Cluetrain and the future of insurance

This is an interesting article from 'Confused of Calcutta', describing the lost promise of the Cluetrain Manifesto.  Maybe I should say delayed...

It describes how the hopes that Cluetrain engendered in believers like Confused of Calcutta (JP Rangaswami) and me of increasingly open conversations between companies and their customers - using the new technologies that 10 years ago began to enable such conversations - weren't initially realised.

Instead of openness, companies ran from the new conversations and retreated into themselves.  They built technological barriers (firewalls) around themselves to/and so (delete as you see fit) cut themselves off from their customers.  Their customers on the other hand, excited at the prospect of more and better conversations, swallow-dived (with tuck) into the fora that enabled them - social networks - and talked to each other.

Over the ten years since social networks began to transform how we (customers and consumers) communicate, some companies have been extraordinarily successful adopters of the entirely new business processes and models that the conversational enterprise demands; Zappos (as described in Delivering Happiness) is my favourite example.  Most firms however, and even entire industries - insurance is obviously my particular bug bear - have have been spectacularly luke warm on the whole subject.

At the end of the article, JP suggests that what we are seeing now is companies beginning to visit the places (social networks) where their customers already are and how they are beginning to enter the conversations.

I agree with JP that this is an interesting development - and not before time - but for me the really interesting developments will start when we see more companies changing their processes and business models to take account of what they hear in those conversations.  If you join a conversation and enough people in that conversation tell you the same thing, you won't be able to stay in the conversation unless or until you take on board what is being said.  For companies, I think this will mean more process and model change than many realise.

For an insurance example, consider this; risk and pricing knowledge - that which is most heavily guarded behind insurance company firewalls - is likely in the future to be generated faster, more accurately and more actionable form in social networks than by insurance companies operating alone.  This will have fundamental implications for insurers used to a business model that is founded on exploiting their 'better' risk and pricing knowledge.

Google's a teenager!

 Happy Birthday Google!

But not the most important birthday today...

Who wouldn't trust the BBC?

This is a great example of just how careful one needs to be on-line.  It is one of those scams that preys on the gullible - specifically the lazy and 'inattentive' - who imagine you really can get rich quick.

It involves a link in an unsolicited email - the first warning sign - purporting to show a BBC news story of someone living almost next door, making fabulous money working from home.

"Be careful out there"

UBS CEO resigns

Oscar Grübel, until this morning the CEO of UBS, has resigned.  Difficult to know whether he went or was pushed but either way, following the discovery of the $2b fraud at his London office, his departure was entirely predictable and I doubt he will be the last to go.  

Can you understand 'social' if you haven't read The Cluetrain Manifesto?

Of course, you can understand what 'social' means if you haven't read The Cluetrain Manifesto but social makes a whole load more sense if you have.


So, what is the Cluetrain Manifesto?  Here is its introduction:

A powerful global conversation has begun. Through the Internet, people are discovering and inventing new ways to share relevant knowledge with blinding speed. As a direct result, markets are getting smarter—and getting smarter faster than most companies. 

These markets are conversations. Their members communicate in language that is natural, open, honest, direct, funny and often shocking. Whether explaining or complaining, joking or serious, the human voice is unmistakably genuine. It can't be faked.Most corporations, on the other hand, only know how to talk in the soothing, humorless monotone of the mission statement, marketing brochure, and your-call-is-important-to-us busy signal. Same old tone, same old lies. No wonder networked markets have no respect for companies unable or unwilling to speak as they do. 

But learning to speak in a human voice is not some trick, nor will corporations convince us they are human with lip service about "listening to customers." They will only sound human when they empower real human beings to speak on their behalf. 

While many such people already work for companies today, most companies ignore their ability to deliver genuine knowledge, opting instead to crank out sterile happytalk that insults the intelligence of markets literally too smart to buy it. 

However, employees are getting hyperlinked even as markets are. Companies need to listen carefully to both. Mostly, they need to get out of the way so intranetworked employees can converse directly with internetworked markets. 

Corporate firewalls have kept smart employees in and smart markets out. It's going to cause real pain to tear those walls down. But the result will be a new kind of conversation. And it will be the most exciting conversation business has ever engaged in. 

What follows this introduction are 95 theses, the best well-known of which is probably the first:

1.  Markets are conversations.

Never has a thesis been as abused or as often mis-quoted as this one but when you understand that the sub-heading of Cluetrain is "the end of business as usual", you begin to get some idea what this book is all about. 


