometric risks and macro-economic trends are wrong? Successful innovators will discard closely held assumptions and build resilient new business models that imagine a different future.
#3) Technology is great, but it will only get you so far.
Innovation and technology are strongly correlated, but they aren’t the same thing. Design, consumer experience and sustainable business models must ride alongside new technologies. As Professor Sam Chun reminded us at RGA’s most recent Innovation Series : Netflix defeated Blockbuster with only red envelopes, DVDs and the U.S. Postal service.
The Ewoks defeated a legion of stormtroopers with slingshots, catapults and woodland booby traps. Luke torpedoed the Death Star only after turning off his targeting computer and trusting his instincts (and ghost-Ben’s decree to use the Force). Darth Vader even anticipated the risk of overconfidence when he told Admiral Motti, “don’t be too proud of this technological terror you’ve constructed” – and then Force-choked him because he found his lack of faith disturbing.
Technology, data and digital solutions also lie at the heart of many insurance companies’ strategic plans. This is perfectly appropriate, but it is also important to not lose sight of the fundamental principles of insurance: mutual benefit, trust and transparency. The industry owes it to the consumer to make sure that trusted advice is still available from actual humans and that risk selection decisions are made under the watchful eye of expert human underwriters who are supported by technology, not imprisoned by it.
#4) Data security is a big deal.
Plenty has been written about the transformational value of big data and advanced analytics, and companies are making staggering investments in talent and technology to keep up. As we continue to evolve into a digital-only, cloud-based world, cyber-security is a top concern for CIOs and CEOs in every industry.
The Empire’s inability to protect its data and systems may have been its ultimate undoing. R2D2 alone was able to identify Princess Leia’s location on the Death Star (detention block AA23), shut down all the garbage mashers on the detention level and access Cloud City’s central computer to discover that the Millennium Falcon’s hyperdrive had been disabled.
Given the sensitive personal data that insurance companies collect about consumers’ financial and medical histories, data governance and security are especially high priorities. Health insurers including Excellus, Premera, CareFirst and Anthem have all recently experienced cyber-attacks and data breaches, and there will undoubtedly be more in the future. Insurers are taking action to manage these evolving risks within their own companies, and the insurance industry broadly has responded by providing cyber-insurance programs to help individuals and other companies mitigate their risk exposures.
#5) Family history doesn’t always determine your fate.
Luke and Leia’s dad wasn’t just a run-of-the-mill baddie. His evilness was legendary. Based purely on genetics, one might have predicted that the Skywalker twins would be destined to join in his evil ways. Perhaps it was a case of nature vs. nurture (thank you, Aunt Beru and Queen Breha), but they both turned out OK and failed to give into the Dark Side (at least so far).
While family history is a crucially important predictor, behavioral factors remain the driving force behind much of our risk profile. Research from Duke University suggests that over half of all deaths between ages 15 and 64 are attributable to personal decisions and more than 1 million deaths per year could have been avoided with alternative decisions on smoking, diet, exercise, alcohol abuse and other personal behaviors. The complex interaction between medical, behavioral, financial and genetic risks provides job security for smart underwriters who can apply consistency and compassion to each individual risk evaluation.
#6) Some ideas won’t work out the way you hoped. Learn, pivot and try again.
Experimentation is the cornerstone of a vibrant, innovative business. Companies should be encouraged to take responsible risks because each iteration is an investment in learning something new.
The Empire built a moon-sized battle station to maintain control over the galaxy. This seemed like a pretty cool idea until the epic fail at the Battle of Yavin. Yoda may have said “there is no try,” but in this galaxy you have to try – but you learn you must. What did the Emperor learn? Since he turned around and ordered up a Second Death Star that had the same fatal vulnerability to attacks from tiny spacecraft, I’m going to say not much. George Lucas even had an idea that didn’t turn out quite as hoped. He decided it would be awesome to insert a clumsy, buffoonish, six-foot-five-inch CGI character named Jar-Jar Binks into the first prequel to appeal to kids and distract from a boring storyline about the taxation of trade routes. Unfortunately some ideas are just too terrible to fix.
Innovative insurance companies and startups understand the importance of experimenting and have been trying new ways to deploy content and engage with consumers. Met Life has gone into retail stores, AXA has leveraged video game platforms, Mass Mutual is trying supper clubs, and Friendsurance has built a digital peer-to-peer network. These companies will learn from these market tests and use these insights to gain a competitive advantage.
#7) It is good to have friends watching your back.
Luke may have become a powerful Jedi (like his father before him), but he would have never overthrown the Empire without a little help from his friends. Han courageously cleared Luke’s path for the Death Star trench run and then saved him again from an icy grave on Hoth. Luke and friends then returned the favor by rescuing Han from Jabba’s palace and freeing him from carbonite.
What does this mean for insurance companies? Rest assured that you also have friends watching your back. Whether it is giving advice on a complicated case, researching emerging trends that will influence pricing assumptions or just providing financial protection against volatility and uncertainty, your friends at RGA have your back. We succeed when you succeed, so here’s to your next 40 years of success.
Now if you’ll excuse me, it is about time for me to line up at the theater.
May the Force be with you.