[Transcript] Bill Hartnett – President of Hartnett Advisors


Bill Hartnett - President of Hartnett Advisors, Microsofts Godfather of Insurance Services

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Michael Jans: It is my pleasure to introduce Bill Hartnett. Bill, thank you so much for joining us, how are you today?

Bill Hartnett: I’m great Michael, it’s really a pleasure to join you. Thanks for inviting me.

Michael: All righty. I will give just a little bit of background for people who don’t know that Bill and I have known each other, gosh, for probably 20/25 years, though there was a long gap while you were gone. I knew you when you were on the board of the PIA, I think you were representing Rhode Island, yes?

Bill: Yes, absolutely, yes.

Michael: All righty. And then, all of a sudden, boom Bill Hartnett was gone and-

[laughter]

Michael: -and the rumor was you were Mr. Insurance at Microsoft and you did that for a long time. We’re going to dive into a lot, but that’s that’s too compelling to skip over quickly. I just want to pause for a moment and ask you to tell us what did you do there? Then I’m going to ask you a couple more questions about the Microsoft environment.

Bill: Sure. Yes, now I’ll start at the beginning maybe a little bit– I actually was an agent broker when we first met in Rhode Island. I ran a family agency there and I still actually have a brother, two sisters, and a sister-in-law that were still in that business I’m no longer involved. But it’s still going strong, average Main Street agency doing all lines in a small town Rhode Island, it’s really, really a great business and it’s been important to the family for a long time.

My my roots are in the American agency system and I still think it’s got a lot of life left in it, contrary to popular belief sometimes. But when I was in the business, I seemed to gravitate more towards the automation side of things and it was always a hobby for me. I had one of the first RadioShack TRS-80s and I had one of the first IBM personal computers and just really became fascinated with that part of technology. And over the years, I wound up doing– I found myself doing less and less of retail sale of insurance [laughs] and more messing around with the technology.

I was on the PIA Automation Committee, the National Automation Committee and wound up on the board of directors at ACORD for quite a few years, and did some work with IVANS back in the day. That all led, the cumulation of those things, led to a meeting with some people at Microsoft at the ACORD offices back in the mid 90s. And then I jokingly said to them when we’re at lunch– they wanted to come in and they were just starting to focus on the industry, they wanted to run some things by us.

And I was really impressed with how accurate they were on a lot of their judgments and assessments of what the market structure was, who the key players were from a technology standpoint. They had a few things that were a little bit out of whack, so I said jokingly, “Well, if you ever get serious about this, why don’t you give me a call maybe I’ll come help you.” Within six months, I was working at Microsoft [laughs]. That was

Michael: [laughs] You were there for how long?

Bill: I was at Microsoft for almost 18 years. Came in in ’94, it was just before the launch of Windows 95, it was being tested internally. To start up essentially the strategy and marketing operation for trying to approach the insurance industry. They had decided, Steve Ballmer at the time was running sales and marketing, and decided that he needed to get some real industry experts that you couldn’t just train people who are technologists for some of these key industries like insurance.

That’s why they were hiring people like me and they’ve hired– it was a group of seven of us that went across verticals from retail manufacturing, health care, insurance, banking, securities, those types of industries. I came in to start at the insurance part of that. Within a year they asked me to lead all the financial services group, it was banking, insurance, and capital market.

I did that, developed our strategies out, including building out a partner ecosystem, training our sales force, developing deep partnerships with some key players like the accentures of the world and then really working with our biggest customers from around the world, to assess what their needs were and make sure that we were providing the right technology platform for them to do what they needed to do and we were lined up with the right partners, so that they would have the right applications to run their business.

It was really a fascinating time and that was the strategy that Steve Ballmer put together was to become relevant in the enterprise through an expertise in vertical industry. You remember at that time, in the mid 90s, Microsoft had no business in the enterprise except as a desktop application, word processing, and spreadsheets. Maybe a little bit of departmental print servers and those kinds of things.

