On this episode of the “AI Wisdom – Talking Innovation in Insurance” podcast, host Ron Glozman speaks with Caribou Honig, Chairman and Cofounder at HR Transform and InsureTech Connect and Cofounder of QED Investors. Caribou discusses how InsurTech will impact the insurance industry in 2020 and beyond, why InsurTech is good for insurance, and how insurance companies can embrace InsurTech within their organizations. Click the link to listen or read the full transcript below to hear what the future holds for insurance.
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Ron Glozman: Hello and welcome to “AI Wisdom – Talking Innovation in Insurance”. On this podcast, we talk to business and InsurTech leaders about how artificial intelligence is transforming the way we buy and sell insurance. I’m your host Ron Glozman, Founder and CEO of Chisel AI and a strong believer in the power of AI to help people work smart and enrich their lives. So, let’s get into it.
Unless you’ve been living in a cave, you know the insurance industry has been undergoing massive disruption as new market entrants are challenging incumbents and the status quo. An industry known as being highly conservative and risk averse is being forced to transform age old processes to bring innovative insurance products to market faster, capitalize on new products, and deliver a better, faster customer experience. Today we’re joined by Caribou Honig, Chairman and Co-Founder at HR Transform and InsureTech Connect and Co-Founder of QED Investors. Good morning, Caribou. Thank you for joining us. Before we jump into the conversation, can you please introduce yourself?
Caribou Honig: Of course. And thanks for having me on board here. So, I’ve had the good fortune of having a few different roles in my career so far. I spent about a decade cutting my teeth on leveraging data for business strategies at a little company called Capital One, a big company now, but it was little at the time back in 1996. Then, after I left Capital One about 10 years into it, I reconnected with a couple of other former Capital One executives and we created a boutique venture capital firm, QED Investors, very focused on investing in companies where data would be powerful to the business model. Then, in what I like to call my 3rd Act, I find myself with my hands in a few different pies. So, as you mentioned, I’m the Co-Founder and Chairman of a couple of industry conferences, most notably InsureTech Connect, also one focused on the future of work called HR Transform. On top of that, I’m an independent board director on a few InsureTech start-ups. And then lastly, I’m an advisor to a new boutique venture capital firm focused on future work kind of investments. And, besides that, I like to do podcasts and make a nuisance of myself.
Ron: Love it! Well, we’re glad to have you here. We’re big fans of InsureTech Connect. We attend every year and it’s always a great conference. So, I’d love to jump in and get your thoughts on the first question of the day, which revolves around the topic of what’s the biggest challenge you see that’s facing the industry today?
Caribou: Yeah, so in a sense, I think that the big challenge is to make full use of all the technology that’s been developed in the last 10 years or so. You know, I like to say, the rise of the consumer web and the internet, a really big deal for a lot of industries, but even the web only had a modest impact at most on the insurance industry. But now, in addition to the web and the internet, you’ve got other technology capabilities. Think about the massive penetration of the smartphone. Think about satellites shooting rooftop data all over the place. Think about the rise of APIs as an approach to building out a tech stack. Think about machine learning and artificial intelligence. Like you’ve just got a whole array – sort of water behind the dam – of technology, and the dam is starting to break, and the industry really needs to figure out how to deploy and make the best use out of all those technological capabilities in order to, you know, improve its own economics and improve the product for the customer. That’s the challenge.
Ron: 100%. You know, they say the customer’s always right. And I think in insurance, especially because it’s such a domain expert industry where you really do have to know what you’re talking about, you know, our customers and the people out there that are doing the work really do know what they’re looking for. So, I think as vendors, it’s very, very important to listen as the first thing you do. There’s a lot of different types of technologies out there that could potentially address this problem. You know, we could talk about AI, we could talk about self-driving cars, genetic testing, all of these really, really cool things that are going to touch the industry in many different ways. What do you think will happen, let’s say, this year and what are you excited for in the future?
Caribou: Well, you know, those are both big questions. What am I excited for this year? You know, I think this is a year where we’re seeing actually a lot of the start-ups reach a degree of maturity and, you know, that takes the form of start-ups that are customer-facing, and started with a clean sheet of paper, as the saying goes, building a tech stack from scratch and seeing what they can do. And so, I think you’re starting to see those sorts of customer-facing start-ups actually have an impact. Some of them. At the same time, you’re seeing a bunch of the start-ups that are trying to turn technology into a product that can then get used by the incumbents, by the brokers, by the insurers, by the reinsurers to improve their businesses. I think you’re also starting to see those companies come up to a level of maturity where they’re starting to, I like to say, actually matter for the industry.
So, in a sense for 2020, I think it’s actually just that I’m excited about all the InsureTech activity starting to actually matter in people’s lives and in the industry evolution. Now, you know, long term, what do I get excited about?
You know, gosh, I’m a technology optimist, so I get excited about a lot. You know, if you asked me in the next five-year timeframe, I get strangely excited about APIs and the API-fication of the insurance stack. You asked me more like, you know, 10 to 15 years out. I think that’s where machine learning and AI start to really come into their own, and potentially be transformative.
I’m also, while I’m certainly not a biologist, I love to understand what’s going on in biology. You know, if you asked me 15 years out, what’s going to have the big impact? Maybe the answer is CRISPR. More at the life and health side of things. But, you know, finally, there are tools that are live now to actually do gene editing in a meaningful way. And when I think about the implications for life and health insurance because they’re impacting life and health, forget the insurance piece. I think that’s got a really exciting prospect to it.
Ron: I totally agree with you. You’ve been known to advocate that companies need to have the right DNA to successfully embrace innovation, change and drive customer centricity. Can you elaborate on what makes up the right DNA?
Caribou: Sure. You know, look, I want to actually start by talking about the great DNA that the incumbents have. You know, the insurance industry is actually quite good at risk modeling, at creating resilience in the business able to endure catastrophes and the ups and downs, and, you know, persist at the company level and at the industry level for decades and centuries. You know, I think that’s actually quite important. It shouldn’t be lost.
On the other hand, you know, the DNA of innovation is actually about risk tolerance, right? How can an organization support and applaud employees saying, “I think there’s a new way, a different way, that might be a better way of doing things” and let that employee move it forward? Champion it. And if it turns out that, no, actually it wasn’t a better way, but the employee demonstrated and proved that the old way was better, that’s actually a win. And the employee needs to be applauded for going out on a limb and championing this idea that might work and might not work. And so that’s a culture, a DNA of risk tolerance.
I also think innovation is clearly fostered with nimbleness and speed in an organization. You know, this is one of the areas where the traditional incumbents and the start-ups sometimes run into real trouble, even when they have the best of intentions about how to partner.
There’s classic story about how the incumbent is feeling really good about themselves: They managed to, you know, go from an idea to a fully operating partnership and product launch with some start-up in six months. And the start-up is really frustrated because, from their perspective, six months was a lifetime and and half the capital they had in the bank is gone now. Start-ups, in particular, but really innovators, have a mindset, a DNA around speed and rapid iteration, rapid movement.
Because let’s face it, most innovations, at least when they first get out the door, are going to be a little bit wrong. They’re going to be a little bit off kilter. And that speed helps you actually adjust things by 15 degrees here or there in order to actually get where you want to be on target. And innovation needs that. So, I think really speed and that risk tolerance are the most important. The last part I will say, though, is also making sure that there’s a commitment to an alignment between what’s good for the customer and what’s good for the company financially. You know, in my past, I led investments in a company that enabled cross-border remittance. Basically, if you work in the United States, and you’re sending money back to your family in India, you use an app to do that. You don’t necessarily have to go to Western Union. And they set up a perfect delivery promise where when they promise that your recipient will have the money in an hour, if they didn’t get the money in an hour, then there was a financial penalty to this company, one that the company imposed on itself because they knew that they needed to create the alignment between what they were committing to the customer, the great customer experience, and their own financial wellbeing. And not just in a long-term kind of way, but in an event by event by event way. Because doing that would actually ensure that management and staff would focus on delivering their delivery promise. So, I think that’s also a part of the DNA, ultimately, around innovative.
Ron: I think, you know, as you mentioned earlier, biology in this sense has a very interesting overlap cause it’s funny you say the right DNA. We talk a lot about culture. And to me it sort of overlaps a little bit with what you were just talking about, which is the way you treat them and having the right build for it. And so, you know, it’s very interesting how so many things can overlap.
Now let’s talk a little bit about data and gold because today we refer to data as gold, especially as technology has moved further and further into machine learning. And all of these statistical methods and deep learning methods that really rely on huge amounts of data. Data really has become synonymous with gold. How can both the big guys and the small guys, the incumbents and the new players, navigate the AI and analytics arms race to achieve better data management? And how can we leverage the power of data to become more customer centric?
