As we roll into 2022, we find ourselves revisiting foundational assumptions about how businesses work and how companies can create competitive advantages for themselves. Change is always with us, and businesses evolve as they balance investment priorities and risk tolerance. Sometimes, however, seismic shifts cause the world to change so quickly that failure to adapt can lead organizations into dead ends. These companies can become the commercial equivalent of military leaders focused on winning the last war, leaving themselves blind to what it will take to win the next one.
Long before any of our times, some insurance carriers found that making their own electricity and running their own printing plants gave them a leg up. For paper-centric office work, both of these things were once huge advantages. Over time, these efforts became meaningless and eventually transitioned into liabilities. The pace of change from last century appears slow in retrospect.
Today, rapid changes in technology are part of our norm. The pandemic was like pouring gasoline on a fire, further accelerating change and producing uneven and often unpredictable results.
Cloud computing, for example, has great promise in terms of resiliency and allowing for faster deployment options. Carriers used to view it as an uncertain complement to their proprietary data centers, but now many view it as a way to leave operating their own facilities behind. For some, changes like this have created corporate whiplash, with newly acquired facilities being shed long before the depreciation schedules have expired. In areas like software development, new tooling and hosting options are helping carriers avoid mountains of technical debt.
Of course, the combination of rapid changes in technology and labor markets means that, barring areas where true competitive advantage can be created, leveraging commercial solutions creates both speed to market advantage and a reduction in operational risk.
All of this begs the question of where true competitive advantage will come from in the future. Carriers may want to look at other industries for instruction. For example, Toyota recently became the largest seller of cars in the United States. At almost the same moment, the company announced a pivot to focus on becoming a software company and dramatically increase the in-house development of the user experience for their vehicles.
Assembling vehicles is hard but commoditized, and Toyota has joint manufacturing agreements with direct competitors like Subaru and BMW. The software at the heart of its vehicles, which it can control given its vast scale, may also become something Toyota sells to other manufacturers operating without the economies that scale can bring. Toyota seems to be moving in ways more commonly associated with Apple and Google than General Motors and Ford.
Comparable implications in financial services could be profound. The Roaring ’20s ahead could look surprisingly different than the decade we just left, much like what happened a century ago. For insurance carriers, being mindful of what is a differentiator rather than a distinction without meaning will be key as the competitive environment quickly changes to deal with a variety of market forces. Game on.
For more on innovation in the insurance industry, please reach out to me at [email protected].