But we were trying to compete against the IBM’s of the world and that strategy would really did get us into the enterprise marketplace in a big way. By the time 2009-2010 rolled around, we had essentially declared victory in the enterprise [laughs]. Had become a relevant player and that’s really a big part of Microsoft business right now.

The reason I left Microsoft is we started the scale back some of the investments that we had made in the deep vertical expertise for enterprise and transfer a lot of that out into the field organization.

Now we had actual specialists that were salespeople, that worked in the New York offices, in Chicago, in London around the world. There was less of a need for a central organization like the one I was running. I took an opportunity to leave and strike out on my own and try some other things in life.

Michael: All right. Before we move off of Microsoft, I’m going to ask you one question and this is on behalf of everybody who’s listening because I have to ask this question. You worked for the wealthiest man on the planet.

Bill: [laughs] yes.

Michael: I know that from time to time you had some interaction with him. Of course you had a lot more with Steve Ballmer, but first Bill Gates, what was it like to work with him and/or for him?

Bill: It was the most amazing experience of my life, to be honest. I mean it was just on the — from the macro picture of this — being in a company run by Bill, that created so much incredible wealth, not only for him but for other people that were associated with the company, I mean everybody has an attitude that everybody that ever worked at Microsoft is a millionaire. That was probably true in the early days–

Michael: That was true in the early days [laughs].

Bill: It wasn’t quite true for me but the company treated me very well and I was very fortunate to work there. Bill himself, the fact that he has really redefined what true philanthropy means, was a very meaningful thing to me, to be a part of helping build that amount of wealth that can now do some really incredible things in the world.

Now that’s a little bit of an aside, but Bill as the CEO of Microsoft was just a real force of nature, and I was in several meetings with him early on with some key customers. He was very good friends with Warren Buffet so Bill was the executive sponsor for GEICO.

We would go on to customer briefing, they would bring in the CIOs and Warren never came but all the technical people would come in and we would have briefings and Bill would sit down with some of those. Just his grasp of the industry, his grasp of insurance, of how it worked and what the issues were.

He privately would tell me, “This industry is so complex and in some way so screwed up, I just hope we could fix it some day.

[laughter]

I think he got he got a lot of that from Warren, from his discussion with Warren too but he is the smartest man I’ve ever met. He just picks up on things, he can be incredibly tough and he drives people — he sometimes get the opinion that — he’s asking you questions that are really unfair and would upset most people, just to see how you’re going to react.

He doesn’t actually think what he says is accurate if he accused you, ya know… We were a briefing with Bill, a badge of honor was to have him — After asking a few questions and then exploded, “Do we actually pay you?” He want to see how you were defending your ideas. If you’re good on your feet, you could defend what you had just told him about either your market or why things weren’t going as well as we have projected. If you could defend your ideas, you were fine with Bill.

The other thing that I learned from him is that, when you go and try to have a discussion with somebody like Bill, you don’t want to go in and tell him all the things that are going great. He kind of already knows that and so he had a saying, this was one of Bill’s sayings, “Bad news has to travel fast in an organization.” Because you come in and tell me how wonderful things are going, I can’t do anything about it, if you tell me things you’re having difficulty with or things that are on fire then maybe I can help out.

As long as you went to him and said, “Look, yes we did — thanks for attending this meeting Bill, it was really good, we have a lot of good feedback from the customers but here’s the things that I observed that went badly and I want to tell you about those things, and this is what we’re going to do to make sure it don’t go badly next time.” You get back a one liner, that’s really great. If you sent him an email that said, “Well you know boy this was wonderful, thank you for showing up, we’ve got fantastic feedback and boy I look forward to the next time.” You’d probably get back a three page email telling you why you’re so screwed up and the future of the company was probably limited.

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Michael: He’s asking somebody, “Are we paying that guy?”

Bill: Exactly, “Are we actually paying this guy?”

Michael: Bill I seem to recall that about 20 years ago, Bill Gates was quoted as saying that the internet was going to dis-intermediate industries where there were intermediaries, right? And so a lot of agents and brokers looked at that and said something between, “oh-oh” or “he’s a bad guy,” or something like that. Here we are 20 years later. Let’s circle on that for a moment and then I want to dive in to some of your insights on technology. Let’s circle back on the statement that he made 20 years ago, what do you think about that?

