How Insurance Enables Innovation

Description: The world’s largest insurance company has taken a new approach to the innovation ecosystem. It is embedding itself into some of the world’s newest industries, and investing extensively in startups. But in doing so, it is leveraging the unique assets of insurance. The lessons for all companies are real.
 
The following transcript has been lightly edited and condensed for ease of reading.
Speaker: Jean-Marc Pailhol, Allianz SE
Interviewer: David Kirkpatrick, Techonomy
(Transcription by RA Fisher Ink)
Kirkpatrick: Thank you so much for being here. Now, your title is head of global market management, but your job is—you’re really a very senior person doing marketing and thinking the strategy of the business. And Allianz is the world’s largest insurer. And in that capacity you have a distinct lens on what’s happening in the world and I wanted to ask you to start, because I was so struck the first time we met, if you would just talk about what you see happening in the world and why it’s different now and what could we expect to happen coming soon.
Pailhol: That’s a great question. ***What we see is quite simple, in fact we are facing now what they call a knowledge revolution and an industry revolution, at the same time I think it’s the first time in the history of humanity that we live and we have to live in this specific world, everything is changing, the access to the information, it’s not here that I have to say that but the access to the information is global, people are—especially the new generation are living a global village. I don’t know if you’ve read the book, “Sapiens” [ph 0:01:26.2], but it’s exactly like that. They share the same culture, they eat the same things, they talk the same language, all of them speak English. So, it’s easy for them to live in this global village so there is a global change, a structural change in society and at the same time there are huge disruptions linked to technological innovations. We have drones in the sky and we have more and more drones in the sky, we have new mobility, new ways to produce energy, new ways to manage the grids, new ways to move in the city, electric vehicles, of course, autonomous vehicles, all the type of vehicles, we have robo-tech, we have AI, we have all the prevention devices and tools we can find on the market now. And I think that because of that we have a huge shift in the society and the change which will be enormous in the next years.
So, I don’t know what will be the next years but what I’m sure, I’m sure that we will face a huge destruction [ph 0:02:24.9] which will have impact on everything, on our current day to day life, on our job, on our business, on everything. And as an insurer we have to be involved in that because the main role of an insurer is not to sell products, insurance products, everybody thinks that an insurance company they’re there to sell car insurance or home insurance or health insurance or life insurance, it’s not our job, we are here to accompany, to enable the change to accompany the people who are there. This is our job. We were built by people—
Kirkpatrick: Your job is to enable the change.
Pailhol: Absolutely. We were built by people who wanted to cross the sea with ships. The safest place for a ship is in harbor but which is not what the ship is built for. And without an insurer you cannot cross the sea, you are obliged to be covered for that. So, our role as an insurer is to enable the changes. So, when you have all this change, our responsibility is to understand what will be the impact of the change, what will be the new risk for these companies, for all these people who decide to change the world and to accompany that, to enable that, and at the end of the day some time to facilitate and exacerbate [ph 0:03:32.8] that. Because we have a direct impact on innovation [ph 0:03:36.5]. I have a very interesting example with scooters. We discussed many times about scooters.
Kirkpatrick: Yes, I’m very skeptical, I’m sure I expressed that to you too.
Pailhol: And it’s very interesting because in the United States you have already scooters everywhere in the streets in the main cities but in France it’s really major because in France the traffic is even worse than in the U.S. and these scooters have a great success. And the problem now they have, the mayor of the city, some of them have decided to stop the service because it’s too risky. So, what did they do, they asked the insurer and by the way we are the insurer, they asked the insurer to work with them to change the regulation. So, because we have the notion of risk and because we know what will be the impact, we can be an actor, a real actor of all this change by shaping, co-shaping the regulation with the mayor of the city or with the government.
Kirkpatrick: Well, since you are the ones that have to assess the risk, you almost become part of the governing process then.
Pailhol: Yes, absolutely.
Kirkpatrick: So, you are—your client in that scenario in France is the government or the scooter companies or does the government run the scooter companies? How does that work?
Pailhol: I think it’s what they call a techno-system, it’s not an ecosystem anymore because it’s based on technology, the techno-system, and in fact you have all the stakeholders working together and because we are sort of a trust-through [ph 0:04:52.8] company, when they say a sort [ph 0:04:55.5], we are PRs at a trust-through company because we are an insurer. Our interest is to decrease—at the same time to decrease your risk and to increase the premium which means that the more scooters we have in the street the more happy we are, but the less claims we have on the street the more happy we are as well. So we are the only ones to be like that. So the city wants to decrease risk and the company wants to increase the revenues and we are in-between. So, we have the best position to discuss with all of them and to make it possible. It’s what happened in Germany also with drones. One drone crashed, it crashed down on a car, it was a great crash and one person died because of that. So, the government says in this case, the government says we have to cover this risk because the guy who was piloting the drone, he’s not covered, he has no liability coverage. So, they asked us to work with them and we have changed the regulation again. And in Germany you are obliged to have insurance when you take a drone from 250 grams to 5 kilos, it’s mandatory now. And we were a part of that and we insure these drones. So, we have a double interest in that.
