John D. Rockefeller was easy to overlook. He didn’t drink alcohol, smoke, swear or lose his temper. He ate no more than was necessary and went to bed early. Yet, he and his partners at Standard Oil at one time controlled 90 percent of all oil shipped in the United States. He is considered by many to be the wealthiest American of all time.
His methods leading to success are relevant to InsurTech and the legacy carrier and broker communities.
Leaving oil drilling—a hit-or-miss proposition, at best—to more risk tolerant souls, Rockefeller entered the oil refinery business in 1863. Not only did he see other refineries as being against his own business interests, he viewed them as being agents of inefficiency. By combining the efforts of many oil refineries within the growing Standard Oil monopoly, he successfully brought order to an otherwise unruly marketplace. (Of course, where he saw order, others saw a ruthless combination that was eventually broken up by the Supreme Court in 1911.)
One of the mechanisms Rockefeller devised to either destroy or absorb competitors involved railroad shipping rates. While railroads offered a substantial rebate off the published rate on all Standard Oil freight, they charged competitors the published rate. What’s more, railroads returned the difference between the published rate and the rebated rate to Standard Oil.
Faced with this brutal logic, refineries both large and small agreed to give up their independence to join with Rockefeller and his partners. