On this episode of the “AI Wisdom – Talking Innovation in Insurance” podcast, host Ron Glozman speaks with Lex Sokolin, futurist and FinTech entrepreneur about the key technology trends that are impacting the insurance and financial services landscape including blockchain, autonomous vehicles, and augmented reality. Lex is the Global Fintech Co-Head at ConsenSys, a blockchain technology company building the infrastructure, applications, and practices that enable a decentralized world. Lex focuses on emerging digital assets, public and private enterprise blockchain solutions, and decentralized finance and autonomous organizations. He is a contributor to the Wall Street Journal, the Economist, Bloomberg, FT, and Reuters, among others. Click the link to listen or read the full transcript below.
Get our viewpoints delivered to you inbox
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.
The internet has taught us to expect lightning-quick responses. Companies like Amazon, Zappos, and others deliver an exceptional customer experience that we now expect to receive from all our online and offline experiences, and insurance is no different. Even though insurance has traditionally been classified as a low-engagement transaction, customer expectations are changing and quickly.
Consumers who purchase from Amazon and others are bringing that high touch, fast response expectation into the office environment and are expecting the same type of service from their insurance brokers and carriers. Today, I'm joined by Lex Sokolin, futurist and FinTech entrepreneur on how AI will impact the insurance industry in 2020 and beyond and why AI is good for the insurance industry. Lex, thank you so much for joining us. Do you mind introducing yourself?
Lex: Absolutely. Thanks for having me. So, I've been a FinTech entrepreneur for a little bit over a decade. Today I am the global FinTech co-head for ConsenSys, which is a blockchain software company that is in large part focused on enterprise finance blockchains, digital assets and other solutions for financial services. In my prior roles and career, I've done everything from building out robo-advisors to equity research practices, lots of things hands-on. And I write a newsletter called the "Future of Finance Today" which you can check out as well.
Ron: Awesome. Well, I'm very excited to have you here, so let's just jump right into it. When you think more specifically about the financial services industry today, what is the biggest challenge that, you know, people are talking to you about?
Lex: I think in 2020, the biggest challenge for financial services is actually just how much of it there is. If you want to open a bank account or if you want to open an investment account or if you want to, you know, borrow and get a mortgage or a home equity loan or choose a payment, today I think there's an oversupply of providers, whether they are financial institutions or FinTechs or other emerging tech players.
And so being able to cut through the noise and articulating why you are the one from whom the product should be purchased, I think is one of the core issues that the industry faces today.
Ron: And you mentioned that you guys do a lot of work on the blockchain side. Have you seen that over the last couple of years there has been more interest in it or would you say... because I worked for Manulife in 2013 in the U.S., John Hancock, and I built them an app where people could actually pay for their life insurance premiums with Bitcoin and, you know, seven years later they still haven't put that on the market. So, do you see that sort of the hype has died down or do you think that it's as alive as it ever was?
Lex: I think there is a confusion that tends to persist around digital assets and crypto assets and infrastructure and that's a sort of confusion or a difference between the asset class itself. So should I have in my portfolio some exposure to some particular investment idea, whether that investment idea is the macro global thesis around Bitcoin and being an alternative to fiat currency or whether that investment idea, something around early-stage venture capital and, you know, a token being an alternative to a venture capital investment, that on its own is one bed, it's one thesis around how do you form a portfolio and how do you select particular exposures to particular sort of investment themes, which is very different from how the operating infrastructure of the various industries can be built.
And so you have, you know, in certain cases you have Payment Rails, you have payment processors like Worldpay, you might have core banking systems like Jack Henry or Fiserv, you might have portfolio management systems, you know, within insurance, you might have claims assessment or underwriting engines. And the infrastructure layer and the rails supporting this industry, I'd say is where a lot of blockchain focus is today and so that's rethinking how business processes are performed across industries.
And then, number two, how do you think about tokenized assets that can travel on new and improved infrastructure? You know, that said, everybody is still quite a way from the platform shift being, you know, very existential, but it is one of the more interesting things that's happening today in FinTech.
Ron: I love that. And you're totally right. I mean that's a very good distinction that the core technology is a distributed ledger at its sort of core and the Bitcoin is the monetary asset. Now I was just doing some research because I remembered reading about this but Maersk, which is one of the world's largest shipping or sort of reinsures for the shipping industry, actually uses a blockchain ledger to track the cargo. And so, what they can do with that is they know basically what's in the container, where that container is at any time.