Bill: The first one he made to him and me frankly into a fair amount of trouble is he made some comment that was written off as “Banks are dinosaurs.” It hit all the major banking publications, Bill Gates says banks are dinosaurs, we got phone calls from CEOs of some of the major banks. The CIOs for sure everybody came out, they were all up in arms about that. What Bill actually said was, “The technology that banks use are dinosaurs.” They are using mainframes. Mainframes are dinosaurs. They are going to be replaced by personal computing technology and the faster the banks realize that and get off that technology, the better it will be for them and their customers.

Well, they obviously got misinterpreted but he was right. I think history will show that he was right. It doesn’t mean the mainframes are going from the business, what it means is technology and especially the internet has really changed the world we live in. The whole notion of intermediaries, that’s another thing that he and I had — and I was fortunate to just kind of spend significant amount of time with him early on in my career that I really got to hear his views and his takes on things like this.

The intermediary part was really; if you’re just kind of pushing paper and you’re not providing some kind of valuable service, as an intermediary, your days are going to be numbered eventually. I think you should look at that with travel agents, the classic example of Amazon with book stores and some of these people that would be classic middle men don’t really have a business. When you have search engines that can find thousands of flights for you in an instant, why would you go to a travel agent, where you can book your hotels directly, why would you ever do that?

I think that’s a good example of a business where the intermediaries weren’t necessarily providing a service that customers couldn’t easily replace and have more flexibility on their own by using the internet. That’s probably the prime example. That didn’t happen in insurance because I think insurance agents especially independent agents provide a very useful service to their clients, and some of the things are very basic level.

Insurance is not like taking a vacation to Florida or Hawaii where you do what you’ve done and you come back. When you’re buying an insurance policy or buying a promise that somebody’s going to take care of you when things go bad, but you don’t know what’s going to go bad, so the average person looking at what insurance coverages they need, or what amounts of limits they need or what kind of deductibles they want, they have pretty much zero knowledge of what the intricacies of the product is all about. They certainly have zero knowledge about whatever calamity might befall them, right?

In many ways dealing with an insurance agent for a lot of consumers is kind of the first form of risk management. I don’t know enough about this product and what I’m buying but I know it’s completely essential to me and my family, so I need somebody who’s going to be an expert who can give me some advice, that I trust. Because if he screws it up, then I’ve got somebody I come after and I’ve got one throat to choke here about somebody who gave me bad advice and I can always — That’s why we carry E&O insurance, right? You make a mistake, there will be somebody there to sue and help you recover your damages.

I think and that’s not insignificant — I think that’s a very significant reason why people deal with agents. It’s not because they feel like they have to, it’s because they want to for that level of risk management that is — it’s almost an intuitive thing, it’s not even something they think about consciously. All the other things that agents do for their customers, agents are there for their customers, when bad things to them, the good ones are anyway, right?

That is a — I think it’s just an amazing business and one of the quotes I always like is that, insurance is the DNA of capitalists. Without an insurance nothing else happens, right, you can’t build anything, you can’t buy a car. Without insurance, the modern market-based economy would not be possible because it’s a very honorable profession, it’s the most critical profession to our economy but it’s also the one that seems to have not the best reputation a lot of times.

I think part of that is because insurance — there’s always something bad that’s happened when insurance industry needs to respond so it creates a lot of turmoil and not everybody is going to be happy after a hurricane comes through or your house gets blown away by a tornado. There’s a lot of bad feelings to go around but it all gets pinned on the industry, which is not fair, but it’s the world we live in, right?

Michael: Yes, so Bill, you and I are both big fans in advocates of the agent broker community, we believe in it and believe that there’s a role — but part of the reason I’m bringing you here is that I want — do want to create the big picture and explore some of the technologies that are possibly challenging in the future. You and I shared the stage a few weeks ago keynoting an audience of brokers and carriers in Southern California.

