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Insurance industry allows disruptive technology to flourish

  • Posted on January 13, 2016

Disruptive TechnologyNow that the holiday spending frenzy is over and credit cards are beginning to cool to the touch, I’d like to wind the clock back to the days shortly before there was Amazon, eBay and PayPal. Remember when buying products on the Internet meant going to a web site, locating a phone number and calling a friendly customer service representative who would happily write up your order?

Wow, technology has come a long way.  Today I pay my bills, transfer funds, order gifts and do just about everything else from my desktop and mobile devices.  Technology evolved and solved the problems making it possible for on-line sales to surpass brick and mortar sales this season for the first time ever.  Except that it wasn’t just technology that allowed this to happen….it was a simple, old school insurance policy that unlocked internet commerce.

Back in the day, I was working in Silicon Valley at one of the major credit card companies that was everywhere you wanted to be (except on the nascent Internet).  Smart people saw the potential for the Internet to be more than just a place to share scholarly papers and find out if your favorite chilled beverage was available in the vending machine on the third floor.  The problem though was that few people had much of a sense of adventure when it came to the prospect of getting scammed on a web purchase or getting their credit card number stolen off a computer halfway around the world.  Around this time people started discussing the first wave of crypto-currency schemes and encryption of data in transit and at rest.  These ideas and techniques were meant to make transacting business over the internet secure and trustworthy.  HTTPS arrived on the scene and solved a large part of the problem, but Internet commerce only really started to take off once financial institutions assured users that they would assume the liability if losses were incurred by the purchaser – an insurance policy.  PayPal took the idea of protecting online purchases even further, and as Elon Musk can attest, that turned out to be a pretty good business.

Fast forward to today and witness the next wave of technology disruption about to hit our commercial shores.  The “Internet of Things.”  Simply put, a bunch of clever stuff that can communicate over the Internet.  Not just stuff though, we’re talking about a whole lot of stuff, several thousand times more network entry points even than there are people on earth.  Potentially trillions of things, all jabbering across a global, distributed network vying for attention, and looking for targets.  And looking like targets to the careless, and unscrupulous.

Once more we’re seeing concern over trustworthiness as an impediment to broad scale adoption of these systems that utilize massive and varied types of interconnections.  The concern is compounded when devices bridge the virtual and physical worlds such as connected machinery and connected controllers.  Cyber security specialists today start conversations with the assumption that future open systems will be attached relentlessly and breached frequently.  Mitigation, control of damage and restoration of operations are the key points of discussion.  Will technology come to the rescue?  Sure - mostly, but as was the case with commerce 1.0 on the internet, technology will not solve the problem completely.  Exposure and loss will be a cost of operations just as credit card fraud and stolen identities are today.

So what happens during those periods of ebb and flow when the smart bad guys outpace the smart good guys?  How can confidence and stability be maintained when technology alone is insufficient?   It is a safe bet that insurance will once again step up and play a critical role in unlocking the potential of a massively connected world.  The industry has a long history of being a complementary force enabling disruptive technology to flourish; be it sailing ships, automobiles or online shopping.  In the future, it is hard to imagine a world in which smart cars, smart pills and smart dust can fulfill their potential without smart coverage to keep the wheels in motion.

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