IBM Global Insurance Director shines a light on the future of the independent agency system (and how agents must respond!)
At the intersection of insurance and technology sits—not yesterday’s startup—but one of the most valuable and influential companies in the world: IBM.
Their Global Insurance Director, Mark McLaughlin, took time from his international duties to discuss the future of the industry with our host, Michael Jans.
Serious students of the industry must listen to this frank and freewheeling conversation about the pace of change, the nature of those changes, and how they’ll affect the day-to-day life of the insurance agent:
- How agents can (and must) maintain the human connection with the client (and use technology to make those connections deeper and more frequent) as other industry players try to take control of the customer away from the agent.
- New technologies that agents (not just carriers) must keep an eye on: blockchain, AI, chatbots, and more – and how they’ll affect the agent’s business in the very near future.
- Make no mistake, Mark believes in the role of the agent… but he shares how other industries set standards that agents must live up to before it’s too late – and his 3-part plan for every agent to succeed.
If you have time for ONE conversation on ‘big picture’ trends (that’s still wrapped in practical advice) this is it. You may not think about IBM every day… but they think about you! Don’t miss this important dialogue with a global industry leader.
NOTE FROM THE PRODUCER: Due to technical difficulties Michael Jans’ audio was not as clear as we would like it to be. However, this discussion is full of such great content, we couldn’t dream of pulling it from the schedule.
What are other agents & brokers doing to thrive? What are the biggest trends affecting the retail insurance agent & broker? What are the most important strategies and tactics you need to grow faster? Find out here in the Connected Insurance Podcast, where Michael Jans discusses the biggest issues affecting the independent insurance agent and broker with the industry’s leading figures.
One More Thing! What do you think? How will you and your peers use this to grow your agency or brokerage? Share your thoughts in the comment section below, subscribe to get updates delivered to you and *please share this if you found it informative
Michael Jans: Mark McLaughlin, thank you so much for joining us. How are you?
Mark McLaughlin: I’m doing great today, thanks so much.
Michael: Alrighty. I’m excited about this conversation because there’s no doubt in anybody’s mind that IBM has an impact on industry, and clearly has an impact on insurance, and who better to talk to than IBM’s Global Insurance Director? Thank you so much for joining us. Let’s start, Mark, if you would, with a little thumbnail sketch of how you got to be where you are.
Mark: Sure. I have been working in the insurance industry for over 25 years now. I cut my teeth on a system in 1991 for a top 10 insurer in the United States, building underwriting systems for them and using artificial intelligence back in 1991, which meant something a little different than it does today.
Michael: Yes, I will be curious about that sometime, but keep going.
Mark: That system, I believe, is still running today, which is either a testament to my brilliant coding skills, or a testament to the industry maybe taking a little while to make some changes.
Michael: Were you a coder?
Mark: I was a coder. I’ve coded in Assembly, I have coded in COBOL, I have coded in Fortran, I have coded in C. I did a lot of database design for dotcom years as well and the CRM consultancies. I’ve been working in the insurance space and in the customer and marketing space for most of my career. Been at IBM for over a decade now, doing pretty similar things for IBM and, leading our charge into the products and services that we develop for the insurance industry.
Michael: What did you do in customer and marketing?
Mark: We ran a firm that got very involved in customer relationship management back when that was a new term. Peppers & Rogers were the Bible at the time, the one to one customer, and that sort of thinking, in the dotcom years, that meant how do we set up spyware? Nowadays, that means how do you customize risk products and services for the customer? That’s a space that we’re pretty active in today and that I personally have that great interest in at the moment.
Michael: Got it. All right. Let’s talk about what you’re doing at IBM. We’ll start real big picture and then I’d love to move into a little more tactical and kind of practical insights for the distribution system and the independent insurance agent. Big picture, what do you see? What are the trends and forces that you think are going to change this world that we’re operating in?
Mark: Yes, that’s a great question. I’m going to start at the insurance kind of carrier and re-insurer and broker level, and then work into distribution. I say that, IBM being IBM, one of the advantages that I see is we do talk to just about everybody. We do business with 99 in the top 100 insurance companies in the world. I have worldwide coverage. I’m talking to Ping An, I’m talking to Allianz, I’m talking AXA. We’re talking to all of those, the large carriers worldwide.
What they’re talking to us about is, how do I use data to build a better relationship with the end insured? How do I understand risk better? How do I understand my customer better? How do I understand the distributor better? How do I use all that to inform better risk products and increasingly think about risk services as well? How do I use AI and the analytics, and mobility, to improve that conversation, make that conversation smarter? How do I operate that at the carrier level? How do I operate these big complicated systems that traditionally have been- as I said, I built one in ’91. It’s still running, right?