I had the privilege of taking the stage after you — more or less compl etely beat the audience to a pulp. Left them disoriented, I think they thought at first they walked into a hotel room and then when you were gone they thought they were in quick sand. My sense is that they simply did not know that the world right outside of them, the world literally outside that room was changing very quickly and then of course, it was my job to tell them, “Hey not only is technology changing fast but consumers are changing fast.”

Bill: Absolutely.

Michael: Yes, all right. The good news is I heard a message of hope and so I’m going to — I do want to– let’s dive in to this world, that’s — We do talk a lot about InsureTech and a a lot of my interviewees are in the InsureTech world and we talk about the merging of technology and insurance to make trans-formative and sometimes disruptive change, a lot of what you focus on Bill are changes that are happening even outside of the insure-tech world. Some within but some outside of it that will have an impact on this industry that we love so much. Whether it’s the internet of things or chat boats or block chain or what have either, there’s a lot going on, a lot of technologies that are changing the world. Where do you want to start?

Bill: It’s probably best to start at a basic technology or the basic phenomenon that’s been driving our world for the last couple of decades anyway and that’s Moore’s law, so if you look at just a brief thing on Moore’s law that’s at the altar, if it’s the concept that you can buy twice as much computing power roughly every 12 to 18 months for the same dollars, so for $1,000 you can get a computer of two years from now, 18 months from now that’s twice as fast as it is today, right?

Michael: Yes.

Bill: That just keeps doubling and the problem when you start to think about a phenomenon like that is we’re used to linear phenomenon so if I take 30 steps across the room, I’m 30 steps away. With the doubling phenomenon, an exponential phenomena like Moore’s Law, if I double my steps every time I take them and I have 30 iterations, I have walked through the moon and back instead of just 30 paces away, so that’s how powerful this doubling technology is, right?

Michael: Right .

Bill: Now what’s happened probably over the last 10 years let’s say is that Moore’s Law now it doesn’t just apply to computer chips and computing power, because of technology and how rapidly its advanced, it now applies to industries. It applies to the retail business, it applies to banking, it applies to every industry that’s out there, healthcare, it’s all responding into a Moore’s Law type of doubling that you get more capacity for the same price every year and a half.

The implications are around everywhere. If you look at a company like Uber, that is — who would have thought that a company could come along which basically just doesn’t have to sign your smart phone and disrupt the taxi industry, the image you haven’t Louie De Palma sitting behind the cage and taxi dispatching you know, Jeff Hirsch  the other guy’s out there to go pick up fares, right?

Michael: Yes.

Bill: That doesn’t look like an industry that’s going to be easily disrupted, but look what’s happened and then Lyft immitated it and has  come out, so you look at the power of some of the internet, number one because that’s where the ubiquitous connectivity is and these very simple apps and there is a simple logistics platform behind them that can really completely disrupt an industry.

Now, when you say that people say okay, where’s the Uber of insurance going to come from and you mention you work with a lot of insurtechs. I don’t personally believe there will be an uber of insurance, I think insurance is for a lot of reasons, but that just shows the power of the technology, so I think I mentioned this at the conference. We talk about how we’re really struggling now to figure out how we’re going to handle our power needs in the future. Is it going to be fossil fuels no matter how you feel about climate change, we have to probably control our carbon and it’s not good for the air or anything even if it’s not causing global warming.

We have a vested interest doing that people are scrambling to be wind farm should it be this, should it be that, my belief is that the solar panel industry is behaving according to Moore’s law right now, and they’re getting cheaper and they’re getting more efficient with every iteration, and because of Moore’s law and because of the stumbling in 30 iterations probably before then they will solve our power problem I believe, and I think I’ll be allowed to see that.

The early signs are people like Elon Musk that not only owns Tesla and Space X but also owns Solar City and he recently put out some prototypes that are about to go into production of actual roofing material that looks like traditional roofing material, but they’re actually all solar cells and they are made out of ceramic. They will last forever essentially, and you put that on the roof of your house and then you have one of his batteries in your garage that becomes basically a whole house uninterruptable power supply and the only time you pop to our power from the grid is when it’s cloudy out.