And in fact, and I remember hearing about this at a conference, so I don't have as much clarity as I would love on this but if I'm not mistaken, they even said that they have an IoT device inside that is a temperature sensor and so when you're shipping goods that require specific temperatures, that sensor would actually go off if the temperature, you know, dropped or when too high or too low depending on whether it's cold or hot, and it would actually notify them and kick off a claim right away. And so, I think they're probably the first example that I've seen and I'm curious if you have heard of anybody else doing something like that?
Lex: There are quite a few different cases in production today. I think the global trade use case is one that's seeing quite a bit of repeated interest. And so, you know, I don't necessarily want to get on the blockchain versus Bitcoin debate. I think there's a broader story to tell about what you put into...it's not necessarily just the ledger, it's, you know, what are the instruments that you put on it. So, what is it that you're tokenizing, and then which markets and technologies are you applying on top of those tokens and so on? So, I do think there's a natural kind of maturity curve from operating efficiency to, you know, some particular investment.
But if you think about global trade, companies like IBM, like ConsenSys where I work, and then others like R3, they're all very interested in building out consortia where you're doing both the tracking of the goods, right? So you might have a QR code, you might have an IoT device, whatever is the most affordable way to figure out what the object is, and then you have essentially a shared data set across all the participants in a supply chain so they can negotiate agreements, they can make financing decisions as you move across the supply chain. You can, you know, move money in and out relative to the particular goods as they're moving along and provide banking services, provide insurance services, all of the above.
So, there are a number of things in production. The one that ConsenSys has done is called komgo with a set of global banks around it. But I would say the place where most of these are in terms of what it is that they're actually buying from blockchain is shared information. So, they really are today just trying to have a mutualized set of information on top of which they work but has lots more to do.
Ron: Love it. It's funny, and we'll wrap up on this, I don't think I've shared this on podcasts before, but when I got into Bitcoin, which, I'm with you, is different, I was able to mine it on my CPU at half a Bitcoin a day and I exited at $10 a Bitcoin. And I won't even tell you how many I had. And it is by far probably one of the biggest mistakes I've made to date! So, on that note, what are you most excited about in 2020 And more specifically when you look at...so it's a new decade and you look at the last decade and this decade, where do you think the industry is gonna go?
Lex: That's a hard question. I think, you know, there's some macro trends that are driving FinTech investment and InsureTech investment and sort of this like over glut of supply of different solutions. And then on the other hand, we have what's happened with WeWork and Uber and Funding Circle which is going public reveals your economics and that's pretty challenging. And, you know, have pretty, pretty sharp valuation falls for these startup companies. And especially in the context of the global economy right now where you have an expected sort of GDP slowdown of maybe 1% or 2% depending on the geography from coronavirus and sort of like the fragility of the macroeconomic tapestry, given where interest rates are and so on. There's a lot of fragility built in.
So I think, from a macroeconomic point of view, if you are an InsurTech or a FinTech or if you're in blockchain, I think what you have to focus on, as a young company, is the sound business sort of principles of generating cashflow, being profitable, and figuring out what value you actually deliver. And that's not a super exciting message but I think, realistically, that is where a lot of companies have to be today. At the same time, you have to figure out how to be creating exposure to the platform shifts that are coming.
So, we know the platform shifts, we've talked about one of them. The others are things like really embedding artificial intelligence and machine learning, you know, not just on sort of super-powerful servers that can recognize cats and dogs but pushing it out into the edges of our devices and into our commerce and into our residences and so on.
So, I think watching where the vanguard of artificial intelligence takes us is super interesting. There's lots of implications on the economy and that means there are corollaries for the various financial services that touch these firms as well.
So, I'm very much interested in that frontier. And then the other frontier that I'm watching is around augmented reality. And I think people just underestimate how embedded that is becoming into our lives given that every single phone is now AR-enabled. And so, while there's no killer use case yet, that's another place that I'm really excited about.
