Funny thing about blogging...

The great benefit of blogging, if you set out to write something that you at least hope someone else is going to read, is that you are forced to think carefully about what it is you want to write about.

The biggest problem with blogging is that it forces you to think carefully about what it is you want to write about.

Digital risk part 2 - the beautiful symmetry of uberrima fides...

This is the second post in a series I am writing about how digital risk is different to anything the insurance industry has previously dealt with.  In this post, I discuss uberrima fides, the legal doctrine that governs all insurance contracts.

Interesting result
http://ping.fm/T2Upe

Disclosure is (almost) inevitable; how you deal with it is up to you.
http://ping.fm/XMf3G

This is well worth half an hour

I just read this (from McKinsey) and expect to be thinking about it for some time.

Will insurance ever offer more than risk transfer?

This is the first of a series of pieces I will try to post over the coming weeks on digital risk and its implications for the insurance industry.

1.       Be afraid, be very afraid…

I have just finished reading a report from the Lloyd’s 360° Risk Insight team – Managing Digital Risk, trends, issues and implications for business.  It was produced by Lloyd’s but written by a couple of guys at HP and if you want to know about ‘Managing Digital Risk, trends, issues and implications for business,’ it does exactly what it says on the tin. 

Apologies for quietness..

Been re-reading The Tipping Point - forgotten how interesting it was.

In the meantime, this is beautiful...

A route to true social insurance?

In case you are wondering, social insurance as I am using the term, has nothing to do with taxpayer funded, government run insurance schemes...

The Sunday Times (5/12/10) has an article suggesting that "insurers use facebook to vet lifestyles".  This isn't the biggest surprise I read over the weekend but the article was interesting in that it discussed how studies by Deloitte Consulting "suggest that people's online data detailing their food purchases, activities and social groups can be as good an indicator of their life expectancy as conventional medical examinations."  (I would like to have put a link here but The Sunday Times hides behind a firewall.)

Reading that someone's social graph could provide what I will call an individual risk profile did surprise me however, because it links with some ideas I put together with a friend nearly nine years ago, in a paper we wrote to the Bank for International Settlements (BIS) on the implications of operational risk as defined by Basel II - new banking regulation then first being considered.  Basel II defined operational risk as the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events.

In that report (click the link and download the EWB response), we didn't talk about social graphs but I think we might have been tempted to use the term 'corporate graph' if Mark Zucherberg had coined his term a bit earlier.  We were thinking explicitly however, of individual risk profiles for banks conceived in terms of various kinds of agents (employees/customers/etc) interacting in multiple ways (deals/projects/etc) with all sorts of consequences, some intended, some not.  We added consequences to the profile (our version of the graph) because risk for a buyer of insurance is most readily understood in terms of unintended consequences.

We felt such an individual/unique risk profile was essential in order to be able to understand and deal with operational risk for a number of reasons.  For example, such a profile would allow the entity and its stakeholders (including its insurers) to understand the nature and scope of its operational risk.  We also thought that it was the only way to capture the dynamism of operational risk; we felt this was critical because a snapshot of operational risk would be just about as helpful (i.e not much) as the information in a single annual report or proposal form and because we felt managing operational risk ought to be done in real time, to be effective.  We also thought that, because Basel II was really only interested in the effects of operational losses and broadly uninterested in the causes, any insurance product that aimed to deliver capital mitigating properties had to mirror this approach.  This also meant however, that operational risk could not be transferred in the traditional cause-based silos insurers normally use.  This in turn meant that an alternative framework from which to model operational risk had to be developed, or it couldn't later be sliced and diced - essential to optimising capital.

What does this have to do with the Market Network and my interest in social computing and insurance?

Every buyer of insurance - whether individual or firm - has a portfolio of risks and, like the regulators who conceived the operational risk framework of Basel II, they are more likely to be worried that they might have a loss and its financial consequences than in what might cause the loss.  But when they buy insurance, they have to deal in causes because insurers only sell insurance policies for particular causes - motor, fire or professional indemnity for example.  This means there are inevitable gaps in coverage - to the extent that the coverage is available in the particular policies that fully addresses those risks in the first place.

It seems to me that the hope of 'social insurance' - if such a thing comes into being - will be the ability to transfer the customer's portfolio of risks as a portfolio - without the customer having to think about fitting the pieces of the insurance jig-saw together as is the case now, incomplete as the jig-saw is.  For insurers to prudently accept such a portfolio however, bearing in mind that the basic principles of insurance must still apply, would require the kind of transparency that an individual risk profile based on a social or corporate graph might deliver.

While the concept is theoretically viable, there are clearly enormous practical issues to address - not least concerning privacy - but individuals have already demonstrated they are willing to share information on a scale that would have been inconceivable only a few years ago.  And if the information individuals are already sharing is sufficient to achieve the kinds of aims Deloitte suggests are possible for insurers, transferring the benefit of the information capture to the customer before the insurer might be a benefit worth actively sharing the information for.