Mark: It’s these big complex systems that are hard to change.
Michael: Is that the definition of a legacy system you’ve got there?
Mark: Yes, it is. It is. The legacy has to change because if the insurance companies want to get closer to their customers, if they want to have more frequent conversations about risk, they can’t have all the data locked up in what’s on average, 14 policy administration systems. They’ve got to figure out how to consolidate that and run that at scale, and increasingly secure it. Our cloud capabilities have been very relevant in that space.
We’ve been doing a ton of other insurance cloud work for companies like Geico, companies like AIG, companies like Allianz. They all have very different big picture environments on cloud versus what they’re running in their own data centers. How do they mix that, and how do they secure it, and what’s the mix? We call that hybrid cloud. We’re very active in that space. That’s what IBM is doing in the carrier space, helping them build and optimize those systems, but then a very healthy helping of– That’s all the plumbing. That’s all at stake. The civil is how do I use all that to build better risk products, build risk services, and build better connections with insurance. That’s ultimately what we’re trying to do.
Mark: Let me ask you to talk for a moment on one topic you raised, that carriers want better communications. They want to know more about their customers. Talk a little bit about that. Clearly, that will help them be better carriers and independent insurance agents might be thinking, “Hey, I own those guys. Those are my relationships. Talk a little about where you think that’s going.
Mark: Well, I like to think about where our expectations are driven by end customers, who’s driving those expectations? That’s the people- we’re talking to them the most. As a consumer of insurance, when’s the last time you talked to your insurance company? How frequently do you talk to your insurance company? Two times a year, maybe a little bit more if I got a claim. Maybe if I’ve got a very active agent with a relationship, I might talk to them once a quarter or something.
Meanwhile, you have talked with your bank and transacted with your bank several times in the past month. You’ve talked to Facebook probably 40 times. You have been on Twitter, you have been on LinkedIn. You have been to a bunch of other places. You’ve probably bought something from Amazon today. Those firms set expectations around what the customer experience should be, about customer service, about customer knowledge.
I think, at the end of the day, if you’re not connecting, if you’re not owning that relationship directly to the customer, that becomes an issue if you– Now, you can do that with partners. You can do that through ecosystems and that’s increasingly happening across many industries. You got to be where the customer expects you to be. If the customer expects that they can tweet you and you’re going to respond because all the airlines are doing that today, well, you better be there. If the customer expects you to be able to call them at two in the morning, or them to call you at two in the morning and you pick up the phone and answer it, you better be there. If you expect an online experience to be available, you better be there.
If you’re not, you run the risk of getting what we think of as disintermediation. Somebody else elbows their way into that relationship. It’s very challenging. I think that’s actually just as much a problem for distributors as it is for the carriers. I don’t look at this as a carrier versus distributor thing. I look at it as, “Hey, look. How can we take all of these, the nuts and bolts, simple things, change of address, spin-off, adding a new warehouse to my network, buying a new shop at the mall?I’m sending my kids off to college. I’m retiring. How do I take those things and provide an experience that talks to the customer in the moment but also, it gives them the backstop and the reassurance that somebody is watching the whole risk world?
The way I think about is technology is changing at a very rapid rate. The technology adoption rate has improved almost 10x in the last 40 years. It takes four years on average for new technology to hit a market and gain penetration.
Michael: I’m sorry. How long?
Mark: Four, usually it’s four.
Michael: Four years. From point of what? Launch–
Mark: From launch to more than 50% adaption in the United States. Look at how fast cellphones hit, look at how fast tablets hit, look at how fast high definition television hit. That forces change in business models, not just for insurance but for everywhere. Look at how fast Uber has grown, look at how fast Netflix took over that industry.
Michael: Pace of change, very, very-
Mark: Rapidly accelerating.
Michael: Very fast and pace of adoption of technology faster than it’s ever been.
Michael: Even when it’s not hitting 50%, the smaller technologies, if they hit the mark, they get adopted quickly.
Mark: Absolutely right. When those technologies get adapted, they open up opportunities for new types of interaction models for new companies to come in and offer new products and services. I think about things like Internet of Things. How can we take all of the sensors that are now becoming available? We dinked around for 15 years as an industry in telematics. But the cost of those sensors is falling to the floor. Three years ago, I had a water sensor partnership, it was $300 a sensor. It’s 30 now and it’s going to be three in two years, right?
Michael: [laughs] Right.
Mark: That means that someone who offers the sensors could potentially come in and offer me some risk measurements and maybe some risk services on top of that or an insurance product of top of that. That’s where it gets baked in.