Ron: Love it. You know, when I think... Because there's a big difference between AR and VR. And so, for those that don't know, VR is virtual reality. You put on goggles and it creates basically a 2D or a 3D like effect, but it masks your vision. AR is augmented reality, so it's typically a clear lens and you can see through the lens and there's typically some type of heads up display. And the most common example of that would be something like Microsoft HoloLens. And so, when you think about, you know, something like a Microsoft HoloLens, what would you like to be able to do with that?
Lex: Sure. I mean, if we're anchoring back into the insurance industry, the types of things that I think are telling us what the world may look like are, you know, claims assessment software where a user has damage to their home and they take a bunch of pictures of the water damage and those pictures are sent back to an agent and sort of reconstructed into a 3D model and a digital twin of the home and overlaid. And so all the measurement and interaction with that particular incident is taking place in sort of a rendered environment which arises from the physical environment but at the same time, sort of like the process of manufacturing the financial instrument, which in this case is sort of the ongoing insurance risk and the rates at which people get paid out and things hit and so on and sort of like improving the efficiency of that, to me is really interesting.
So, there is I guess this line between the physical world becoming digital and rendered and that touches on the example I gave but it also touches on, you know, Google is scanning the entire environment into 3D maps so that its cars can be self-driving. And then the opposite, which is the digital world becoming physical and that's more the sort of projecting rendered models onto the physical world, right? So Pokemon Go is the go-to example, I guess, pun intended.
Ron: So, we're gonna take a quick 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.]
We're back with our featured guest, Lex Sokolin. Let's jump right into the next question. In your opinion, what is the risk of insurance companies not transforming how they conduct business today to meet the changing demands of the market?
Lex: It's not an easy one to answer especially depending where you sit in the insurance industry especially for products that are very rare to take out and very sticky and hard to change a policy. I think many operators don't see risks or they think it's okay to run a large cash cow business and even if growth rates are under pressure, it's not gonna happen in the short term. And that's a very difficult kind of set of perceptions to work against.
I would say the main argument has to be about fragility and about how quickly the world is really changing. We've seen multiple industries really bottom out once the thing they manufacture was digitized inside and out.
So, you know, for music, once the CD became an MP3, the sort of manufacturing power of the labels went away because I could send you anything for free. Once Google was able to sit on top of all of the free content on the web, the publishing power of, you know, the various book publishers and so on, again collapsed because the actual content was free to manufacture, all you had to do was index it. And you can go through cliché example after example to talk about what happens when your value chain and the core thing that you make becomes essentially, you know, marginally free to make.
In finance, that has been a longer journey for a number of reasons. Finance is much more closely regulated, which means it has a relationship with sovereign power and it has a relationship with government that is different. If a number of music labels are unhappy about piracy, they're gonna sue some teenagers and maybe take them to court but they're not gonna really flex as much as a central bank that's upset about, you know, a misuse of assets and who can print currency and things of that nature. And so, for this reason, finance has been a lot slower to change and has been very incremental.
That said, what we're seeing now is sort of the beginnings of the cracks in the industry. There are now multiple FinTechs that have a multimillion person footprint, you know, 10 million people using Robinhood, I believe, 5 million people using Revolut, millions of people using Lemonade, and hundreds of millions or even billions of venture capital behind growing out that footprint.
And so, what's happening is kind of a generational capture where the brand value, the brand equity that used to sit in sort of the esteemed manufacturer of financial product is trickling away into things that just live in your phone. And so, you know, the human touch and the physical infrastructure are all losing their value as people get attached to new brands and it's just a simple outcome of spending and smart design.
And so the best finance firms have tried to keep up by also offering similar competitors, so for Goldman Sachs, that's something like Marcus, for JP Morgan, they've got neobanks and they've got payments apps and trading apps for Schwab, that's their robo-advisor. So, you see a number of incumbents trying to keep up. If you're in the middle, if you're not sort of number one through five, you're in pretty deep trouble. You're in a fragile state where, once the generational shifts begin to really kick in, that middle part of the industry starts to, you know, hollow out.
And so, for insurance companies, unless you want to just turn into a low-cost utility provider of risk capital, what you have to think about is, you know, what are the technology trends for how consumers interact with the economy. You know, do they expect embedded insurance along the value chain the same way they get loans and payments embedded into their shopping experiences? Do they expect more flexibility? Is there an expectation of data and transparency? And so, there is no option to ignore these things because whether or not you acknowledge them, they're gonna happen and we already see, you know, several multibillion-dollar exits focused on these themes.