If you haven't read it, I urge you to do so because much of what it discusses is really only now emerging fully into the mainstream and you will make much better sense of the new mainstream if you have read Cluetrain.


You might wonder why I mention this now - and why I have quoted so extensively from Cluetrain above.  


As I indicated last week, I spoke at an insurance conference this week on network and cyber risks.  I was on a panel on social media, where I argued that the media part of social media was all about technologies and platforms, which are and will always be in a state of constant change.  This change is interesting and important to follow (I watched the fascinating f8 keynote last night for example) but, while I am interested in technologies and platforms as enablers of conversations, it is the conversations themselves - the social part of social media - which I find truly fascinating because it is conversations that are gradually but genuinely changing everything.  


On Wednesday for example, I tried to show that social was changing the nature of insurance's customers; it is also changing the risks they have and need to transfer.  Beyond that however, I also suggested that the conversation will gradually come to change how customers understand risk, which in turn will have significant implications for how we accept the risks they want to transfer.  


Now, it is not a new experience to be politely told that "I am not sure I completely agree with you"; that wonderfully English and understated way of suggesting I am talking out of my arse.  I think therefore that I coped reasonably well when that was the introduction to a question on Wednesday but what I may have hidden less well was my surprise when, in my reply, I quoted thesis 1. above - and referenced Cluetrain - to a completely universal set of blank stares from the audience.


I accept that Cluetrain is not mainstream reading but I had assumed that, in a room full of insurance people gathered together to discuss social media, at least one person other than me would at least have heard of it and its primary thesis.   
   
Apparently not.  If you have read this far, scroll back up and look at the picture which is part of the Cluetrain introduction.  Need I say more?

'Social' enterprise changes everything

ZDNet is carrying a story this morning about Mark Benioff, CEO of Salesforce.com, an enterprise cloud computing company.  In it, they say he believes companies won't abuse social data they can 'scrape' together about their customers from multiple sources.

By the way - try to watch the key note from Cloudforce 2011, "Welcome to the Social Enterprise"; it was something of a 'eureka' moment to see that firms are really getting to grips with what 'social' means for us and how we interact with companies - as both employees and customers.

Anyway, I digress because the ZDNet article actually reads:

"Companies will not combine data from different sources for analytics purposes to an extent where customers are alienated."

This rather sounds to me like the quote could be interpreted such that companies will only combine data from different sources ...up to the point where alienation makes combination inefficient.  It is a certainty that many companies will scrape all the information they can and will seek to use scraped information as effectively as they can.  Some will only stop using the information when they know it pisses their customers off more than the benefit the company derives from the activity.

The interesting difference to watch for in the future will be the extent to which different firms stop at different times and what causes each firm to stop.  For some firms, the economics of the situation will determine but for others, reputational cost will be a significant part of the equation, making such firms stop earlier than the others.

This seems to me to be the essence of social - Benioff's point, I believe - but I cannot avoid thinking of Bentham's Panopticon whenever I think of issues like this.  Social has re-modelled Bentham's prison design.  Instead of those who can be watched changing their behaviour because they think they might be being watched (whether they are or not), those doing the watching (or scraping) are having to adjust their behaviour because the walls that formerly isolated those being watched have been destroyed.

In the past, firms had little need to listen to isolated complaints (though many did) but every firm must react, and better still avoid altogether, uniting their customers with reason to complain.

Adoboli loss - nothing new to see here, move along; really?

Predictably, there is much hand-wringing in the press today (16th September 2011) about bankers and their inability to manage their own, never mind other people's, money.


There is something in this, though this inability is hardly new; it just seems to manifest itself less frequently than it used to - assuming you ignore Jérôme Kerviel of course...


So, not quite so infrequent after all then; in fact, because I remember Sumitomo, Daiwa, Morgan Grenfell, Allied Irish, Orange County, Metallgesellschaft and others - all operational risk losses of the mid 90s and early 00s - I just think we have been going through a quiet patch recently.   


Also, compared to Kerviel at €4.9 billion, this loss isn't that big - though it is not easy to type that a £1.3bn loss 'isn't that big'.  Several of the above were bigger than Adoboli though curiously, it is almost exactly equivalent to the loss Nick Leeson caused to Barings - if you trend Leeson's £827m at 2.7% (the average inflation rate since 1995 when Barings collapsed).


So, is it appropriate to say "nothing new to see here - move along"?


Well first, it is far too early to say anything sensible about this loss because, so far, we basically know absolutely nothing about it.  Who did what, who said what and who knew what and most important, when all was done, said or known may take years to be established and will definitely take longer to be publicised by a Swiss bank.