Michael: Let me ask you. Let me just pause you for a moment on that one. Do you think that within products, more and more products will have some form of insurance baked into them? Do you think that insurance will come from non-traditional sources? It’s a non-traditional delivery system. Do you think it will be from non-traditional sources?
Mark: I think it’ll be a blend. You’re going to see the Lemonades and the Trov’s of the world coming in and trying to offer insurance directly. You’re also going to see insurance bundled with the product. When I buy the car, Tesla just now- literally two days ago-
Michael: Tesla just announced their insurance company. Right. [laughs]
Mark: We’ve had the conversations and pilot products with Amor Benz. All the auto manufacturers are thinking, “Well, maybe I better insure with the car.” What happens with that kind of–
Michael: Well, they have a lot of data, right? Tesla probably knows more about your driving habits than all other sources combined.
Mark: They do, but they don’t understand risk.
Michael: [chuckles] I heard the announcement on the radio. It was yesterday or the day before. The buzz back from the commentators was that maybe they really need to learn to manufacture and sell cars before they try to figure out insurance because it’s really complicated.
Mark: Well, I think it’s easy to make a lot of hay in marketing on these things. Lemonade is growing like leaps and bounds in terms of the number of policyholders, but in terms of the number of profitable policies, well, maybe that might be a different story. Nevertheless, you’re going to see this consolation of what I think of as micro products. We’re seeing this all over the world. Holding one insurance in Japan because when you get a holding one, you’re expecting to insure giant party. You have to ensure against that.
Michael: Oh gosh. [laughs]
Mark: Wedding insurance, and your insurance, pet insurance. They are all growing by leaps and bounds, and they’re all what I think of as micro products. You’ll see more data linked products, what you’re talking about with Tesla. If I have access to your driving record, I can write you a much more customized policy. Here’s where I think it’s really important for humans and agents to jump in.
Michael: Humans and agents. [chuckles]
Mark: Yes, human and agents. I just think about that. That didn’t sound right.
Mark: I don’t think, by the way, agents will be replaced by–
Michael: Remember who the audience is for this. [laughs]
Mark: I say this, it’s humans in the call center, I don’t think AI and the technologies can replace the agent, and here is why. Those micro products cover small parts of risk. Who thinks about, “Are all my risks covered?” Who thinks about coverage overlap and coverage holes? Who thinks about which- or do the terms and the insurance policies align? I found this out the hard way myself. I took my kids overseas to Italy a couple of years ago. I dared to drive in Italy. I rented a car from a well-known manufacturer. It is crazy, the way they drive. I survived–
Michael: Try the Amalfi coast. Keep going.
Mark: I know. It’s crazy, right? I left my car in a parking lot or in a park facility, and they valet parked it. They dinged the door. I came back and found out when I pulled into the rental car facility, there’s a door ding. “Please sign this long-form in Italian.”
Mark: Of course, you can’t complain.
Michael: Just sigh here.
Mark: All right, fine. I know what this is. I, theoretically, had coverage, and then I found out that my coverage is not as good as I thought it was. I was relying on one of those credit card routines. They pretended to resolve the claim whilst asking me 18 million questions that were designed to make sure I abandoned the claim which I eventually did. Now, what are my choices? Buy a really expensive, overpriced coverage from the rental car company, rely on my home coverage because as it turns out, there wasn’t any, rely on a credit card or a third-party coverage that I don’t really understand, or if someone were in a position to be my risk adviser, they would have said, “There are entities that will cover you on a spot basis in Europe for $99, and you’re all set.” It works out, sell this. That’s where I think the human element really has to come in.
These technologies multiply risks, too, right? If I crash in an Uber car, who’s paying my medical bill? A good question. There’s emerging risks all the time, identity theft, all the cyber risk issues, reputational risks, black mold in the attic. Agents can be positioned to really walk you through those things and advise it if they’re part of the story, if they have access to some of the data through some of these micro products, or through some of the sensors that insurers are thinking about installing or can negotiate access to privacy restricted data.
If they’ve got a view, they could be super helpful. There are great technologies available in the AI space. The advantage to having all this data is we can use artificial intelligence and analytics to start analyzing that and not only give the agents a better view on a customer’s risk, but we can also give the agent a better view on the customer and say, “This customer buys based on what we’ve seen-” you give me 3,000 words, I can tell you how you think about risk, right? The tools are getting that-
Michael: Okay, where are you gathering that data from?
