We Gotta Get on It
Any time you have a chance to talk to industry game-changer Mike McGavick, you inevitably walk away with an overload of ideas and a bit of a fire in your belly. Our recent conversation was no different. We spoke with McGavick about all things insurance, including natural catastrophe, data privacy and how digitization can create “breakthroughs” for clients. As McGavick put it, “This is the most dynamic time our industry has experienced in decades. If you stand still, you’re going to get run over.” —Editor
Everything we have that creates complex legalese around it is unfortunate. And anything we can do to cause the product to function in a simpler way so that any chunk of that legalese can be taken out is a good thing. Because the clearer it is in the customer’s mind what’s going to happen, the more trust we’re going to have.
Having said all that, the reason the industry stubbornly remains a relationship-oriented business is because what we’ve been doing is substituting structural trust with relationship trust. So the fact that I don’t trust the stack of paper is fine, because I do trust Sally and Sally is on my side and Sally read it all and has told me what it means and I trust that if something bad happens I can count on Sally to make it right. So we add relationship trust to overcome structural distrust. That’s fine, but I think there’s an opportunity at hand because of the insight technology can create and therefore the modeling it creates and therefore the different tools we can use. We could use this era to create products that are more inherently trustworthy.
When I chaired the Geneva Association, a think tank working on insurance issues globally, we did a lot of work on underinsurance. That work helped spawn the Insurance Development Forum and enabled us to partner with governments and other sectors to come up with ways to attack profound underinsurance. It’s important for us to remember that underinsurance is not just true in less developed economies; it is rampant throughout the industrialized world.
So you can think of underinsurance as the fact that we can’t find a solution to really get at the core risks of technology failure and data theft. You can think of underinsurance as the way we handle flood in most countries, where data clearly could allow us to provide insurance-based solutions. You can think of underinsurance in terms of countries whose legal infrastructure is insufficient for the kinds of products we have now. And instead of asking how can we mature your legal structure, you might want to ask how could we change our product so that it actually works for you. These are the kinds of opportunities. And they’re imperative if we’re really going to make the difference we can in the world.
What we do know is these kinds of events historically have come in cycles. While I am personally a believer that there is real climate change going on and believe that we should be doing what we can to make the situation better, I don’t view any of the recent events as somehow proof. If it’s going to get worse from here, we’ve got a lot of work to do, because we’re not ready. And we’re going to have to get ready because there’s nothing we’re going to do next year or the year after that’s going to do anything about this at all in the 30-year or 50-year horizon that really matters. So we gotta get on it.
We humans love to live where the land is interesting. We live there because it tends to be beautiful. Rivers are there, mountains are there, shorelines are there. The reasons those exist is because it has natural environmental instability. It’s beautiful to our eyes, attractive, and it creates byways of commerce and everything else. But we’re addicted to these places that are really unstable. If a person wants to live in a dangerous place and wants to bear the risk of that, that’s the point of freedom. But if that person wants to socialize that risk, you pay the real cost. We’ve completely mismanaged this. So price signals and investing in technology to create more resilience and keep people out of harm’s way are things that could really help.
The third thing I think about is how do we help be a part of the conversation at the national policy level about determining the right outcomes. How do we address the free ride or problem with carbon? These are really difficult questions. And I think the industry has an expertise that belongs in that conversation. We know how to create resilience at the back end, and we know what the risk factors are at the front end, and we know the real cause of what’s going on. That makes us an invaluable participant in the conversation, and we, through the Insurance Development Forum and other actors, have tried to take a bigger voice. But I think we could do a lot more.
When we’ve worked on projects in rural India, in parts of Africa and even in some of the urban areas of the United States, getting these products understood and accepted as useful and trusted has been super difficult to do. We’ve got to do [it]. Or else we’re just going to watch disasters happen, and we’re going to contribute nothing to the resolution, and it’ll be wildly inefficient because it’ll be post-event, government nonsense, and we’ll waste a lot of money, and a lot of people will get hurt. Everybody thinks when you say that, you’re talking about some horribly impoverished country. I’m talking about Houston. I mean, come on, it happened right in our own backyard.
I think we’re at an incredibly intense crossroads, and I don’t know where it’ll come out. I do know that there’ll be more privacy than there was before in the U.S. I think that’s unavoidable now. For all of us who handle others’ data and are at risk of it either being stolen from us or abused by us, we have a very high mandate to get it right. We shouldn’t be the regulator. You don’t lose people’s data, and you don’t illegally use what you know about someone. At the same time, we don’t want to lose our leadership, and I think this is the greatest industrial policy question the United States has faced since we built the highway system and invested in the colleges.
The brokers have operations that try to perfect that for the client. The [insurance] companies have teams that work on perfecting that for the client. The client has his lawyers. My guess is the thing the client really wants is a globally compliant product. They don’t want to pay all of us to do that one thing. At the same time, companies compete over the quality of their insight for creating something that really is both compliant and thorough. So I wouldn’t want to rob the client of that competition.
The second thing is make sure your culture is into innovation, into creativity, and that your people are tech savvy. Interview for those characteristics even when the job isn’t a technology job. Because otherwise you’re just hiring barriers to adoption.
The final bit is outsource and collaborate. Pull some resources and share knowledge. I see that in the way some of the regional brokers work. There’s all those different networks. They can all share insight. They can sometimes share technology investments. They can share on things that don’t go to the center of their competition.
Now, there are elements of today’s change that are different. We’re at such a rich level of information that data is not information. Data is just piling up all around us. How are we going to turn that into information? That’s such a massive trick. But we’re now getting tools together to start to learn how to deal with it. It feels uncomfortable, but it’s not crazy. We adapt. That’s what we do.
There’s expected to be a 10-fold increase in data from some 4.4 zettabytes to 44 zettabytes, or something like that. I can use no metaphor to make that make sense. But what’s interesting is today it’s expected that only one half of one percent of that data will be used. Think about it being like all the sand in the world—if there’s an ocean full of sand and you get one half of one percent, that’s still a lot of sand. I bet there’s something in there.
Another thing is to be a part of the innovation conundrum. Don’t just assume it’s about you continuously reinventing your own process. Think about the end-to-end of how solutions are being created for customers.