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The Black Swans and Unicorns of Insurance IT

Denise Garth | March 02, 2015

Throughout history, myths and legends have evolved as accounts based on long-held assumptions and wide-spread stories that share at least one common dominator: the ability to verify them. Ah … the beautiful legend of Briton’s Camelot, and Ireland’s mischievous leprechauns with their pots of gold. But there are two legendary and mythical creatures, the unicorn and black swan, which have come to mean something else in modern culture.

The unicorn, which goes back centuries as an animal mentioned by the Greeks, became legendary during the middle ages and renaissance periods, achieving mythical status that has continued into modern history. The black swan experienced an abrupt drop from legend status when it was found to be made of the stuff that legends are not: verifiable reality. It was originally believed that all swans were white until 1697, when the Dutch explorer Willem de Vlamingh found black swans in Australia, and profoundly changed the science of zoology. Who knew?

Fast forward to today’s modern business world, where the Black Swan and Unicorn have taken on new and very real identities, and have come to be known as the modern-day equivalents of things or events that reflect the momentum of the impossible achieved through disruption and innovation. Black Swan business theory was introduced in 2007 by Nassim Nicholas Taleb, a scholar, statistician, and risk analyst. His book The Black Swan quickly became one of the top “must reads” in the world of business.  

Black Swans are defined as unprecedented, unexpected, or low probability/high impact events that significantly disrupt and change assumptions, businesses, industries, and more. Modern examples often sited include the rise of the Internet, 9/11, and the 2008 global recession. The theory is that if we are able to detect and analyze Black Swan events, we have a better chance of effectively responding or managing the impact of such an event. From there, it is not difficult to make the cognitive leap to insurance. In essence, risk management is the very core of insurance.

In contrast, the Unicorn stepped out of the myth only lately and has taken on the persona of a new and real thing (not an event like the Black Swan). The Unicorn of today is a pre-IPO tech startup with a billion dollar market value. A January article in Fortune magazine article, The Age of Unicorns, by Erin Griffith and Dan Primack, credited Cowboy Ventures founder Aileen Lee with coining the term in a November, 2013 TechCrunch blog post. Fortune has identified 39 venture capitalist (VC) backed U.S. tech startups that have topped $1 billion in valuation in the past decade, noting that even Google and Amazon were never valued at a billion as a private companies, nor were any others that emerged from the original dot-com era. As a result, the billion-dollar valued companies, like the unicorns, were believed to be a myth. 

However, in less than 15 months, Fortune noted there is a fast-growing roster of billion-dollar startups, and Unicorns are increasingly showing up everywhere. The magazine identified more than 80 privately held start-ups that are now valued at $1 billion or more by VCs, observing that Unicorns are rapidly appearing, often without much warning. While some wonder if this represents the start of a new dot-com bust, the article notes that these companies learned the lessons from that era, and have a solid business model, revenue, and customer base.

Even more stunning, Fortune further noted, is that some VC firms are searching for “bigger game,” those startups with the potential to rapidly reach a $10 billion valuation, calling them “Decacorns.” Facebook was the only private company in late 2013 to reach this threshold. Yet, by the start of 2015, a little over a year later, there are at least eight companies valued at more than $10B and growing. Uber alone is already valued at $41.2B, making them more valuable than over 72 percent of the Fortune 500. Whether Unicorns or a Decacorns, these companies have business momentum, access to capital, and innovative solutions built on technology that is disrupting existing industries and businesses.  

So, the Unicorns and Black Swans have a significant importance to insurance: they are critical influencers of change and disruption for traditional industries and companies. And why is that? Simply put, technology. Technology is fueling change and disruption, from the Internet, cloud, mobile, social, and collaboration to new emerging technologies like the Internet of Things (IoT), drones, wearables, driverless vehicles, and artificial intelligence. We are seeing the emergence of new economic and business trends like the shared economy, digital business models, omni-channel environments, new risk models, and many more, fueled by the technology-enabled Black Swans, all of which are influencers of change and disruption for insurance.   

These Black Swans are disrupting and reshaping whole industries—transportation, media, hotels, communication, manufacturing, music, retail, healthcare, and insurance. SMA’s research report, Next-Gen Insurer: Fueled by Innovation recognized these outside industry influencers of change that are creating new, innovative products, solutions, and businesses … new Unicorns. Furthermore, these Unicorns are gaining market recognition and acceptance that is fueling their growth.

Consider the disruption for hotels (and insurance) with Airbnb. Airbnb is being recommended by Warren Buffet for use by shareholders who plan to attend the Berkshire Hathaway shareholder meeting in Omaha, Neb., in May as a cost-effective alternative to hotels. (See the Steve Jordon 
and Cindy Gonzalez article, Have a room to rent? Buffett expects record crowd at Berkshire shareholder meeting for his 50th anniversary, Jan 16, 2015.)    