Social Networking: The Past http://ping.fm/nseXe

This won't help corporate transparency

I saw this on The D&O Diary.  Ever-thoughtful, Kevin makes a number of interesting points about the posible consequences on corporate behaviour and further, about potential new theories of liability.  


I have no idea whether the papers referred to even exist, whether they really include anything incriminating and whether there is a real threat to their release but the mere potential that the threat exists goes some way to explaining why firms are so leery of social computing and collaboration and the scope and scale of the cultural change needed before corporations will truly embrace these new tools. 


This is just the latest issue the insurance industry will have to deal with for our customers.

This is fantastically scary...

Turning at last to insurance customer issues (this is my first post about an insurance customer, not industry concern), the Las Vegas Review (there is no link here for reasons that will become obvious) has partnered with a firm called Righthaven to sell their copyright interest in articles, after the articles are attached as hyperlinks to blogs.

Here is a hyperlink to the story...

Apparently, Righthaven registers the copyrights it acquires from the Las Vegas paper and then sues the blogs for infringement.  So this very piece, with the hyperlink above, and an edited version of part of the report linked to, is potentially actionable.

With newspaper circulations diving and mass on-line conversations taking over, surely the only reasonable approach for every newspaper is to find new ways of monetizing their existing resources, skills and expertise at leading conversations?

Apologies for what I fear is about to be a miss-quote and also that I can't remember or yet find who to attribute the correct version to but 'you can't control the conversation, you can only join it...'  And not buy the Las Vegas Review, obviously...

(I'll get back with an attribution as soon as I can find it...

  

Been busy reading...

I haven't posted for a few days because I have been trying to finish “The Facebook Effect” by David Kirkpatrick.

As well as telling the story about Facebook so far - it is only six years old, after all - The Facebook Effect is about several other things.  

It is about what Facebook is.  To me, and most other individuals, it is about easily keeping in touch with family and friends.  To David Zucherberg and the team at Facebook however, it is about creating the best platform possible for me to keep in touch with my family and friends.  To those who have already, and the many more who will in the years to come, design applications to run on Facebook (the platform), it can be almost anything they want it to be.

It is also about how Facebook works.  At its core, it is about people; particularly about people sharing - so it is also about data; and it is about how people share - so it is further about transparency; and so naturally, it is also about privacy - and about how people won’t share things with their friends transparently unless there is also privacy.  

It is also about the Facebook effect.  The stand out example is the story of Oscar Morales.  He lives in Colombia, where FARC, a guerilla army, has been terrorising Colombia for years.  One night, alone in his bedroom, he used Facebook to tell his friends that he had had enough of FARC.  Just over a month later, 10,000,000 people in Colombia and another 2,000,000 in cities around the world marched against FARC.  The ‘National March against FARC’ was initiated and coordinated from Oscar Morales’ bedroom.

The common thread is how Facebook works dynamically.  My family may not change very much but my friends do and what I share changes daily.  The other thread is of course, scale; there are over 500,000,000 users and an extraordinarily high percentage (over 50% apparently) visit the site everyday...

You might ask what this has to do with the Market Network; how can the Facebook Effect be applied to improve insurance?  My thinking at the moment is extremely crude but it is simply that both the Facebook Effect and insurance are both about data, sharing - 'the premiums of the many paying the losses of the few' and scale. 

So, I am not just reading but thinking too.  More to follow.

Cloud computing - cultural impact?

Here, a report suggests the US Government is to actively pursue a 'cloud-first' strategy...
  

The US federal government will soon adopt a "cloud-first" policy, meaning federal agencies will be required to used cloud services "whenever a secure, reliable, cost-effective cloud option exists." The announcement came last week from Jeffrey Zients, the government's first chief performance officer. According to the Washington Post, the new policy is part of a broader government initiative to "fix IT."

Thanks to readwriteweb for this.

I have thought for some time that cloud computing will be beneficial to our industry.  At the same time of course, it poses new risks to many of our clients...

Now, this might seem a little simplistic but I don't think the biggest benefits to us will be those most often touted by cloud computing providers - lower capital costs, pay for use, flexibility etc. - as valuable as those benefits will be.   Even the availability of shared information, enabling collaboration is not the key benefit, though I expect we will make very considerable use of this feature.

I think the biggest benefit will be cultural - see 'Tweet This' to understand why I think this is so important. 

Carefully presented, the simple idea that our data and applications will somehow be above us, with a broader and wider view of the landscape in which we operate than we can typically see from the trenches of our everyday work, will help undermine our silo mentality.  It will also make clear that the collaborative processes we use today are very limited compared to what will soon become more evident.

Tweet This!

Earlier this month, I moderated a panel on emerging liability of social media at the annual PLUS Conference in San Antonio.  I promised then to make the slide deck available.  Here are the slides. 