Those things are going to get better and better and faster and faster and that will solve some of our power problems, so you can imagine where power is essentially free, wouldn’t have to be amazing, right?

Michael: That was the promise with electricity but that’s for another conversation right back when there were — nuclear power was going to solve the problem, but that’s — Bill: That’s exactly right because back in the mid 50s there was actually the chairman of the Atomic Energy Commission back then made that statement, he said it’s not unreasonable to expect that our children will have-

Michael: Free-

Bill: –electrical power in their home too cheap the meter and it turned out nuclear power had a lot of problems with it but I think the next iteration of this which will be solar will probably make that a reality, but the other point, the key point there is when you start to look at how technology has been advancing because of Moore’s law, such everything we rely on for technology is essentially free. Whether it’s processing power, network bandwidth, when I started in Microsoft in the mid-90’s, it would have cost you a couple hundred dollars to stream a movie online, if you could even have enough speed to do it, right?

Michael: Right.

Bill: Now you sign up to Netflix for what, nine bucks a month and you can stream as many movies as you want for free, right?

Michael: Yes.

Bill: If the price of everything has come down to an extent that essentially all the technologies we rely on to make business more efficient, to make our lives more efficient and more enjoyable is essentially free, so against that backdrop people that come along and try and build new applications on that or fundamentally will be shaping not just this society, but all the businesses that serve that society, so the perfect example it gets to a concrete one that everybody will resonate with here is Telemax [sic], right?

Michael: Right.

Bill: We have flow out, there pushing the snapshot device and that device is going to collect information from the car and then it’s going to communicate it back to the insurance company and they’re going to give you a set with your credits cash, your rate. That still seems to be what people consider to be an incredible innovation in auto insurance pricing.

I would say that it’s already obsolete and the reason I say that is because if you look at fall car rolling off the assembly line today, it has so many sensors in it that are really lane-keeping automatic braking, collision avoidance systems you name it, there are so many sensors in a car right now, the car sees everything around it and we’re on a very quick path toward self-driving or autonomous cars, right?

Michael: Right.

Bill: If you actually have a self-driving or autonomous car or even have that better with no assist technology or if the driver is still driving it, you can tell because of all this technology and all these sensors that are in these cars that certainly the frequency and severity of accidents are going to go way down, they’re going to plumb and once they do, if you’re in the personal auto business, if your flow or the gecko or Mr. Mayhem or professional insurance out there-

Michael: Or warrant-

Bill: -look and selling personal auto insurance, do you have a business in 10 or 20 years and I would say even if you don’t have self-driving cars, you have a smaller business for sure, probably dramatically smaller, so if you’re relying on that to employ a whole bunch of people in downtown Chicago or Archer [sic] or wherever your businesses, you’re not going to have the premium volume you had to have that same sized operation anymore and the worst case scenario would be.

I think the more probable scenario will be you will eventually will have self-driving cars and then do you even have a personal lotto exposure anymore? I would say no, it now becomes a product liability exposure for somebody like Tesla or Ford, BMW all these people that are working on self-driving cars and in fact Elon Musk who’s actually come out and said his intention is to provide insurance with the purchase price of the car once they get fully autonomous cars on the road.

Michael: Lifetime insurance baked into the car.

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Bill: Yes, exactly because to him you won’t be driving it, it will be his technology that’s driving the car, If something happens with it, he’s smart enough to go, well that would be my fault so to speak. My company will need to cover the fact that this product failed to do what is expected to do now. If you’re basically a personal automobile career or even an agent who specializes in personal lotto, I think I look now as you said the world is changing very rapidly around this but you still got quite a bit of time to figure this out. I’d be figuring out what the next specialty I’m going to get into and not rely very much on auto insurance.

That’s a perfectly concrete example about something that’s already in process right now and the doubling is happening so fast right now that we’re getting to almost a tipping point. I think the consensus among a lot of the analysts is that mainstream self-driving cars will be 2050, well that will be the primary mode of transportation. In my experience, if you look back at what those same experts and they’re good people, they’re the Gardeners of the world, the Mackenzie’s of the world that are making these projections.