Mark: That’s a great question. I can get it from correspondence with the insurer. I can get it through negotiated access to Facebook feeds. It becomes a value exchange question. Customers are willing to share that data with you and that’s been proven time and time again for a Starbucks gift card. [chuckles] I don’t mean to trivialize privacy, what I do mean to say is because treating that data as sacrosanct is absolutely essential for our industry. We’re here to reduce risk. We can’t be spreading your data around prolifically or otherwise.
Michael: Yes, right. Okay.
Mark: But, we ought to be able to work a value exchange. Hey, if you share– Funny, IBM actually gave me the Apple Watch which is sitting on my wrist right now, right? The value exchange that we negotiated was, “Hey, Mark, if you’re willing to work out X times a year and you’re willing to meditate X times a year, we’re willing to give you a break in your insurance.” We self-insure our health. We have a third-party administrator, we self-insure our health. That makes sense for IBM because my biggest risk as an IBM executive is sitting on airplanes eating a lot of bad food and not exercising. [laughs]
Michael: Let me ask you a question. Does your watch then- if you got a meditation app, does it deliver that information to IBM? Or when you exercise, does it deliver that?
Mark: It does when I agree. I think it was John Hancock, who announced that they were issuing watches with all their life policies going forward and they’re the ones who signed up with Vitality. It’s one of the other New York carriers with this. You’re going to see more and more of these quid pro quos.
If you’re willing to share the data, we’ll coach you and help you live a better life and we’ll give you a little bit of a break in your insurance, but in return, we’re going to have an understanding about your risk and we’re going help you manage that. It comes back to how do you spin it. How do you sell the value effectively to the customer? If IBM gave me this watch and said, “Congratulations, here’s your IBM tracking device following you around the world,” that would sound bad. But they didn’t. They said, “We recognize your health risks in your job, we would like to help you manage those. It’s good for you and good for us. Let us help you.”
Michael: We’ll give you a groovy watch.
Mark: Absolutely, yes, you look cool. It comes back and no surprise, IBM’s full of a bunch of technology-oriented people that think that technology is cool.
Michael: That technology is cool.
Mark: Back to the value proposition. Right?
Michael: That’s always still the social tension in today’s society, right? It’s like we’ll give you some benefit, you can see pictures of your grandchildren whenever they get posted. They’re in Iowa and you’re not. Sometimes it’s unstated. In exchange, we’re going to sell your data to Russia or what have you.
Mark: Well, you have to be an honest broker, right?
Michael: Yes, you have to be an honest broker.
Mark: You can’t do that. But if you’re clear and transparent about how you’re going to use the data and how it’s going to help both of you, I think the majority of customers are perfectly okay.
Michael: What does that say about the future of insurance?
Mark: I think the future of insurance becomes a couple of different things. One, can we be risk partners and prevent problems from happening instead of selling you a policy and paying a claim after the fact?
Michael: Do you think that- is it a responsibility of the insurance industry or at least an opportunity for the insurance industry to move more in the direction of protection or management and not just recovery?
Mark: I think it’s an imperative honestly because if we don’t, other players, whether that be, the Comcast, the ISPs of the world, whether that be Amazon and Google, someone else is going to do that if we don’t. What I think the industry needs to be worried about is– I’ve had insurers occasionally talk to me and say, “Look, if we could get that contract with Tesla or Daimler or whoever to underwrite the risk behind it, all this white-label, they’ll sell my policies while I sleep, this is awesome, right?”
Michael: Wrong answer because that way, two things happen. One is there’s no role for agents. You have no human element in the process, which means customer sees no value in your organization. The other is you’re a commodity. What’s to prevent them from shopping that next year, and having three other reinsurers and one that bid on that deal, and guess what, they’re going to probably feel smarter for it, right?
That’s a losing game, we lose control of the customer connection as an industry, and as I said, I truly believe distributors and insurers are in this boat together. If we don’t figure out a way to leverage the human connection, the relationships and the trust that agents provide and the data and the systems that carriers can provide, and merge those things together to become risk advisors, and we have to show up at the point of risk, it’s not good enough anymore to call a– Nobody really makes a call anymore.
Michael: They don’t want to, literally. The last report I read on that was that only 16% of the insurance consuming population wants to receive an inbound phone call from their insurance provider.
Mark: Yes, I was talking to a colleague of mine in the accounting space, they used to do a ton of telemarketing. He said it takes them an average 2000 phone calls to make a sale now. That’s what I say to him, nobody answers the phone, they’re not going to do it. We have to show up at the point of risk within– If you’re hunting, you go where the deer are. You have to show up at the point of risk and that doesn’t mean the agent descends upon somebody with a contract and an application in the end. That means that when the customer is buying the car, you’ve got a position in that transaction. When the customer is buying a pet, you know enough about the customer, you say, “Oh, you just bought a pet. That bill’s really expensive, right? Let me help you through that.”