Kirkpatrick: What interested me, especially when you were talking this way the first time we met, and I’ve mentioned several times during the course of this conference that one of the things that we’re most sort of trying to figure out is what is the respective role of business and government in progress in a technologized age? So, what you’re doing really is an example of the balance of power shifting more toward business because if insurance won’t be present, these systems will not be deployed.
Pailhol: Absolutely, you’ll have no drones roaming the sky in the future, when I say in the future, in the next months, you’ll have no more drones roaming the sky for public transportation without any insurance, it will be forbidden. We are the facilitator so we have to work with all the stakeholders, manage that and to create the conditions to make it possible. It’s the case for drones, it’s the case for the smaller KDbot [ph 0:06:55.6] in San Francisco where we charge on the street, delivery means [INDISCERNIBLE 0:07:02.8] without any insurance, the City would never accepted to have these small robots on the street.
Kirkpatrick: And you are the largest in your industry and it’s a big industry so you’re very large, but it seems like you have a more coherent way of thinking about this than most of the other insurance companies that I’ve had a dialog with. What explains that? How did Allianz come to sort of decide that it needed to play such a central role in tech-based transformation? Because clearly that’s your entire message here.
Pailhol: Yes, I think it’s what we do. So, in fact, I will be very humble, we didn’t decide that we were—we understood that we had to do that. The starting point of this journey was the idea to change our strategy to communicate and to increase the drone and it was a very French way to do it because—
Kirkpatrick: You’re French, the company is German, of course.
Pailhol: Yes, but when the CEO called me three and a half years ago to ask me to join him and to take marketing communication around distribution and integration, I said, “Why do you want me? I speak English like a Spanish cow, I’m married three times, I’ve cheated everywhere.”
[LAUGHTER]
Pailhol: I’m French. And he told me, “Yes, you are typically French.” And I say, “Yes, I’m typically French,” and he said, “It’s exactly what I need, I want to do a revolution.” And it’s really what he told me, “I want to do a revolution in the company.” And he told me, “If we don’t disrupt ourselves, which doesn’t mean that we don’t have to optimize and transform our current business because we need to make profit, if we are not able at the same time to find the solution to disrupt ourselves, we will die.” The best example is IBM, IBM changed from all the way out to software to services, from services to artificial intelligence, they had discovered they needed to change themselves not to die.
So, the original point is this one and after that because we are German, we are very cautious with the budget. So, I have very small budgets and I have to fight to keep my budget. So, when you have a small budget and a great mission you need to respond. So, it’s the French way, I know in France we always say, “When you have no petrol in the road of a mission, you have to find solutions and be smart.” So, we were obliged to think about that and we decided to move all our communication strategy from the traditional way with all the traditional challenges, and so on, on the [INDISCERNIBLE 0:09:35.3] channel and we have stopped any communication except on the digital channel. And because of that we are wise to try to understand what these people wanted to have, what sort of content they wanted to have. And so we worked a lot to understand the market globally and we invest a lot to understand the market globally and what we understood is that you have a great shift in-between the people below 20 years old or 18 years old and the people above. And the people below see the world in a completely different way. And this is why.
Kirkpatrick: You know, another thing that happened even before this is that your company and your entire industry took the issue of climate change more seriously than generally governments took it. Because you guys have more or less accepted it as real for a long time and you’ve done a lot to try to adapt to that reality. Just quickly talk about that and then I want to talk a bit about France because I know France is also very advanced in thinking about that. So, quickly, tell me about that.
Pailhol: Yes. It’s very simple, we use artificial intelligence to measure other potential claims. Again, our profit is based on our capacity to increase or to manage the claims and that’s why we have invested since years on artificial intelligence, we understand the risk of flood, the risk of fire and we are now providing the government or the cities with information because we are much more advanced. We have all the claims, data since years and because of that we are able to welcome that. So, we have done that for flood, we have done that for fire, we are able to say to an area that in this specific place, in this part of the city, they have to be very cautious if they accept to have a new building. And so we work on that since years because it’s a central part of our business, of our job. And we work for the future based on that, we are working with Intel for example to create new solutions based on drone images or satellite images to prevent claims in plants, in factories, for planes and so on.
Kirkpatrick: But have you been involved at all in trying to prevent climate change, per se? In other words, every country except the U.S., more or less, accepts that it’s real, it’s a big global challenge we have to come together and solve it. Is one of the reasons that happened because the insurance industry among others, especially the insurance industry, has been saying, “If you don’t, everything is going to cost more.”