The projections they made about Internet adoption were off by at least a decade, if not more, so roll that back to 2040, that’s probably more realistic, it may be even shorter than that, maybe in the 2030’s that you start to see real mainstream adoption of autonomous cars.

Michael: You’re saying this is another case where the trend is not linear, it’s exponential.

Bill: Exactly, that’s exactly right

Michael: You’re saying listen now agents and brokers need to get a message out of this is that it’s a reasonable strategic decision to begin to explore diversification of income sources.

Bill: Absolutely.

Michael: Okay.

Bill: It’s not just personal automobiles, so just take this driverless technology there’s been a couple of both Uber has done this and Freightliner are working on autonomous semis and so that’s significant in that there’s five million people in this world, people in this country employed driving something a lot of them long-haul truckers, it’s the top job for adult males and 35 out of the 50 states is driving something.

If you start to replace that with technology, it doesn’t necessarily mean the driver is going to be out of the car at they were out of a truck at this point but he may be in the truck just making sure nothing happens to the technology. He’s a backup system which makes him more like a technician or service engineer not a driver anymore, so what does that mean? Well it means first of all so it’s much less boring job for the individual probably and you get to be a lot more — driving late nights and trying to make sure you stay awake and try and stay out accidents all that stuff.

If you’re in the workers compensation business, you have a whole class of people now drivers that is a fairly expensive class that won’t be driving anymore they’ll be classified as something else look more like clerical which is a lot less premium volume. That’s a big issue if you start to look at all the people who drive things around the country if all those things become autonomous including delivery trucks for UPS and you name it, then you’ve got a whole class of your business which is now under pressure at least.

If you look at how technology is changing other areas of that and workers comp, is another line where things are going to change dramatically as well in not-too-distant future you won’t have cashiers anymore. Cashier is a big classification for NCCI a lot of premium volume a lot of payroll that goes into cashiers, that will all be automated, that will all be AI it will be sensors on every package that will just go under a scanner and add it all up and you probably won’t even have to pay it’ll just automatically charge your Apple pay or something that you have on file and just walk out of the store.

The way technology is changing things is again this is an exponential change that’s really starting to accelerate.

Michael: Bill in your presentation, you were talking about some internet of things connected things that would conceivably provide risk reduction, risk management, safety enhancements that would be built into things like construction work site for example.

Bill: Yes, that’s another good example was for the workers comp industry is that there’s a number of applications to the Internet of things, and just to back up a little bit these are just all these sensors that are out there in the world whether they’re automatic thermostat or they’re fit-bits or all the technologists in our autonomous car or it’s in fire alarms and smoke detectors you name it. There’s sensors everywhere in the world today that’s called concept of Internet of things and they all talk to each other over the Internet.

You have all these things though they’re spewing out data whether you capture it or not or do anything with it or not they’re all telling you something about their state, this is where I am, this is how hot I am, how cold I am how wet I am and you can use that information to do some really interesting things. Take the example of a worksite there are some companies, there was one called guard hat that I recall that has this technology, it’s a hard hat and vest or wearables that monitor your location in the plant.

If you’re working in a place where there might be some hazardous areas going you can geofence[sic] those things off and if somebody goes into one of those areas where they’re not supposed to be then an alarm goes off. They have sensors for hazardous chemicals or hazardous vapor if something like that happens near and there you get an alarm.

Right down to the extent of if you’re not climbing the ladder properly if your body position is off or if you haven’t clipped in with a harness it knows that as well and it can report that to the plant safety manager and keep you out of trouble and if you’re working at a big construction site and there’s a lot of trucks driving around it also has proximity sensors for all the trucks the trucks are talking to the vest and the hardhat so you’re not going to have anybody wandering in front of a truck and getting run over by accident either.

All of those things are really going to make the workplace much more safe and again it will reduce premium volume, but that’s a good thing for society anyway you may not feel that way if you work as workers comp carrier but I think most do because workers comp carriers are in the business of trying to make the workplace safer that’s their main goal they don’t want people to get hurt. The safer the workplace gets, the better it is for everybody the better it is for them and the better it is for the cop carries the better it is for everybody.