The third thing is adaptive advice. You have to tell that story in a way using all of your data, using all of your AI, using all of your connections, you have to tell that story in a way that resonates with the customer, and guess what? The minivan that is driving a 43-year-old mom with three kids responds to risk very differently than a 24-year-old sports car driver. Good agents all know this effectively. We have to treat them that way start to end. If I send an alert saying, “Hail storm’s coming, move your car,” I have to think clearly about that and I have to clue the agent in to follow up and say, “Hey, a hail storm came through, is your car okay?” You have to be sort of proactive and working together to make this work.
Agents I think need to be able to stay on top of these technologies to understand all the different little micro products that are getting deployed in the marketplace and to be able to advise the customer on, “Here’s your overall risk profile and here’s where you’re covered and here’s where you’re not. That one you think it’s covering you probably isn’t, and another one, yes, that’s actually a good deal. You should buy that.” That’s the sort of conversation we need to migrate to, but we need enough of those abilities for the customers to do that.
Michael: Got it. You rattled off three things and I just want to make sure I got them. About the future of insurance, one that we need to not just be in the product peddling business, but risk protection, real risk management.
Mark: Risk partnership, absolutely. Be a risk advisor.
Michael Risk advisor, what was the second one?
Mark: Show up at the point of risk. You need enough connection to the customer where you’re not relying on the traditional, “Hey, happen to run into you at the golf club. Let me talk to you about life insurance. You have to be present in the customer’s world at some juncture when they’re thinking about risk. You have to have enough access to know– It’s interesting, the weather company data that IBM owns this part of the weather company acquisition, 85% of people share location because location’s really helpful when I want to know the weather. It’s also really helpful if I know the customer is hanging around the hospital. We have to be good custodians and despite some of the stories floating around, IBM is actually pretty responsible on this. If the customer agrees to share that location information, for weather alerts, for risks, for general risk guidance, it’s really helpful to know they’re hanging around the hospital because I know either they had a baby, a loved one is sick or they’re sick. In all three cases, I got lots of insurance products that are relevant to that situation, but I got to know that. If I don’t know the customer is at the hospital, I’ve missed a huge opportunity and I haven’t done a good job of being a risk adviser.
Then the third thing is being adaptive and customized to the customer and using all of the AI and smart tools no matter when the customer contacts you, to have conversations that are relevant to them. You got to be able to have a chatbot that will deal with the 2:00 AM questions like what you should know?
Michael: Talk to us a little bit about chatbots and where you see that going in this industry.
Mark: I think they are a great supplemental tool for interactions with real-life human beings. I don’t think they replace human beings, though they might for really simple stuff. Let’s be honest, do I need to talk to a human for change of address? There are some people who absolutely want to do that, but I’ll tell you this one, I sure don’t. [laughs] That just really represents a lot of extra friction in my life. I just want to get through the simple stuff quick. That elevates the role of the agent because that means more time talking to customers about relationship-building and risk and less time filling out a bunch of green screens because the customer said, “I want to add this piece to my home coverage.” It’s taking the simple stuff and making it simple and freeing up the good agents to go have conversations about risk with the customer.
Same thing on the claims and servicing side by the way. That’s something the carriers are spending a lot of time worrying about. How do I have claims just for spending more time talking to customers and less time filling out forms and collecting a bunch of [unintelligible 00:32:20] [packets?]? That conversation is very active right now across the insurers.
Again, include the agent. I had a very proactive insurance company, who covers my home, send me this note. They had a drone fly over my house, they didn’t say that but this is what they did. “We noticed your house isn’t painted. You got 60 days or else we’re canceling you. Paint the house.” I live in Chicago, it’s February. Guess what, my house ain’t getting painted.
Michael: You come paint my house.
Mark: If you want, you can find a painter. [laughs]
Michael: It’s going to snow tomorrow in Chicago, right?
Mark: Yes, I know it’s crazy. [crosstalk]
Michael: This is the end of April.
Mark: End of April. I called an agent and he didn’t know and that’s not his fault, that’s the carrier’s fault. What should have happened is-
Michael: He’s embarrassed and upset and feeling left out of the loop.
Mark: The right answer starting is, the simple thing is well, yes, they should have given me a little more time where they should have been a little more personal about it. I actually say that’s not enough. What they should have done was say, “Hey Mark, we know you just moved into this house four years ago, and you probably don’t know beans about who’s a good painter in your community. Here’s three–“
Michael: Since you got suggestions.