Caribou: Yeah. You know, I’ve thought about this topic and I’ve realized that I’m kind of old school, which means there’s a risk that I’m missing the boat here. But when I say I’m old school, I’m a big believer in the scientific method, and you don’t really get more, like, renaissance old school than scientific method. But I’m, like, you ought to be hypothesis driven, you ought to say, “I think the world works in a particular way and if I offer this product or if I underwrite leveraging this data, or if I take this approach to fraud and my claims. then this is what I predict is going to happen.” And sometimes those hypotheses can emerge just out of looking at raw data to begin with, and saying, “Oh, I think I see a pattern. Now let me build a hypothesis from this pattern and test it, right?”
Sometimes it comes out of a gut intuition about how the world works. Sometimes it comes out of conventional wisdom, great. But ultimately, your job is to come up with a hypothesis and one that is testable factually. And those hypotheses are sort of most interesting, of course, when they are centered around a customer or a group of customers. And so, I think about leveraging the power of data in terms of enabling the scientific method in the business world and, therefore, being able to come up with an approach and then learn what actually is true and what actually is just a myth about the customer.
I think about conventional wisdom quite often. You know, it always bugs me when people take conventional wisdom and they try to venerate it into some sort of gospel like, “Oh well, that’s how it’s done.” Well maybe, but maybe it’s wrong. Maybe it used to be correct before but it’s wrong now. Maybe it was never correct. Maybe it still is. I don’t know. Let’s build a hypothesis around this conventional wisdom and see if it’s true today or not. Ultimately, you almost have to be hypothesis driven around customers and validating or invalidating some idea based on how customers actually behave.
And then, I’d add the real beauty of it is this as a marriage of gut and data. You know, whenever you see some piece of data saying this about how customers behave. Well if it, if you can’t explain it in your gut at the same time, I would never just believe the data, actually. Data can be wrong. It can be flawed, there can be errors in it. Likewise, I would never just believe I got it right just because I believe something is right in my gut. It’s my instinct. Sure. It doesn’t mean it’s right. I’m wrong plenty of the time. Maybe most of the time, depends who you ask. But I’m certainly wrong enough that I would never just trust my gut.
If you can get the data and your gut to actually line up, that’s when you can proceed with confidence.
Ron: Yeah. And you know, they say always go with their gut. And it’s something that I’ve really been meditating on recently. And it’s funny when you talk about aligning what feels right and what the data says. It’s like this magic serendipitous moment where all the stars seem to align and it’s such a good feeling. And, so I’m 100% with you. I think you’re in the right place when you feel good about it as well as the data backs up your feelings. And so, I couldn’t have said it better myself.
What would you say is the biggest opportunity in the industry today? What is the biggest upside that people can look forward to?
Caribou: So, I really get excited at the technology level about the API-fication of insurance. You know, basically creating the different modules that go into what has to happen for insurance to happen and making those like Lego blocks that you can take apart, put together in different configurations and plug into other things.
And as the insurance industry adopts APIs, then I get really excited about how insurance can start to embed into other industries. So, you know, think about auto insurance getting embedded into part of the transaction of buying the vehicle. Think about how accident insurance can get embedded into that ski package that you buy. Think about insurance getting embedded into some of the super apps that are coming out, particularly in places like China.
The notion of being able to embed insurance into other industries and other industries’ customer bases and customer experience, I think, presents a tremendous opportunity, not just for efficiency but also for the insurance industry to develop novel products that fit a particular use case or fit a particular segment that maybe they weren’t actually accessing before or serving well before. So, I think it’s actually a very expansionary view of the world to think about insurance getting embedded into other industries.
Ron: I heard recently that – and we’ve talked a bit about this on the last podcast episode that we did, for those of you who have been listening – a lot of people think that insurance will soon be bundled into the car, especially when the cars are self-driving. The liability they expect will go on the manufacturer, whether the manufacturer of the hardware or the software is still to be determined. And especially with ride sharing and all of these new advancements, the expectation is that insurance will, in fact, be part of buying a car and it’ll be bundled rather than like a separate thing that you need to go and get. So, I do really believe that insurance is starting to penetrate every aspect of our lives. And it’s not just me. I’m not going crazy, I swear.
So, we’re going to take a 20-second break to tell you where you can find more information and insights about insurance innovation. We’ll be right back.
