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WORKS
[ STRATEGY ]
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PROFESSIONAL ANALYTICAL
RESEARCH PAPER
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TITLE: "The
Inefficiency Paradox – Making Sense of the Insurance Industry"
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EXCERPT - Section
2.4
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Press the
Reset Button - (5) Value Propositions for Updating Insurance Distribution
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The “Insurance Value-Chain” industrial framework collapsed his year as a result
of the impact of the economic crises. The insurance value-chain was the series of
interconnected business and regulatory systems-processes designed to produce and
distribute insurance to society. The value-chain construct was fine-tuned for its
time and ultimately unable to cope with the reality of new global challenges. Challenges
including a severe global economic recession, as well as, major advances in information
technology. The value-chain is survived by a new style of business architecture
capable of resolving 21st century industrial challenges. Value networks will supplant
the value-chain. Value networks are a robust and flexible economic model consistent
with the independent intermediary business model. The difference between a value-chain
and a value network is significant. The old value-chain construct depended on linear
sequences of static, siloed ‘processes’. A value network, instead of processes,
depends on “services”. Services that are loosely-coupled, dynamic, autonomous, configurable,
composable, reusable and interoperable.
What happened was the chain got in the way of new opportunity. People trying to
earn a living and/or maintain a standard of living in the value-chain industry model
were too tightly-coupled to the processes of the chain and forgot what insurance
stands for. They were all too solemnly wrapped up in silly shopkeeper issues and
they missed the serious architectural shift to providing services in a value network.
It’s time to press the reset button. Accordingly, here are (5) bold value propositions
upon which to update insurance distribution.
Not Being A Turkey (Value Proposition #1)
The framers of the old insurance value-chain structure argue that the future will
be like the past, only more so. It’s important to know where these people are coming
from. The framers are people located in the various insurance industry associations,
standards organizations, public relations, media, and advertising firms, including
any lobbyist, vendor, analyst, consultant, politician, regulator, academic, consumer
advocate, etc. The framers, to maintain their standard of living, need the operators
to keep operating the value-chain framework. Toward this end, the story they continue
to tell is a fallacy. A particularly expensive “narrative fallacy”. The story
is twofold; a) the notion that people can still earn a living and/or maintain a
standard of living operating the processes of the chain, and b) the notion that
if operators dig deep enough into the framers bag of economic tricks, they will
invariably find "solutions" to whatever challenges come their way. What
is true - is in the past, people could count on a limit to the variability of the
risk of trying to earn a living by working the insurance value-chain. Those days
are long gone. Value-chain operators are now subject to the same extremes in economic
life as the extremes of traditionally high risk ways of earning a living. The problem
is the more ‘information’ remaining value-chain operators obtain from the industry
framers, the less informed operators are about the reality of the extreme situation.
Like a turkey getting fed before its head gets chopped off.
Being Green and Patriotic (Value Proposition #2)
The old insurance value-chain architecture wasn’t green or patriotic and it was
running out of product anyway. The contradiction is, at the same time civilized
society is optimizing itself to decrease dependence on oil, the insurance industry
value-chain structure is designed to value massive consumption of natural resources,
especially oil. It’s common sense now that an oil-based economic framework is a
moral hazard because it strengthens our adversaries and endangered the planet. The
efficiency story solemnly articulated by the value-chain framers to address the
moral hazard, was always and continues to be, a cynical tactic masking a delay strategy.
A strategy that has played itself out. The maximum amount of damage that could have
been done - has been done. The good news is the unsustainable value-chain construct
is being supplanted with a new industrial economic framework called 'value networks'.
Value networks are natively designed to offset moral hazard through resource efficiency.
Consistent with moving the industry forward based on being sustainably green and
patriotic, here’s two bold insurance industry proposals; a) update insurance underwriting
practices to factor in energy efficiency, and, b) since operators of the value-chain
have a skilled workforce already in place, add a carbon credit brokering business
to the value proposition. Otherwise as the old value-chain remnants finally collapse,
those remaining operators are going to be experiencing an increasing amount of cynicism
and negativity each day. The alternative being people waking up in the morning and
having something green and patriotic to do that makes sense.