Pailhol: Well, I think our role is not—we don’t have a political role, this is my opinion.
Kirkpatrick: That’s not what I meant but go on.
Pailhol: We don’t have to push the change, we have to actually believe the change and we have to facilitate it today. So, when you are in the need, coming from the field, coming from the market, we have to understand immediately and to accompany it. I will not answer but this is something I have in mind and I want to say, everything we are talking about and everything you are talking about here exists since years whether we are talking about 3-D printers, the first 3-D printer was established 40 years ago. When you are talking about artificial intelligence, artificial intelligence was really created by [INDISCERNIBLE 0:12:54.5] more than 20 years ago. When you are talking about all these new things we are talking about, they were created years ago. And why is it so important now? Because now they are ready to go to the market, they are mature enough to be bought by the people and they are mature enough to change really our behaviors and our needs.
And I think it’s the same for the climate change. When you talk with these people below 20 years old, you are obliged to take that into account. Because if you don’t do it, they will fire you. That’s why I think our politicians and we have the discussion, our politicians, we have some difficulties in 10-50 years but start the question. I think that these people may have understood, they have embedded this change, they want to find solutions. And our role, if we want to be trustful and credible for these guys in the future as an insurer is to accompany that and to try to put our story in there to build the role. I think that it’s a role, we are not here to move, to change, to push the politicians, we are here to accompany and facilitate this change to make the world of tomorrow. This is my opinion but it was not part of your question.
Kirkpatrick: No, that’s fine. That’s good. I want to get to the audience but I want to ask you, you think a lot about how cities are becoming more important. You also have some surprising thoughts about the pace at which we’re likely to get flying cars, flying human carrying drones. I don’t think we’ve quite got the right word, maybe flying cars are the word. Talk about that.
Pailhol: Yes, I think that there is a huge shift and this shift will be even more important in the next year and between the cities and the rest of the countries. We see that between the city by the way of the government, the change is leading by the cities. When we work, we work with cities, 90% of the time we work with the mayor, we work with the people in the city and not with the government or not with, I would say, a public structure, a global public structure. And what’s interesting is to see that because the cities have the power and, by the way, 50% of the cities in the U.S. are still watching what they can do on the climate change. I think it’s reapproving what I say. So, when you see that, you see that the city because they have the power and they have a huge problem based on the traffic, based on pollution, they want to invest immediately on new solutions, they want to change that in a very rapid way, in a very short time. And, for example, 50 of the biggest cities in the world have decided that in 2030 that we not have any more, any traditional automatic engine vehicles in the city.
Kirkpatrick: None.
Pailhol: In 2030, it’s finished. So, it’s in 12 years, in 12 years it means that if you want to enter in the city you have to take an electric vehicle. So, you have many solutions, it can be your car but—
Kirkpatrick: That is not something that has gotten a lot of attention in the United States but keep going.
Pailhol: But it’s very important. I think that there are two or three cities in the United States where this idea is to do that, as well, they are a member of this group. So, this is very important, if you want to do that you have find solutions to transport the people. If you want to find solutions to transport the people you have to find a solution for new services, so public transportation, you need to decrease the number of cars and the number of vehicles within the city. If you decrease the number of vehicles you will have specific lines perhaps, it will be easier to have specific lines for autonomous shuttle or autonomous bus which means that we will have an [INDISCERNIBLE 0:16:33.2]. On the other side you need to have drones to go from one place to another and to jump above the city which means the case in Dubai in 2020 and which is already the case in China in the beginning of 2019. So, we have this change. At the same time you will have an impact on the energy provider because you will need to provide energy to fill these vehicles, to give electricity to these vehicles. And all this change will happen in the next year and we’ll probably accelerate.
At the same time, who will take care of all the countries, the rest of the countries, the villages and so on? They will still have automatic vehicles because they need that, they will not have drones in the sky, so we will see a huge change and a huge shift from my point of view in between the mega-cities that will have the power and more and more power and the rest of the countries and the government.
Kirkpatrick: So, the difference between the cities and the rural areas will increase dramatically.
Pailhol: Yes. This is my opinion.
Kirkpatrick: That has political implications that we won’t explore now. But you do think—
Pailhol: But we can see that now, Brexit, what’s happening in the U.S., it’s exactly what we say. I read a very interesting article in Newsweek, I guess, it was the city vote against the country, the rural part. So, it’s the same in Brexit, in Brexit you have a war in between the big cities and the rest of the country.
Kirkpatrick: Yes, everybody in London voted against Brexit.
Pailhol: Exactly. The one wants to make the evolution to build on—
Kirkpatrick: But the views on flying cars, I just quickly get to that and then go to the audience, so in five years, eight years, how long will it be before most of us in this room will be used to at least sometimes going in a flying drone?
Pailhol: Oh, for sure.
Kirkpatrick: How soon?