Ron: It's so true and so powerful that, you know, you always have to be innovating and staying up to date. And you know, I love some of the examples you gave like Google being able to sit on top of all of the free content on the internet really took away the power from the book publishers. And I would say Amazon did a very similar thing as, you know, they started with books and they really got a hold of that market.
Now it's interesting that you mentioned Robinhood. They had a big power outage last week on one of the biggest days ever in history. I think the market popped more than a thousand points and they were unable to process any transactions losing billions of dollars for their customers. Do you have any thoughts on what that does? Like how that impacts customer trust? Because where I'm going with that is I don't think a JP Morgan or Chase would do that, although maybe they would.
Lex: Sure. I mean, I can give you an example... Oh boy, what was it? It wasn't Metro Bank, it might've been RBS or NatWest, I forget exactly who in the U.K. launched a Neobank competitor about half a year ago, you know, and they rolled it out and they put it on a completely new technology platform and they turned it on and then they had like a two-day power outage where people couldn't access their money. Or to give you another example, I think it was Chime which is a digital bank in the U.S. mostly for, you know, providing credit, had an outage on its underlying API provider called Galileo, which again, left people who are unfairly vulnerable, underbanked type of circumstances, left that group of customers without access to their money or credit for I think a day and a half.
And so, it happens across new brands and existing brands. It likely happens more on new brands for sure. Do we know if it is inconsistent with Robinhood's brand attributes? You know, I don't know. I'm sure that people are upset that they couldn't trade on Robinhood when the market went up and that's a public image issue that they're gonna have to fix or somehow explain or, you know, make people whole somehow.
At the same time, like, if you're twiddling back and forth stocks on Robinhood you're probably not looking for the most trusted Swiss Bank fault, you know, so it might not be as damaging as if you were expecting UBS to do something and then UBS profoundly disappoints you. So, I think it remains to be seen, but obviously disempowering your users is never good and they have to take the right next set of steps and a mature set of steps to remedy that.
But we've seen folks survive, right? So, if you look at SoFi or LendingClub, all of which continue to be within the FinTech community, systemically important, but have had issues with founders and reputation and still were able to get through it.
Ron: That's a very good point. So, we've talked about a bunch of different technologies so far. We've talked a little bit about distributed ledgers and blockchain. We've talked a little bit about augmented reality, virtual reality, talked a little bit, sort of briefly glanced on AI in general, you know. When you think about what is gonna be the greatest impact, where do you think...like, what technology is gonna move the needle the most, or maybe a combination of technologies?
Lex: You know, you have to have a really specific framework for what it means to move the needle.
What I expect is that people won't notice any change actually happening. You know, this is true, for example, for AI, like when you log into your bank today, most likely you're using facial recognition on your iPhone from three different cameras to run a neural network or multiple in real time to authenticate you in order to log you into a bank app. So essentially, you're a customer of Apple that's using machine learning to give you financial services. And it's so natural and boring to us that I think we just don't notice it anymore.
So, you know, when you look forward 20 years, my guess is people are gonna say, nothing happened, nothing's really changed, nothing is exciting, we're used to all of it. And I think what it's gonna look like is just a whole lot of financial services that are all basically free, that the cost we assume goes with finance like the cost to send a payment or, you know, to power a transaction or to pay a commission or to give a percent for underwriting or, you know, to pay some risk interest rate, I think a lot of those costs are gonna collapse over time and that'll be the biggest net impact is that for a consumer that's navigating a financial journey, she will just have a ton more choice and a ton more control.
And then how you get there is, you know, is a combination of the various pieces we talked about, whether it is opening up data through data aggregation or whether it is building thinking machines on top of that data with machine learning or whether it's anchoring all of that into, you know, networks that can run the software like Ethereum and other programmable blockchains. I think all of those are different attacks that will lead to a very similar outcome.
Ron: So, one thing that I would love to get your thoughts on, there's a lot of people who are worried that, you know, AI will replace human workers. And it doesn't necessarily have to be AI, like even a distributed ledger could take away a huge chunk of jobs. Do you see it as something to worry about?
Lex: Yes, for sure. I think so. I did a fairly granular dive into this topic when I was at Autonomous Research and something like 20% of all financial services revenues were eligible to this risk where people were in jobs that could be either replaced or augmented or be made more efficient by AI.