The notes to the slides contain the main points we were aiming to make to our audience, some of whom we expected would be very familiar with the subject, while others would need a more fundamental introduction.

I will post about this again in more detail but I think the two most interesting takeaways for me were about social media strategy.  I should confess, for those who were not in San Antonio, that I admitted during the panel that my interest in social media started long ago with the wider consequences of collaborative technologies for our industry and only later concerned how we specifically address our customers’ concerns – including social media concerns - very real though I hope we showed they are!

Early in the panel, Bilal made the comment "Strategy follows the conversation".  I understood him to have meant two things.  

First, I took him to be stating the obvious point that, unless a firm follows what is being said about it, its business and the environment in which it is operating, it cannot expect to formulate a meaningful strategy.

The second and less obvious thought reminded me of the first time I read the Cluetrain Manifesto.  Cluetrain was an online manifesto (and later a book) written ten years ago (and recently up-dated), which discussed the promise of the Internet as the writers already then saw it.  Though that promise is arguably only now fully emerging, emerging it undoubtedly is.  (I highly recommend the book...)

The basic premise of the manifesto is that ‘markets are conversations’.  ‘Strategy follows the conversation’ in this context means to me that being fully immersed in the conversation, for some firms in some markets, can be their core strategy.

Think, for example, of the LMX market (London Market Excess reinsurance market) of twenty years ago.  There is no space here to repeat all the challenges the LMX market faced but it had relatively few players, all of whom knew each other extremely well.  As a consequence, the market was little more than one big conversation.  So far so good except that the LMX spiral, which got Lloyd’s into so much trouble, was arguably caused by the smarter market operators moving from conversation to conversation, carrying and trading discussion ‘topics’ from one conversation to another.  For those smarter market operators, simply being in the conversation was their core strategy. 

In a more modern context, Bilal described how IBM recognized that people are it's biggest asset and suggested further that the collective knowledgebase is it's main source of competitive advantage.  This makes its ability to be part of the conversation one of IBM’s absolutely core strategies – not just a tactic. 

And as IBM learnt, to make this a successful strategy meant not just providing the technological resources to support IBMers conversing inside and outside the firm.  The key to their success was to promote the culture necessary to encourage and support the conversation.

The second takeaway followed from this.  Social media is often thought about as a solely technological issue.  This completely misses the point - that technologies come and go.  What endures is culture and without the right culture, no amount of technology is going to make a blind bit of difference to a firm’s success at making the most of the new ways that technology is just beginning to let us work. 

It seems to me that this poses obvious and significant questions for the insurance industry.  While different industries will be affected in different ways, the following seems to be one of the key ones for us.  Because of how we structure ourselves, we are a silo-based industry; this is at best unhelpful and at worst, anathema to the successful use of social media. 

Silos govern almost everything we do, from the specific role insurance plays in the wider risk management value chain, to the compartmentalisation of our intermediary and principal roles, to portfolio composition (and firm structures) that aggregates risk more often by type of risk than by type of customer.

This isn’t the place to explore why taking a silo approach is more important and/or understandable in some circumstances than in others but it is a key question we will have to address.  Whether we use social media to create competitive advantage, to understand as much of the who, what, where, how and why of our customers as we can, to re-think how we design and deliver our services or just to make sure we are in the conversation with our customers, I don’t think there is any question that our industry will be major adopters of collaborative technologies, including social media. 

If IBM are right though – that cultural change is a prerequisite of successful collaborative technology adoption – and if our culture is a function of the disciplines and approaches that have hitherto been essential for the prudent acceptance of risk, we really do face the most interesting of challenges...

Social media explained in pictures

Intersection Consulting have created (I am not sure when) an excellent set of pictures defining and describing social media - wish I had seen these before the presentation at PLUS - those slides to follow.

Everything you wanted to know about the internet etc., etc...

This is short(ish), interesting and completely to the point.

Trusted agent...?

Finding and being found on the internet is not difficult; in fact it is all too easy.  The problem is finding what and who you want to find and trusting they are who and what they say they are that is hard.  This will be interesting - and imagine it applied to individuals within markets...

Don't confine me...

I have only recently come across this blog but this post is interesting. 


To my mind, the greatest benefit of the internet is how it helps you find new stuff; what a shame it would be then if, wherever we go, algorithms determined what we had looked at before and just fed us more of the same.

Certainly it’s comforting to visit sites regularly and know what you are going to get; I keep going back to the same pub and coffee shop because I like what’s there and know what to expect. 

But I also like to try new things and to be surprised by them.  But when I go about in the real world and come across new things, I am anonymous until I choose to reveal who I am or my interest in something. 

On the web, my Google or facebook profiles go before me; that’s not just ‘sad’ in the sense of being disappointing but also, it’s frustrating in how it limits what I can find and so limits how I can change and develop precisely because I come into contact with new things…