INSURTECH & TOM NODINE

On this, our first Innovating Life podcast, I discuss Insurtech with Tom Nodine the future of the insurance industry.  Now with Corporate Transformation Partners, Tom has led insurance innovation practice groups with KPMG, Booz Allen, and others.  Tom is an expert on how innovation promises to change the insurance industry.  Enjoy our inaugural podcast and my conversation with Tom Nodine.

#1 INNOVATING LIFE PODCAST WITH TOM NODINE

by Jon Sabes

PODCAST TRANSCRIPT

Alright good afternoon everyone this is Jon Sabes at the Insurtech podcast. This is our podcast number one, so bear with us as we kind of get going on a new endeavor of podcast. I’m a newly converted  podcaster. I’ve been listening to podcasts for several years but just finding some podcasts of late that I really appreciate, you can get a lot out of and so with my partner here, Dan Callahan, we decided we’ll create our own, talk about our own things, our own ideas, what we got going on our own.

So here we go. With me today is none other than insurtech genius Tom Nodine. He laughs, he chuckles but he is the real deal. I met Tom several months ago in 2016 on the Insurtech adventure over here at GWG when Tom was leading the KPMG group. And Tom can speak to his background and so without further ado I want to introduce Tom Nodine. And why don’t you tell the folks about who you are and where you came from. You’re an expert on this stuff.

Tom Nodine: John very pleased to be here this afternoon. Thank you. Yes, as you know I have worked in insurance for the larger part of my professional life. I’ve led several major consultancies for the insurance practice and you know along that journey I became aware of something that I know you are aware of and I think an increasing number of people are aware of: where the insurance market is really ripe for transformation and one of the major engines that is digital technology advancing through Moore’s law at an exponential pace.  And it is just absolutely changing how insurance is sold, is serviced and how claims are paid.

JS: Yeah you often use the phrase the digitization of insurance. I’ve adopted that one and and I borrow that from you so talk about that digitization (easy for me to say on my podcast). What does that mean to you? What’s going on in the insurance world?

TN: It basically means taking the information content of insurance which is the vast majority of it and translating that into the business models of today. So what that means is currently insurance is sold by a whole range of agents and others, serviced by a phalanx of people in call centers as well as agents and then claims are also paid often by a completely separate group of people. What we’re finding out is that as the digital movement goes ahead and kind of across our society that people are actually preferring to have sales and service and claims done in a digital manner.

JS: So it sounds like we’re putting a lot of people out of business, out of work. Is that going to happen?

TN: I actually suspect that we really are. I don’t think it will be complete. I don’t think it will be immediate and it certainly isn’t just me. If you talked to A.M. Best or any of the other kind of major industry sources they’ll tell you it is very very likely that many of the jobs that are within insurance will at least in part be replaced by technology in the not-too-distant future.

JS:  I think that kind of leads into most certainly some things where we’ve been working on here right now. When we talk about machine-based underwriting but certainly as we’ve talked about your own experience again and as outsider to the industry and why some of this change is going to come from the outside versus inside and you’ve shared with me a few stories. We’ll leave the names out to protect the innocent, but you know the challenge within the industry to change. Maybe could you speak to that?

TN: Absolutely, absolutely. Let me offer my perspective. I mean over the last 10 years I actually have evolved from being, I’ll call it, a rather general consultant in insurance helping to optimize sales paths and helping to cut costs in insurance and all of that, to one that is really much more focused on how technology is transforming the industry. I didn’t actually set out to go in this direction, it just simply occurred along the way that there’s just such an opportunity to serve clients’ needs better and less expensively through the technologies.

JS: And then when you bring some technology, even when you do stumble on technology, again the ability for the industry to, I’ll call, adopt you know truly revolutionary technology, the inherent challenge is in implementing that. Again speak to that please because of the legacy systems I mean you describe a host of a change that’s coming but yet it will displace legacy systems, including people?

TN: It will. And as you and I have discussed, I’ve spent over a decade working with the largest insurers out there to take the appropriate technologies and implement them in their business models and I’m gonna say it’s been a kind of, at best, checkered experience. What I mean by that is many of the largest companies while they will perceive the potential need to change in the future, their organizations are so set in their ways that it’s actually very difficult for them to quickly adopt and get the most use out of what new technologies can now bring to insurance. And what that then creates, I think, is truly an unparalleled opportunity for new companies to come in and do some fantastic business and of course that, Jon, is why you and I are working together.

JS: Yeah, I hear you. We just did a call with Rick Huxtable at the Digital Insurer and he was talking about those very same things and he was just saying that most recently the momentum that he’s witnessed coming behind this monumental change is really gathering steam. Maybe speak to the wave and the Goldilocks company, the types of companies that you foresee being able to really get things done.

TN: So yes, there’s actually several waves and then we’ll get absolutely to the Goldilocks concept. So the wave number one as I describe it is really digital technology impacting not just insurance but really all businesses in our society. It’s an astonishing time to be alive you know, I think it’s easy to forget that the first iPhone came out in 2007.

JS: It wasn’t that long ago right and it feels like it’s been with me forever at this point, right? I can’t imagine my life without it. Love you, Steve Jobs. Thank you.