Mark: This is a risk services thing, right?
Mark: Agents should be a portal to solve those problems. It’s funny, I’ve had this conversation with regulators. At first they say, “Oh my God, your steering business, no, that’s terrible.” Then they start thinking about it and say, “Wait a minute.” At the end of the day, my insurance company knows a heck a lot more about relevant painters and roofers in my community than I do. [laughs] Why can’t they leverage that to help me solve a problem? It’s a missed opportunity. Instead of taking this very policy underwriting, very doctrinaire approach, our industry collectively missed an opportunity to be my trusted risk adviser and to help me solve problems that I worry about. It’s not like I didn’t know my house needed painting. I mean to get to it the year before, I just didn’t do it.
It’s a pain in the neck to find a painter. [laughs] They could have helped instead of yelling at me, it would be really great. That right there, it’s the rental car problem, it’s the ‘paint your house’ problem. I just had a kid and I have no understanding of 529 plans. If insurers approached those conversations at the right time and arm agents to approach those in the right way at the right time, with tact, with adjustable advice, with advice that’s adapted to me, they become heroes. Yet, we too often are doing the opposite.
Michael: Let me ask you a difficult question. Not that the others were necessarily easy but you hit them all out in the park. Let me ask you a difficult question. Let’s take a personalized customer, maybe the agent has their home and their auto umbrella or whatever. Maybe the commission that the agency is earning, let’s say, it’s $250. During the course of the year, maybe the customer called once or twice, policy change here and there, that $250 goes away very, very quickly.
Mark: It does if we don’t automate some of that stuff.
Michael: Right. I wanted to ask you, what’s the resolution there? Because one of the problems, clearly, let’s say an agency has got 5,000 customers, it’s a nice mid-sized agency. Honestly, the agent walks through the grocery store, they’re not going to recognize the customer or maybe not vice versa. To have those relationships and really deliver the highest level of advice and insight, unless we’re starting to get some of the more middle-market commercial lines, boy, the commission structure is hurtful to some of those relationships. Turn the calendar forward–
Mark: Where I think things will go, right?
Mark: One, recognize my lifetime value. My 35-year-old customer just had a kid, yes, he’s not paying a whole lot, but guess what, 15 years from now man, he’s going to be a very profitable customer. At least some of them will. Can you predict? Information helps you predict which ones are worth that value. The second thing I’d tell you is, there is such an opportunity for value-added services around risk. We have a ways to go in terms of regulatory openness and we have to be careful here, we have to be mindful of our obligations to the society in which we work. We have opportunity, as I said, they could have referred me to great services that would have solved problems for me and there’s money in that. [laughs] I think there’s opportunity to offer those broader services.
Then I would also say, “There are emerging risks of which customers are not sufficiently aware and there’s lots of new products in that space.” Cyber risk is growing like crazy. Pet insurance becoming just billion-dollar lines for some of these companies. There are opportunities as our society gets more complex, they are entirely new types of policies. I can tell you, insurance is under-penetrated in the United States as a whole because I can look across other markets-
Michael: Okay, fair enough.
Mark: -and we’re pretty good on the P&C side. On the life side, there’s a lot of room. Even on the P&C side, there’s emerging risks that we don’t cover the way some other countries cover. I look across the world and I say, “There are plenty of emerging lines where there’s opportunities. If I know the customer well enough to have that conversation- the other thing I’d say is even that communication with the customer can be automated to an extent. They’re all on LinkedIn, they’re all on Twitter, they’re all on Facebook.
Michael: They’re all on email and so they can use Agency Revolution’s marketing automation systems. I got to put that plug in. [laughs]
Mark: That’s good. I set you up, that’s good. It’s absolutely true though, but the key comes back to customization. I get emails from my carriers right now and they’re so generic and when they try to customize, they miss the mark terribly. [laughs] I’m saying that with a relative-
Michael: Hey, go paint your house.
Mark: They could’ve told me some of this stuff.
Michael: Go paint your house and stop whining. [laughter]
Mark: That’s the thing. Come on. I’m a traveling IBM executive with kids who are 9 and 11. I got plenty of risks coming up. Has anybody started to talk to me about those? No.
Michael: Yes, maybe not.
Mark: That’s an opportunity, but if an agent has to spend an hour and a half figuring out what that opportunity is, and then they got to spend another hour finding the right forms, and then they got to go find me, and then they gotta go fill out a three-page green screen application, transcribe what I wrote down on a piece of paper, no, that’s not profitable, but if they sent me a well-timed email, and followed up with, “Here’s my social media address. Ping me,” and I said, “Hey, this is what I need,” and they say, “Yes, okay, you’re all set,” we already know 80% of what you need to know for this thing answer to these questions were done.