Pailhol: About—again, it’s already the case. When do you need it? What we have to understand is that when you need an insurance carrier it means that you are ready to go to the market. Before you don’t need that.
Kirkpatrick: And you’re hearing people say insurance now.
Pailhol: We are working already. We are working already with them, we are working with Ehang, we are working with Volocopter, we are working with Avis [ph 0:18:36.8]. So you call it a drone or you call it a merge-copter [ph 0:18:38.9], whatever is the name, you have already merge-copter in San Polo [ph 0:18:43.7] where you’re going one place to another. You have already drones in China flying over the river not to take risk.
Kirkpatrick: It’s a pilot program, it’s 200 drones in China.
Pailhol: It’s a pilot program and Volocopter—for the 200 drones will not be the pilot, at the moment they have drones flying and the 200 drones are already built by cities and companies to fly in a real condition. So, it’s done in 2019.
Kirkpatrick: In China.
Pailhol: In China. And in Dubai, normally we have the first autonomous taxi drone solution line in 2020 and it will be Volocopter. So, it’s already the case. We will have drones in the sky.
Kirkpatrick: And quickly, another really cool thing, you have an investment philosophy for some of your investing that when a company comes to you for insurance that suggests that this startup’s product is ready to go and then you’ll make an investment in them. I’ll just say that. Who’s got a question or a comment in the audience? Okay, right here. Please get the mic here, thank you.
Diane: Hi, I’m Diane. I wanted to ask a question about insurance, the concept of pooled risk has always been sort of the foundation of insurance whether it’s health care, auto. With technology and you’re more able to precisely measure risk, you’re starting to get more concerns about the ability of insurers to exclude properties, self-insurance, this whole—or even with the wildfires, the insurability of a lot of the properties now as you get climate change. So, do you think—is the answer that there’s going to be more government intervention for mandatory insurance like flood insurance or do you think there’s a danger that we’ll see more places just simply can’t be insured. I’m curious as to the evolution of how we insure some of these increasingly vulnerable parts of the world.
Pailhol: So, I think it depends on the country. If you go to France, this sort of insurance is already mandatory since years. In Europe, globally, all this sort of type of insurance are mandatory since years. That’s why it’s so important for us to decrease the potential place. So, again, we go from—I think that the insurance will be more and more mandatory in the future. But if we want to help that and if we want to solve this problem of mandatory insurance we have at the same time to better understand the claims and to be able to decrease the claims which means that we’ll have to go to prevention. And I think that the main question, which is the main answer within your question, is that the insurance business in the future will, from my point of view, if you look at it in three ways, the first one we will go from actuaries to statisticians and data scientists. In the past we are working on previous data, we have to understand the future data because we don’t know what will be the risk. Again, when we talk about flood, the impact of the climate change on the home insurance, we don’t have data at the moment so we have to find solutions to prevent, to imagine what will be the future.
So, we come from previous data to future data. And it changes a lot the people and the job of the guys in charge of that. Second evolution it will be from claims payment to prevention. We are totally convinced that we will go more and more and more on prevention and prevention advisors for insurance. We’ll make more money in the future as an insurer by preventing the claims than paying the claims and taking the margin of that. One very good example is health. We work with two companies, one in Canada and one in France, working on smart t-shirts and smart bras, with this t-shirt and with the sensor they have inside we measure streaming things and we can avoid 98% of the heart diseases and 95% of the strokes. So, it means that if we distribute this t-shirt to our clients, we’ll be able to decrease the cost of insurance and because it’s lower, of course, it can limit actually in this case because it’s less expensive for the client. And at the same time, it will decrease like hell the number of claims we have and the level of the claims. So, we’ll make the money on the t-shirt and not anymore—and, of course, the data crunching and not anymore on the insurance.
So, this is one example. I have many, many examples like that, to insure factories or to insure cyber risk. And this is a side point, cyber risk will be the insurance sector in the future, the insurance sector. It will be the main risk for autonomous vehicles, it will be the main risk for drones, it will be the main risk for home connected, it will be the main risk for all the new evolution we see, we will have to cover the hacking risk and all the other risk about data privacy and so on. So, we have to understand that and we have to move our very proposition to that and, of course, if we are able to do that, so go from claims payment to prevention. Go from watching the past and to understand the future and at the same time, find solutions to increase the risk coverage for cyber risk, I think that the insurance company will do that, will still be there in the next year.
Kirkpatrick: Wow. We’ve got to wrap but that is quite an interesting way of thinking about how capitalism is evolving in my opinion.
Pailhol: This is my opinion.
Kirkpatrick: Thank you. Your opinion too?
Pailhol: Yes.
Kirkpatrick: Thank you so much, Jean-Marc.
Pailhol: Thank you very much.
Kirkpatrick: Really interesting stuff.
Pailhol: Thank you, David.
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