If you take that whole Internet of things concept and just take it, we talked about the impact on personal auto from essentially these autonomous cars our Internet of things they’re all sensors at our car, but if you start to look at all the technologies getting embedded into products for your home whether it’s doorbells or thermostats for flood sensors or sensors to go on your cooking equipment that if you leave it on, they’ll shut the stove off or they’ll page you and say the stoves on you forgot to shut me off, that’s a leading cause of house fires is unattended cooking equipment.

If you can start to instrument the house then you’ve eliminated a lot of risk and actually that’s the main premise of a lot of what is happening with technology right now is you call the title of presentation I made out in California was, “Will technology make insurance obsolete?” Again, insurance is the DNA of capitalism you’ll always have something will always be insured because you don’t know what’s going to happen, there’s an unexpected events that there’s going to come a long.

A lot of things that we insure today maybe will be obsolete, and the reason I say that is if you look at the basics of insurance, okay there’s a risk 101 which is what do you do to manage risk? Okay, the first thing you can do is avoid it completely, you don’t go into that business so you don’t take that trip or whatever, you eliminate it in some way by just fixing the broken stair or fixing the railing that might give away if somebody walks up let’s eliminate that risk.

You can transfer it to somebody else or finally you can insure it insurance is always the last resort when you’re trying to manage risk, well if you look at all these sensors out there, it’s really a meaningful way just sense all the technology autonomous cars are eliminating a lot of the risk of driving a vehicle. If you look at all the sensors that are in a home, they’re eliminating a lot of the risk of owning home or having something bad happen at the home including things like mold or floods.

I have a flood sensor that can shut off the water main in case there’s a pipe burst, you have cooking equipment monitors that will make sure the stove gets shut off before it catches fire, you have any number of devices that are going into homes right now which make it so that the homeowners business in the future may not be primarily paying you after a loss and helping you recover from a loss that’s happened.

It may be monitoring your property and preventing a loss from happening in the first place, that may be the real reason that people do business with an insurance company or if the insurance industry doesn’t see this as an opportunity soon enough its home Depot and laws are already working on that you’ll pay a monthly fee to them to monitor your property and if some sensor triggers, they’ll come out and figure out what’s wrong with it.

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Michael: All right.

Bill: Your house doesn’t burn down in the first place or it doesn’t flood in the first place. That’s really meaningful in that if you look at how technology being used in this way, if you can use it to eliminate risk which you can you reduce the need for insurance dramatically okay? This is a little bit of a tangent thing, the other way in the industry technology is making some insurance obsolete is the way the business is actually using it.

We’ve all heard of things like Big Data, and the other premise behind insurances or the foundation of insurance we talk about risk 101 but the two founding principles for insurance are spread of risk and law of large numbers. What we’re doing with big data right now is I actually heard a presentation from a senior executive at a life insurance company probably I won’t name them because it might be embarrassing.

Michael: [laughs]

Bill: The comment was using Big Data and using — it was an IBM presentation so they’re using Watson and the artificial intelligence capabilities and in that in combination with wearables like Fit-bit, he made the comment that, “Pretty soon we’ll be able to get down to a risk pool of one.” Well a risk pool of one is not a pool.

Michael: [laughs]

Bill: It’s also violated the law of large numbers and spread of risk, so whatever it is that he thinks they’re going to end up selling in the future, it may be something that’s really good but it’s not insurance. It is in no way insurance if you’re looking at risk pool of one in the world according to me that that’s what I think.

Michael: It’s not insurance, all right now let’s circle back to insurance and I want to circle back to our audience who’s probably now listening thinking, gosh this guy Bill just painted a world where, tell me if this is your prediction. Premiums are reduced because there’s less risk.

Bill: Right, absolutely.

Micheal: Okay. All right. God bless them. The world has changed fast underneath the feet of the insurance agent or broker recently. They have to communicate with their customers differently than they ever did before. They have to learn things like social media, digital marketing and marketing automation. They have to learn how to communicate to their customer base in an entirely new way. Now you’re saying, on top of that, there’s one more change. The whole world is changing because technology is pushing it towards that. What do you want to say to the leaders of today’s brokerage?