[If you liked this episode of AI Wisdom, subscribe to our blog, Writing the Future: AI in Commercial Insurance at www.chisel.ai/blog for feature articles, interviews, opinions, and more.]
Ron: We’re back with our featured guest Caribou Honig, the Godfather of InsurTech. Let’s jump right into the next question. Recently, Mark Breading of Strategy Meets Action posted an interesting question on LinkedIn asking at what point will we stop using the term InsurTech? At some stage, most of the start-ups become mature and just blend right into the overall tech landscape. But is that next year in two years or longer? What are your thoughts?
Caribou: Well, you know, I kind of think you’re asking two questions. One is the term InsurTech and when do we stop using the term InsurTech. I really hope we never stop using the term InsurTech. Now, that’s partly because I’m involved in this conference InsureTech Connect, but also I think InsurTech is as much a mindset about how the insurance industry solves problems, starting to shift from, “Hey, I have an issue, let me go find the functional experts,” to instead starting with what we can build, “I’ve got an issue. How can I start with software as a solution rather than having to go hire a bunch more compliance and marketing and underwriting kind of employees?” So, I actually think that’s the notion of InsurTech as a way to solve problems and evolve the industry.
I hope that stays relevant forever. But then the other, more substantive question, less about semantics, is the maturity of the start-ups, in particular. And, there again, I would probably respectfully disagree with Mark in the sense of the first wave of InsurTech start-ups. Yes, they’re starting to mature, they’re starting to, as I said before, become meaningful for the industry. They’re starting to matter. Both for the end customer and for the industry that’s starting to leverage some of the InsureTechs’ products. But this ought to be a case where we see wave after wave after wave. So, there’s still lots of interesting new InsurTech companies being founded and being funded in 2020, just like there were in 2017. And I expect there’ll be more being founded in 2023 in 2026.
So, in a sense, yes, today’s cohort, today’s class of InsurTechs that were launched, three, four years ago, they are starting to blend. I would agree with that. But I also think that we’ll have entire new cohorts, that we’ll get to say, “Oh wow, they’re doing something really interesting. I don’t know if it’s going to work, but it might work. If it does, it’s going to have an impact on us.”
Ron: I’m with you. And I think that it’s funny you said that. I was smiling as you were talking. I also am a big fan of the word InsurTech and I also sort of hope it doesn’t go away, but I do expect that the companies that we consider InsurTechs will change. I think I wouldn’t be outrageous in saying that Guidewire is definitely like a tier one software vendor at this point, not really an InsurTech. And I hope many companies grow to become as successful as a Guidewire, have an IPO and become multibillion-dollar behemoths that people want to invest in because they believe in it. So, in your opinion, what risk does an insurance company face by not transforming how they conduct business today? Let’s say in 20 years they’re still doing the same. What is the risk of that?
Caribou: You know, that sort of reminds me… I’m going to dial the clock way back for myself here. It’s my first year of business school in the entry level marketing class. And I remember the professor talking about the four Cs of marketing, and I’ll probably misquote them a little bit, but it’s something like channel, customer, convenience, and cost. And it’s like, well, those Cs are evolving. And they have been evolving and they will continue to do so, right? I think about channel, like that’s almost too easy.
Like, you know, I’m not saying that direct mail or TV are dead. They’re not. But like, yeah, there’s this little thing called Facebook and there’s Snapchat and, oh, yeah, maybe Google, like there’s new channels and you kind of have to go where the customers are going.
You think about convenience, like the expectations about what the insurance industry enables in terms of convenience on my smartphone are very different and will be very different from what expectations were 15 years ago in terms of customer service and when, when and how will I be able to get information about my policy. Before there were smartphones, there was the web which brought different expectations around being able to do some self-service, Hey, I just want to see what’s covered and what’s not. Oh, you can go to your smartphone, check out your policy coverage versus before, “Oh, I want to see what’s covered, I have to wait till my agent is open. And give them a call tomorrow between nine and five.” Like that’s a difference of convenience. And over time the norms change. People’s sort of table stakes expectations around these things change.
The cost is changing too. What I mean by that is there’s a fair bit of efficiency that can be applied with technology, Whether it’s shifting the tech platform to the cloud to create sort of just basic efficiency, whether it’s automating some of the back-office processes, shifting, you know, from pieces of paper to PDF and then PDF to structured data – that has the opportunity to take cost out of the system. And at a certain point, the customers are going to expect that and demand it.