TN: Absolutely and I don’t think any of us could really and that the thing to appreciate about that even more so is that it’s continuing to move ahead at an exponential pace and, you know human

beings generally aren’t used to thinking in exponential terms. Right, you think you could double the amount of cells, you’ll double your profits but that’s not always the case these days. There are times now where you can double your sales and you can do far more with your profits etc. So wave number one is technology. Related to that, because insurance is largely just information, that information is the core part of the insurance industry. It is particularly subject to digital and technological disruption and innovation. And so the second major wave that we’re seeing is that of what we call Insurtech. The amount of money, financing, venture capital that is now chasing new startup insurance companies is five times what it was two years ago and it continues to grow from there. So, this is a really really hot spot and

I think it’s for very good reason and a lot of fun to be working in.

JS: Great. When you think about a Goldilocks company, what sort of companies then are you looking at in your field, who can catch that wave? What sort of attributes do you do you think are most applicable to catch the wave and, as we’ve talked about it, stand-up on it?

TN: Yes, so I think you want a company that in short is not too big and not too small. You want one that is just the right size. That’s why we call it the Goldilocks kind of size. What I mean by that is, let me start with a not too big size. Again, I spent a very large part of my career working with the largest insurance companies trying to get some of these changes done and despite some very promising opportunities that had been brought to those companies, they just had a very, very hard time implementing them because to do so would be to fundamentally change principles of how they do their business which then also changes their culture and many of the leaders of those companies kind of grew up in the culture of the companies and therefore are very reluctant to change quickly. So the big companies, my experience is, are going to really struggle to lead on the technological innovation of in their industry. On the other hand, the smallest companies. There’s a lot of startup companies right now, I mean, they’re candidly a dime a dozen. There’s thousands of them literally out there and picking the right winner is going to be a very difficult thing to do. And also they’re struggling for the round eight financing and just kind of getting launched and my thought is that that’s a rather difficult row to hoe, as well. And so, you know, if you ask me what kind of company is going to succeed I really think it’s kind of one to ten between one that is large enough to have the capital one but small enough that it doesn’t have huge ingrained process as or thousands of employees whose, you know, contracts and other things might need to be adjusted to take advantage of what’s out there today.

JS: I love it. Let’s switch gears just for a minute because you know, Tom, you’re really an interesting guy. I’ve really so appreciated getting to know you over the last several months, almost coming up on a year. I’m just gonna break away from the topic. What are your habits? What are your routines? I’m gonna steal Tim Ferris’s line, I’m really interested in you as an individual. You’re an amazing person and some of the things that you do that I’ve learned that I’d love to be able to share with others. Talk to me.

TN: Happy to, happy to. Thank you for the question. You know, probably at its core I really just do feel lucky and thankful to be alive at this time. There’s just so much going on in the world and I’ve been in this industry for many, many years and I think it’s at just an unprecedented state of opportunity and so then for me personally I just want to think about what can I do to kind of take the most advantage of what’s right in front of me. When you really realize the ephemerality and the huge opportunity in front of you, it’s hard not to be humbled by the question of who do I need to be to best take advantage of this opportunity? I do think that involves taking care of yourself, getting plenty of sleep, eating good food and as you and I always like to talk about, exercise. You know I don’t think of exercise solely as a, you know, a bodybuilding way or a macho man sort of thing. I don’t really mean it that way at all. But, at its fundamental level, I mean your body is what carries you around the world, right, and if you asked me would I rather have the latest Porsche or would I rather have a healthy body that responds well to the things I’d like to do with it, it’s not even close, right? The choice is not even close so I have been on the journey I think as we all have around what does that mean for me and what types of exercises and routines work for me. And while I’m not sure I have anything hugely revolutionary to offer in terms of working out and that sort of thing, but one big surprise that I’ve had over the last few years is realizing that I can get a large amount of my work done while I’m on my treadmill at home. So I don’t necessarily treat walking on the treadmill as exercise. It also does not count as not exercise.

JS: All right, yeah, Tom showed a picture and I’ll post out with this blog. We can all look and see Tom’s treadmill and how he built the desk. For any of you out there who haven’t tried walking on a treadmill at what do we put this at, like two and a half miles per hour?

TN: Yeah, at two and a half miles an hour at a five percent grade and I can just go for hours.

JS: Yeah well let me tell you do that and you get off of it after going an hour, you will feel like one hell of a workout, so it’s quite amazing what you’ve been doing down there.

TN: The biggest surprise for me though was not just the exercise. The biggest surprise for me was my thinking is actually better. My attention span is easily twice as long, maybe three times as long and I‘ll just say the velocity of ideas seems to be faster for me when I’m on my feet. Now I completely recognize that different people may have completely different reactions but I find that I can write, I can create PowerPoints. I can go on conference calls. I can do the vast majority of things longer, more efficiently, better when I’m on my feet.

JS: You know I always say I do my best thinking when I’m running or biking. That’s why I’ve really enjoyed endurance sports over the years. It’s almost like you’re saying you get that thinking, right, you get those endorphins moving to get the blood flow going, but you have your PowerPoint or your email or your hand-eye coordination such that you can then reduce them to paper because often times I’m on that long bike ride like I gotta remember this idea. I’ve even have to stop and type an email before getting back on the bike and continuing on and so you really, I think, hit something there.