Michael: Okay. The right people at the right time.
Michael: I’m going to ask you another technology question and really encourage listeners to hang on because it’s really easy to zone out on this one, but I know that you believe strongly that blockchain is going to have a tangible impact on this industry. Talk to us a little bit about that.
Mark: Blockchain, for those who are uninitiated, it’s not Bitcoin. Bitcoin runs on a blockchain. Blockchain is, think of it as a distributed ledger. It’s a way for multiple parties to get together and write down business transactions or business events. They all agree on what happened, and nobody can change it without everybody knowing that it’s changed. It gives you this immutable record. It’s a way to share information in ways that used to be really complicated.
There’s a lot of talk around title insurance in blockchain. Title insurance essentially is simply just ensuring that party A and party B reported this stuff correctly and connected up in the right way. If you had a blockchain that recorded all the changes of property ownership in a jurisdiction, well, that’s an immutable record. I don’t need that insurance anymore, but there are other types of situations where you can share information in ways that are helpful to everybody, but don’t expose anybody. For example, and we’re having this conversation with the carriers and even with regulators on something called openIDL. It was just announced a few months back with the AAIS. We’re using blockchain to share information across insurance companies to start figuring out how to write new types of products.
The simple example is this. Cannabis business owner’s protection. Emerging business, tons of need, no one knows how to underwrite or price it because no one’s got enough data to prove actuarially what the last experience is, but if we can collect everybody’s data and compile that, we might have enough data to more accurately price and underwrite that product. Now, why don’t people do that? Well, because I don’t want to contribute my data because you might see it. I don’t want to contribute my data and my competitors take it and use it to go sell out from under the price.
Blockchain allows you to set up rules around how that data is anonymized, when that data is shared, who has access to which data. Here’s the really interesting part, we can even include the regulators. Instead of the regulators not liking your rate structure and say, “Time for a data vault. Everybody, go through a bunch of really expensive custom IT work now because there’s a bunch of data that we don’t understand.” We’re all on the same page. It makes our industry incredibly more efficient. Those chains are emerging in many industries.
We’re doing a ton of work with Maersk on shipment. The shipment have 200 different entities touching them as they go from point A to point B. We’re doing work with Walmart and some other food suppliers on something called Food Trust. How do I ensure that the pigs that show up on my dock are actually pigs that came from the farm I think they came from and weren’t ginned up with any sort of hormone or growth key hormone or whatever that is? Insurance can actually sit in on those chains.
When you start thinking commercial lines or ocean marine or some of our specialty lines, if I could track shipments reliably from point A to point B, and the blockchain proves where they were at every point in the chain, and I have a sensor in that shipment, say it’s a shipment of bananas, bananas spoil if they get much above I think it’s 45 degrees, if that sensor goes off at 50 degrees at 5:23 PM on August 26th, and I know exactly who had custody of those bananas at that time, I know who to find. That changes my risk fundamentally. Those are the sorts of things that changed.
Michael: That technology is becoming available now.
Mark: Absolutely. The data sharing within the industry, we’re seeing more of those sorts of models emerge. I can talk about openIDL because it was publicly announced. There are definitely some of the things going on that are-
Michael: Yes. What is it again? Open-
Mark: openIDL. That’s through AAIS, one of the two large entities in the United States with a license to issue new products along with NAIC. If they’re using it as a carrier level of shared data, there’s obvious opportunities to share data within other industry constituents as well.
Michael: All right. Mark, this is a bit of a turbulent time in the insurance industry. As you said, the pace of change is really fast. What would you say to today’s serious agency principal about how they can stay on top of all of this change?
Mark: I would say, recognize in the future that your role has to change to become a risk advisor, and be on the lookout for a number of things that will impact your ability to do that. One is, where are new products coming from an insurance? It’s not all the carriers. At least be a little conversant in technology so that you can see the insurer tech companies that are trying to set up travel insurance or shoe insurance or who the heck knows. Make sure you have an idea of what’s going on in that space and how issues share- like Airbnb and Lyft and Uber are being handled from a risk standpoint because you’re going to have to integrate with whatever they are doing even if you don’t sell it.
I’d look for opportunities to automate the simple things and I’d look for carrier partners that can automate the simple things for me. If I’m spending my time on a simple metric, how much time am I spending talking to end insurers in the prospects and drive that metric up by any means possible? Because everything else is going to get automated sooner or later. Look for ways to learn more about customers that are not insured, look for partners that deliver me information that will help me have more intelligent conversations with customers and really think about how– This is a long term thing. I don’t think the industry is quite here yet, but it’s coming.