Have a Standardized User Interface (Value Proposition #3)
This particular value proposition, standardizing the insurance distribution user
interface, is the easiest to technically implement, yet still seriously difficult
because it requires cultural sacrifice. Easy because; a) standardizing the user
interface is just an implementation detail, and, b) framers of the old value-chain
will likely offer less resistance to this value proposition than the remaining operators
will. Still, this value proposition is seriously difficult because of cultural accident.
The accident was, framers and operators of the old insurance value-chain successfully
co-opted internet technology and utilized it with a storekeeper mentality. That
was waste of good technology. Internet technology is not just about providing a
storekeeper in a value-chain with a storefront. There is a remedy.
Here’s a bold industry proposal. The easiest way for insurance industry operators
to free themselves from the value-chain and begin to use internet technology to
effectively earn a living and/or maintain a standard of living based on the big
picture is to standardize the user interface (UI) of the insurance distribution
system. A good place to start the UI standardization process is via the W3C (the
Web standards organization). The W3C recently announced new guidelines to help web
developers create online portals that better meet the needs of users with disabilities
and with older users. Makes sense, but whoever is going to champion this initiative
better prepare for ferocious kicking and screaming as value-chain operators realize
they no longer need to express their opinion about visual trivialities and instead
need to focus thought on providing complex, abstract business services within dynamic
value networks. Standardizing the insurance distribution user interface is the sacrifice
remaining value-chain operators need to make to free themselves from the tyranny
of the chain processes.
Have a Standardized Data Model - Seriously Expand Markets (Value Proposition
#4)
This value proposition is probably the most technically difficult one to implement.
Standardizing the insurance industry data model (also called message schemas) is
a seriously problematic activity. However, it could be seriously productive in terms
of effectively expanding markets if done right. Done right means out of the hands
of the framers of the old insurance value-chain. In addition to expanding markets,
in the 'process' of solving the insurance industry data model problem, a
whole lot of old and wasteful insurance distribution problems and solutions are
rendered moot.
Here’s a bold proposal; solve a new problem - start with microinsurance. Endeavor
to normalize the complexities of message schemas for insurance reporting purposes
in developed countries, by starting with an endeavor to define the simplest possible
canonical message schema for microinsurance. Microinsurance distributed to the global
working poor in the informal economies around the world. Effectively expand the
insurance marketplace to three or four billion people by resetting the basic message
schema for insurance services with the simplest possible data elements, in the most
transparent form possible and based on how the people at the very bottom earn a
living. Include the global working poor into the insurance industry value proposition.
Solve the problem of helping insurance industry operators in the developed economies
maintain their standard of living by helping people in the informal economies in
underdeveloped countries earn a living. Standardizing the insurance industry data
model based on microinsurance will resolve in enabling all the various administrators
of insurance schemes to efficiently communicate/report insurance data globally throughout
all the value networks of insurance services.
Provide / Consume Interoperable Services in a Value Network (Value Proposition
#5)
Value network architectures are collaborations which require a business "service"
approach and a focus on interactions, configurability, coherence, objectives and
interoperable interfaces to those services. A value network industrial architecture
is aligned with new opportunity for independent intermediaries. The old value-chain
industrial structure is not aligned with new opportunity for independent intermediaries.
The old value-chain construct; a) limited the ability of independent insurance intermediaries
to evolve as business entities in an increasingly globalized, complex, interdependent
business world, and b) dictated simple, linear, process mentality type values -
where each intermediary does their own bit, with limited responsibility and autonomy,
then passing the bit on to the next one. The problem is the current business world
environment is all about complex sets of social and technical resources in collaborations
to deliver value, not simply about processes. Industries can update the representation
of the entities under concern every once in a while.
Above are (5) value propositions for updating the insurance distribution system.
People who still fashion a story or operate in old insurance value-chain mode to
earn a living and/or maintain a standard of living, can use these value propositions
to make sense independently and for themselves how to transition their businesses
to the new economic model opportunities of value networks. Value networks based
on insurance "services". Pressing the reset button is something individuals
in the industry do for new opportunities, not something they can buy.
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__________________________________________________________________________
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Published:
5 Mar 2009
Format: Word, PDF
Length: 10 Pages
Type: Analytical Research
Language: English
Price: To be determined
Copyright Vinsurance.com, 2009 All Rights Reserved.
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Title Page
- Includes Abstract and Table of Contents
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Copies of the paper are available for purchase by qualified individuals and organizations.
Send inquires to: info@vinsurance.com
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