That all said, there is nothing startling about the amount of the loss, as far as we can tell so far, and I don't expect there will be anything too surprising about the details when we hear them, though in insurance porn terms, I am sure they will be lurid.  


What would surprise me is if the FI sector of the insurance market has been able to provide meaningful coverage for this loss; UBS may not buy any coverage because of this.  More surprising still would be that we pay the loss quickly - even if it is evidently covered; we just can't/don't work that way - more on that another time.


But it is because we can't work like that, that a friend and I co-wrote this report to the Bank for International Settlements in 2001.  We were responding to a request from them for ideas about how operational risk might be transferred in such a way that insurance became an effective back-up to a bank's operational risk capital.  


I think we would write it slightly differently today but, given that the losses haven't gone away and the coverage for them remains inadequate, I am not sure we would change its basic premise.

  

City Rogue Trader Arrested

As I mentioned here, I was a Bank's broker when I first entered the insurance market, so headlines like this always catch my attention.

There have now been so many losses in excess of $1bn that it would be easy to become blasé about them   but they still take my breath away.   Trouble is (and to explain why I should get out more), I also wonder how this loss will end up being dealt with by insurance?

Depending on the wording used for this bank, they may or may not have coverage - and regardless of the wording, I expect they they will expect to be covered.  I doubt there will be anything so old-fashioned as a two part definition of dishonesty, where there has to be both the manifest intent to cause the loss and a gain for the perpetrator but you never know...

One to watch.

Is social media a 'hot' insurance topic any more?

For the last few years, there has been standing room only at conference break-out sessions dealing with social media.  I doubt this is the case any more.  


This is fine as long as you don't have to speak at a conference (C5 Data Risk, Cyber and Network Security Insurance) next Wednesday on the subject of social media insurance exposures, like I do... 


Now I am not saying social media isn't fascinating, nor that it's time has past (I don't think we have reached the end of the beginning yet, never mind the beginning of the end) but I think (and hope) that the hype with which the insurance industry has surrounded social media has subsided to the point where we can look at it objectively.


Like many 'new things', our industry was spooked by social media when it first burst on the scene.  Now generally, if something spooks us, it probably spooks our clients too and this is a good thing because spooked clients buy more insurance.  It is just scary to sell coverage for something that spooks us as much as it spooks our clients and so coverage for spooky exposures is a 'hot' topic until we realise it wasn't quite as spooky as we first thought.


And yet...


I think we got spooked about the wrong part of social media.  'Media' worried us more than 'social', where we were spooked by the new scale and scope that 'social' brought to 'media' exposures like IP infringement, breach of confidentiality and invasion of privacy for example.   This spooked us because we understand that media exposures are very real exposures and we further assumed that if they were going to exist on a hitherto unimaginable scale, this was a very spooky thing.


The thing is though that media related claims just haven't materialised and anyway,  customers just don't seem to be as spooked about this exposure as we thought they would be and so haven't been buying as much of the coverage as we hoped they would.


What they have been doing though is getting involved with 'social' in a big way - a much bigger way than anything we have so far seen in the insurance industry.  For example, 'social' has moved way beyond transforming how businesses market their products to fundamentally affect core business processes and models.  


I am not sure our industry has fully grasped the implications of 'social'.   It is not simply a question of thinking about specific policies for new spooky exposures but how social will gradually come to affect nearly every type of policy we sell.  


'Social' will inevitably change (I think fundamentally) how both insurance buyers and sellers understand and transfer risk between them and so that is what I have decided to talk about next Wednesday.   

I should get out more

'You should get out more' is advice that has been thrown at me so often, I have finally taken the hint and decided to use it as my blogging home.

I am not completely sure if the advice is offered because I work in insurance and people feel sorry about that or because I sometimes find it difficult to take things at face value.  As I use this setting to think through and share some of my thoughts, you can decide for yourself.

My former blogging efforts can be found at The Market Network and Specialty Casualty.

The Market Network was (generally) where I discussed ideas for improving the process of understanding and transferring risk.  I still hold those ideas but will from now on discuss them here.

Specialty Casualty deals with the subject matter of my day job at Towers Watson - I run the Specialty Casualty team there.  I use that site to post and comment on interesting stuff I come across relating to the types of coverage we deal with in the Specialty Casualty team and I will continue to use it for that.

I tweet @shouldgetoutmor.

For the sake of clarity, none of my online ramblings have anything to do with Towers Watson and I am responsible for my own comments and thoughts.