What we don't know is whether 20% of jobs will go away or whether those 20% of jobs will now become a lot more productive and people will be just doing more. They will not be doing the rote, uninteresting things, but contributing to something that's a human task, not a robot task.
And so, when I think about, when I think about having AI in the workplace, you can think of it as kind of like a companion that gives you the draft. So it'll do the work, maybe 30% or 60% of the way, it'll reconcile information and it will give you initial recommendations, which might, in the beginning, seem naive, but will get better over time and it will do these things very incrementally. And so you will have more capacity to do the things that make a difference which is either, you know, talking to your clients or persuading, you know, your management team or telling the story in a better way, things that are not meant to be automated away and that still require a human voice.
I think the danger is not the software because the software will come and there's no way around it, I think the danger is people's reactions. And so if somebody takes the point of view that this is a threat and because of that it needs to be fought or, you know, you shouldn't want to learn it or you shouldn't want to change what you do, I think that's the biggest threat because if we're not furious or if we don't have courage and interest to get around this change, that's where things will fall apart and, you know, people will likely be unhappy and lose their jobs.
But if we find ways of using the software to become more of who we are and essentially to extend our capabilities which in large part you use automation for that today, but in this case, you could really, I think, multiply that by a hundred, you need a commitment and a capacity to learn and I think that's gonna be quite challenging for many people.
Ron: I love what you said early on, which is that there's...well, there's probably more than two ways, but what I heard was two likely ways is either people become more efficient or people end up doing the more interesting work. And I'm wholeheartedly of the opinion that both of those things are what's likely to happen. And I've even seen it with some of the people that we work with where they have a huge population, statistically speaking about 60%, I believe, of people in the insurance industry are over the age of 55. And so there's about to be a huge wave of retirement which will leave a lot of work because, unfortunately, there aren't enough people coming out of university with skilled labor for the insurance industry and so it's not an option for them to be more efficient, it's a necessity.
And on the flip side, part of the reason that nobody wants to go into insurance is because, I mean it's, you know, unsexy, like at least from the outside it appears unsexy. And so again, if we could automate some of the routine, mundane work and offer these people more interesting work, to your point, I think that will also solve that problem. So, I'm a big believer that we don't really have too much to fear, I'm more optimistic than I am afraid. And so, to wrap up, I would love to ask if there's one piece of wisdom that you would like to share on any topic with our listeners?
Lex: Sure. Sleep and take care of your body. But outside of that, I think one rule that has worked for me is to be a net producer into the world. You know, so we all make things whether it's writing or podcasts or visual arts or music or companies or spreadsheets, whatever it is. And then we all consume things. So, we consume media, we consume other people's articles, we consume other people's podcasts, other people's music, other people's spreadsheets and so on.
And if you just keep vigilant about that line between how much you make and how much you consume, because when there is endless content and an endless set of other people's thoughts, you can get drowned out and lose yourself. And so, you know, my recommendation would be to try to be a creator, net, and, you know, not forget what you're able to do.
Ron: You hear that folks? Words of wisdom right there. Lex, thank you so much for taking the time. If people want to find you, are you on Twitter or LinkedIn? Where can they find more from you?
Lex: Sure. You can check out my Twitter, @LexSokolin or if you want to read my FinTech newsletter, that will be at lex.substack.com. And then of course for anything around ConsenSys and commerce and decentralized finance, check out consensys.net.
Ron: Awesome. And just for those, it's spelled L-E-X S-O-K-O-L-I-N. ConsenSys, just in case people don't know how to spell it, do you want to spell that out?
Lex: Sure. It's C-O-N-S-E-S-Y-S. There's a lot of S’s. It's ConsenSys with a Y. We're all in agreement that there's a Y in ConsenSys.
Ron: Sounds good. And you can always find us @ChiselAI on LinkedIn, Twitter. And you can follow me personally @RonGlozman on Twitter and LinkedIn. Thank you so much for tuning in this week. We'll see you again soon.
That's a wrap for this episode of “AI Wisdom” hosted by Chisel AI and me, Ron Glozman. Thanks for listening. If you like our podcast and want to hear more, check us out at www.chisel.ai or tune in and subscribe wherever you get your podcasts: SoundCloud, Spotify, iTunes or Stitcher.
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!