Companies on the Unicorn list include many that SMA has been tracking to assess the impact to insurance, including Uber, Airbnb, Jawbone, and Space X. In SMA’s research report, The Shifting Competitive Landscape: A New Breed of Industry Challengers, we noted that in the fast-paced, changing digital economy a new breed of potential competitors are coming from technology and Silicon Valley companies. While these companies may not compete directly by offering and underwriting insurance, they are competing in different ways that redefine customer expectations and capture customer relationship, loyalty, pocketbook, and much more through innovative offerings, engagement, and business models. 

These technology Unicorns and Decacorns are moving at breathtaking speed and on a high level, with new innovations and capabilities emerging regularly through their own development, through acquisitions, and/or through partnerships. Even more importantly, their valuations provide ready access to capital, either through VC firms or through eventual IPOs, enabling rapid growth to expand market reach, create innovative products and services, engage customers, and construct innovative business and revenue models.

In this new world of rapidly emerging Unicorns and Decacorns and the growing potential of Black Swans, the traditional insurance business assumptions and models are now or will soon become seriously challenged. How insurers respond to these changes—with a fresh set of views that combine both inside-the-industry and outside-the-industry perspectives—will influence their future. Here are key considerations insurers must plan for:

  • Unicorns and Decacorns are the new Black Swans. A massive foundational shift in traditional views of business and the world around us is underway, disrupting long-held business, operational, and economic assumptions. Assess and explore the impact of these Unicorns and Decacorns to your Next-Gen Insurer vision by identifying possibilities and outcomes.
  • Disruption and change is happening in all industries, including insurance. Change and disruption are fueled by technology. The access to capital for building and launching innovative new businesses that leverage technology is enormous. Scan the horizon of inside and outside industry influencers and prepare scenarios to respond. 
  • Innovation and technology are fueling the Unicorns. At the heart of Unicorns and Decacorns is innovation and technology. New business models and market leaders are spawning challenges and opportunities for all companies … it is just a matter of when. Embrace innovation as a core mandate and leverage and experiment with emerging technologies to fuel the potential and enable future market leadership.
  • Become a digital insurer. Adapt and transform as a digital-based business underpinned by new customer-driven and technology-enabled business and operational models. Reimagine and transform your customer engagement models to meet the raised bar for customer expectations.
  • To stay in the game, let alone win, core modern systems are mandatory. Time is of the essence for moving away from legacy systems and into modern core systems. Modern systems are foundational to being able to aggressively embrace and integrate maturing and emerging technologies that will allow insurers to optimize and innovate. Proactively establish plans for legacy replacement as a prerequisite to becoming a Next-Gen Insurer. 
  • Innovative products and services are essential. With barriers for new entrants falling and industry lines fading, new competitors with innovative products and services are emerging from well capitalized companies and industries. Invest and commit resources toward creating new products, services, and partnerships to redefine and reimagine insurance products and services (before the competitors do it).
  • Running today’s business while creating the future is vital. The pace of change and adoption of emerging technologies is rapidly increasing and intensifying the challenge of a future coming fast, while insurers are still operating the business based on models from the past decades or even centuries. Embrace an entrepreneurial, fast-moving, start-up kind of culture and mindset that engages out of the box thinkers, collaborates with those that are outside the organization, and creates a culture of innovation.
  • A divide is emerging between market leaders and laggards. Significant shifts in company strategy to respond to the fast-paced change backed by strategic investments and project priorities are creating a bifurcation in the industry, creating a gap that is expected to widen between industry leaders and laggards. Make a choice. Embrace innovation and aggressively transform as a Next-Gen Insurer market leader that is capturing the future and all its opportunities … or maintain the status quo and become a laggard, risking the future and turning into a casualty in tomorrow’s competitive business landscape.    

Major forces are converging, fundamentally changing the entire paradigm of insurance. The old myths and legends of Unicorns and Black Swans have taken on a powerful new identity in today’s reality. The impact is that insurers will be faced with choices that are more intense, disruptive, complex, and transformational than ever before. The result will be a new era of emerging market leaders, whether from within or outside the industry, that are embracing change and disruption. They are capitalizing on technologies, innovation, and the emergence of Unicorns and Decacorns to reinvent themselves as Next-Gen Insurers. 

Next-Gen Insurers will emerge as the Unicorns and Black Swans that will disrupt and redefine insurance. The question is: Will it be your company or a new competitor? 

As an industry, we have an unparalleled opportunity to rethink, reimagine, and reinvent the business of insurance. But the time for plans, preparation, and execution is rapidly fading away. So be inspired. Be creative and collaborative. Be bold. Make the choice to become a Next-Gen Insurer today. Welcome to the world of Unicorns, Decacorns, and Black Swans. 

Contact Denise Garth at dgarth@strategymeetsaction.com if you’d like to learn how SMA can help you on the innovation journey and discover new opportunities for the insurance industry. 

 


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