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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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