Are there services around risk that I can help partner with my end insurers, and whether I do that through my carrier partners or whether I do that through other third parties, I think that’s TBD.
Michael: An example of what that might be, is that like your painting example?
Mark: Yes, painting the house. What kind of coverage, “Hey, I heard you’re going on a trip. What kind of coverage do you need?” Medivac insurance, probably not on the radar of a lot of– Certainly my agents wouldn’t be able to advise me on that, but they probably should. Be on top of emerging risk because that’s where there’s opportunity to raise the game. I think it’s a wallet share conversation with your customer. Banks are all going through this too. If you’re only selling one product to the customer and they get their six other risk products from six other places, they’re not going to see a lot of value in you.
If they’re getting four or five products from you, they’re going to see you as an advisor that’s trusted and can help. You got to get to that position. You got to run your business that way.
Michael: You got to get deep with the customer.
Mark: Absolutely. One deep customer’s worth more than– You sell five products to one customer, they are worth more than five customers with one product.
Michael: Indeed. I will be happy to argue that case to the industry.
Michael: All right. Mark, just interesting times in the industry right now. I totally appreciate your insight on some of these changes. Next two or three years, do you think– It kind of feels like we’re going to be seeing some things emerge, maybe quicker than we–
Mark: I think so, for two reasons. One is the technology underneath it is evolving very rapidly. All these carriers are used to buying a lot of systems, to operate all of these insurance businesses, that they install on some data center somewhere, and have a big, expensive IT staff maintaining them. That’s all going by the boards. Five years from now, that’s all cloud services that show up as utility. That gives the carriers the flexibility that they been complaining about for the last 10 years not having. That starts to get them to the point where they truly have all the data about a customer kind of in one spot. They truly have systems are flexible enough to offer some of these new types of products and services.
You’re going to see more product experimentation coming. The regulators are mostly on board with that. by the way, because if they don’t do it, they know other jurisdictions are going to be. The other big change with which I think is TBD, is where is the privacy balance going to land? I do believe if we can offer sufficient value, that the end insured will be happy to share data with us, if we can help them prevent risk. If we get caught in the Facebook trap of using their data not telling them, or if we’re using it to hurt them and not being clear about, we could be in a very different place. Where’s the control going to end up, is an open question.
Michael: Let me ask one last question about that. In regards to data collection, part of what you’re talking about is the exchange of data between the insurer and the carrier. There’s also this world of big data about almost everybody that’s floating out there, and is already, to some extent, being used by the industry through passive data collection. Are we going more in that direction or do you think we’re going to have to go less in that direction?
Mark: I think we have to be careful how far we go. Ultimately, this is a societal question. If I draw the curve out to the future, it’s about the technologists. I’d say I’m eventually going to get to the original CRM style concept of one-to-one marketing. I’m going to write an individual policy that’s individually priced for every single person that’s going to precisely capture their risk. We could have the data to do that. I don’t know, if as a society, we’d want to do that. The carriers and the agents are not the ones who should making that decision. Even the regulators need to be thoughtful. We need a conversation as a society about–
The health insurance industry is going through this with pre-existing coverage. A lot of the same issues are going to come to the fore across insurance. Do we subsidize more condos on the shores of Miami Beach with artificially controlled rates? Versus, do we price people out of the market by charging the rates that we should be charging? Those are political questions. They’re not carrier questions or agent questions. They are questions that will actually impact our industry.
Michael: Mark, typically I’ll give my guest an opportunity to tell how other people could reach them. In your case, I’m not sure because you’re an IBM executive traveling all over the world, but–
Mark: No, you find me on LinkedIn and Twitter both. My handle’s mclmark, M-C-L-M-A-R-K. You’re absolutely welcome to follow me either place, I post in both places frequently.
Michael: What’s your twitter handle?
Mark: M-C-L-M-A-R-K. I don’t mind telling you, I’ve done these a time or two before. I have had individual agents calling me up and asked questions. I’m happy to take them, it’s just consistent with counter.
Michael: I’d love to know what kinds of questions they have for you.
Michael: Mark, let’s keep the conversation alive. I really appreciate you spending time with us today. It was very educational.
Mark: I appreciate you spending so much time with me. Hopefully, I didn’t rattle on too much here in the afternoon. I appreciate the great questions and the entertaining and informative dialogue. It’s really helpful to me as well.
Michael: Indeed, thank you so much.