TN: Yeah, it works very well for me.

JS: Well now you also surprised me the other day which we found another thing we have in common which is you carry gear in your car.

TN: Ha ha, yes, I do. Yes, I do. One thing I like to live by is, you know, if life were only as good as you expected it to be, it wouldn’t be half as good as it actually is. And that means being open to serendipitous possibilities and in order to do that, yes, one thing that you and I have in common is we have a lot of, I’ll just call them, toys in our cars. I like to kitesurf and so I’ve got a training kite in my car and so if the wind is  right and I happen to be in the right position at the right time, I want to be able to take advantage of it and I not infrequently do. So, I’ve I got rollerblades, I’ve got skateboards. I’ve got a range of things in my car to take advantage of opportunities that might come up.

JS: And correct me if I’m wrong, but you’re also a an all-year-round paddleboarder out there on Lake Michigan, something along those lines?

TN: Something along those lines. Of course when the lake itself is frozen over I don’t go out, but, you know, these days that’s very infrequent. So yes, the last two years I’ve been out on the water every month of the year just enjoying it out there.

JS: That’s amazing, that’s amazing. I’ll bring it right back to business just for maybe a close as you look at the future of insurance, you know, can you give us come maybe one or two, maybe three big trends that you expect to see that we should look for in companies and development and whether that be in P&C, life or otherwise kind of your forecast.

TN: Absolutely, absolutely. So again, under the broad heading of I really don’t think there’s much doubt that the single biggest thing that will happen in insurance over the next five-to-ten years is the progressive digitization of its processes, sale, service, claims all those I think will become more and more digitized. So within that though, there’s plenty of a subtrends: One, new technologies can actually impact the risks themselves. We’re seeing that a lot in P&C where you have sensors on cars and things that actually will reduce the frequency and severity of accidents. So you see that going on and that will have its impact on premiums because if there are fewer accidents there obviously have to be lower premiums. So that’s one big trend within digital. Another big trend is the lower costs. It is distinctly possible to do the same business processes not for just marginally cheaper than they have been done before but by orders of magnitude cheaper. On just a quick divergence on that, I spent two years of my life pulling two percentage points out of a combined ratio in the cost structure for an insurance company and that was considered an enormous win at the time. Given the technologies that are available today you can not just pull out two present of the cost structure, you can pull out 20.or even more. And we’re seeing it happen out there at companies like Beagle Street for example in the UK. They’ve gone from zero percent of the life insurance market to over fifteen percent of the life insurance market using entirely digital approaches in just three years. So it’s out there. It’s happening. Cost reduction is a second major factor in the industry. I think related to that also we’re going to be a whole range of new business models.  Prevention is going to come out more because insurance companies have a huge amount of data around who gets into what types of accidents when. Shame on them if they can’t figure out how to better humanity by helping people to avoid those accidents in the first place. So, you see a lot of companies kind of experimenting with that and, of course, the digital exchanges for insurance, big big area of growth there. So that’s kind of a third trend and then a fourth one, I think it’s almost inevitable that there will be significant consolidation within the insurance industry. I think especially the smaller, more regional competitors will struggle to keep up as technology goes ahead and as you have competitors who can reduce their costs by large magnitudes. If you don’t make the investments to make that happen, you’ll quickly find yourself behind. So, I think there’s also a role for many in the industry to decide, hmm, where we gonna play in that? Are we going to be a consolidator, a consolidatee? And if so, how aggressively will we pursue it? I think that’s another major trend we’ll see over the next number of years.

JS: That’s fantastic. I have to ask the question I have to wonder: what’s the last generation that’s going to be driving? Will our kids’ kids be driving cars and will the cars be driving them? What’s your thought on that?

TN: Sure and please don’t just take my word for it. I think it’s highly highly likely that within the next 10 years or so you’ll see kind of the critical mass kind of moving more toward the driverless or actually from an insurance-standpoint, the accident-less car. Right, because in insurance you don’t care all that much whether there’s a human driving or not, you really care whether there’s an accident or not. And the accident-less car is coming far before the driverless car. I also think that cars will be kind of like horses are today. You can still ride a horse. You can go around and there will be a group of people who are very dedicated to riding those horses, but if you actually look at the percentage of horses and even the number of horses versus that the number early in the century, it’s a very very small percentage.

JS: I love It. I’m a proud owner of a Tesla and I’ve had the experience of almost driverless cars and an accident-prevention technology and it is just truly incredible and I’m so excited about where we’re going as a society and it is only going to get better so. And in your enthusiasm and excitement and positive outlook for where things are going as a result of these things is infectious and we love having around here. So thank you, Tom, for participating in our first initial podcast here. I really do appreciate it.

TN: John my pleasure. Thank you.

JS: Hey thanks, Tom Nodine for showing up today on the inaugural podcast for Insurtech, Innovating in Life podcast. Follow us at jonsabes.com and enjoy Tom Nodine, an amazing, brilliant guy that he is.