So I think anyone who stands still even in the insurance industry, which has been described by some as a little sluggish at times, anyone who stands still is going to get left behind by the others who are embracing the different technologies available in order to evolve their four Cs.
Ron: And when you think about this, because a lot of people are also talking about, you know, fear of AI replacing human workers, how do you see AI automation? Like does it make sense that people see it as a competitive or do you get the feeling that this is an opportunity to actually enhance and improve the industry and maybe drive down costs, as you talk about, and introduce other efficiencies, or is this really just going to be a play for companies to reduce their labor force?
Caribou: Well, I’ve had the chance to think a fair bit around the impact of AI on the future of work. Really, I mentioned at the beginning, I’ve been involved in helping to launch an event, an industry conference focused on the impact of technology on the future of work called HR Transform. So that’s going to be a little bit of a visibility there. Look, I like actually starting with really mundane examples around this, and when you think about the future of work, it’s not even like how I get my work done. It’s like, “What is my experience as an employee?” Today, if I’m at a Fortune 1000 company and I want to figure out, okay, how do I change my beneficiary designation on my 401k? Like how do I find that out? Do I literally have to, you know, email or call someone in HR to find out the answer? Well, in some cases you do, but that’s actually, you know, a very basic white-collar sort of task, white collar labor to get the answer to that HR question. And that’s the kind of thing which AI can be applied to and is getting applied to like literally internal, you know, corporate HR system searches to be able to improve the employee experience itself. Now, less mundane, more about the actual work that happens in insurance, you know, think about the combination, particularly of AI and the smartphone. The smartphone is an amazing data collection device. All these sensors, top-notch camera and oh, by the way, you can send the information, you know, over the air. AI can then make sense of a lot of that.
So, think about how the smartphone plus AI lets an insurance company start to outsource more of the work actually to the customer, Or to the combination of the customer and a computer.
So, if I have a claim, I’ve got into a car accident, I don’t necessarily have to send a human adjuster to go collect the data and evaluate it. I can ask the customer to collect the data using this smart phone. And then in many cases, the AI can evaluate it. Like that’s got a real impact there and oh, by the way, back to the four Cs, that’s a nice improvement on both convenience and cost.
I think about it in the broadest terms, like the industrial revolution was replacing physical labor with machines. The AI revolution is replacing mental labor with machines. So, yes, I think that certainly does, in a creative destruction kind of way, take away certain existing jobs. And what we have to sort of hope and strive for is that in the same way that has happened with the industrial revolution, that actually creates an improvement in aggregate standard of living. And then, secondly, that it creates opportunities for more jobs in the future. But it’s not a trivial issue. And you know, even if it goes well, there is a lot of pain and struggle for many individual people in that transition. I wouldn’t want to minimize that.
Ron: Totally makes sense. So, to wrap up, we love to ask our guests one final question. And for you, it’s going to be a little different. What can we expect at InsureTech 2020? What’s new this year?
Caribou: Well, we are really proud of what InsureTech Connect has become and we want to make sure that it continues to be really high value for everyone attending. So that starts with some of the content on stage, we’ve already been starting to sign up some of the C-suite kind of speakers. I’m really excited to say that we’ve got the CEO of Prudential, who’s going to be speaking on the main stage. We’re also making sure that we’ve got a really good balance between the life and health, the property casualty, the commercial side. So, making sure that we have the right balance there is important. This is a big tent event. And so, it’s very important to us that it has something for everyone, really every category of insurance, and every part of the value chain. And then I’d also say, look at the expo hall, anyone who was there this past year, I hope was kind of wowed by the expo hall. And it reveals when you walk into it like how much innovation, business model, innovation, technology, innovation from the start-ups, from the incumbents for the brokers from the insurers is happening. We want to take that to the next level. So really, we have more space allocated to that. And, and I’m not a guy who normally likes the expo hall, that’s not normally the reason I would go to a conference, to see what everyone is pitching in the expo hall. But I think for InsureTech Connect, it becomes part of the selling point, one of the key experiences. So, we want to make sure that there’s even more for people to explore and discover at ITC.
Ron: Thank you guys for listening. That was our episode with Caribou Honig, Chairman and CEO at InsureTech Connect and Co-Founder QED investors.
That’s a wrap for this episode of “AI Wisdom” hosted by Chisel AI and me, Ron Glozman. Thanks for listening.
Join us next time for more expert insights and straight talk on how AI and insurtech innovations are transforming the insurance value chain. See you on the next episode!