Bill: That’s a very good question. First thing is that, none of this is going to happen overnight. You can see it in process. I would say stay engaged and pay attention to things like how fast autonomous cars are coming on the scene. How other companies are taking advantage of some of these potential new business models. Like I said, maybe the home monitoring thing. If Home Depot starts to offer that for $29 a month, then you might see the early stages of how things are going to start to change.

By the way, there will still be an insurance policy there. Because, their houses will still burn down. The’ll still get hit by lightening. There will still be hurricanes. There will still be a lot of perils out there that we can’t eliminate. Take it with a grain of salt and just realize the things that are truly calamitous, unknown events which is what insurance was designed for. And making sure that you’re well positioned to still provide coverage for those areas or, for new areas that are going to come up.

The most important one I can think of right now, is cyber liability. This is a huge developing issue as we can see. Whether it’s the Russians hacking into our elections or somebody stealing credit card numbers from Target or Home Depot, it’s a big issue. It happens every day. All of the major websites in the world are under attack 24/7 by criminals, frankly. Right?

Micheal: Right.

Bill: Protecting against that and making sure that you don’t have any liability in that if your — an insurance agency, for instance, your own personal cyber security I think is an issue because you have a lot of personal, identifiable information in your database. Right?

Micheal: Right.

Bill: What are you doing to make sure that you are at least doing best practices to try and secure that information because it’s not, if you will get hacked it’s when. How big a target you are. Or how easy it is to get in in some cases. Even smaller agencies can think, “Well, I’m really not that big nobodies going to mess with me.” There’s a lot of people just looking for opportunistic targets that aren’t protected very well and you could, in fact, be one of those targets. But, beyond that, if you look at how do you advise your clients. Not just your commercial clients–your large commercial clients but your small business clients.

Micheal: How do you advise them? Okay.

Bill: How do you advise them? How do you cover them for cyber liability? Are you even offering it to them right now or are you discussing it with them. I fully realize that the marketplace is not all that developed yet because the companies and carriers are still getting their products in place. I would say that that’s going to be–that’ll be one of those unforeseen event kind of coverage that people are going to need to make sure they can stay in business if they ever get attacked, cyber attacked.

Micheal: All right, Bill, I’m going to ask you one last question. It might be a difficult one for you. Are you ready?

Bill: Sure.

Micheal: Okay. Difficult because you have a lot of knowledge. I’m going to ask for the abbreviated version. If you were going to put a message on a billboard and it was on Insurance Avenue and everybody was driving by at 60mph. The fewer words, the more powerful. What would you say to today’s — to the insurance agent or broker of today?

Bill: Well, you know I’m an insurance broker — I really will go back, I’ll give it a little more thought here but I would go right back to insurance is the DNA of capitalism. Your business is not going away. The way you do it may need to change and the kinds of things you insure might need to change.

If you really are a true insurance practitioner and you have a passion for the industry and you understand what it’s about. This is an essential business to the world economy. Again, you may have to adapt you may not write lines today that you wrote yesterday. You may — there may be something completely new that comes along that you can specialize in and make a market out of but your business will not go away unless you let it go away.

Micheal: Got it. Be prepared for change. Yes?

Bill: Yes, be prepared for change.

Micheal: All right. Bill, if the audience wants to reach out to you if somebody wants to make contact with you, how should they do that?

Bill: Best way is probably through email, which is pretty simple. It’s Bill Hartnett, my full name, billhartnett@hotmail.com and I’d love to hear from anybody.

Micheal: All right. Okay, well Bill, as always, it was a pleasure talking to you. Look forward to, perhaps, seeing you on the speaking circuit again. I know our host is trying to get something together again along those lines so maybe I’ll see you in California. Thanks–

Bill: That would be fantastic Micheal, it’s really been a pleasure and thank you so much for inviting me.

Micheal: You bet. Thanks so much for joining.

Bill: You bet.

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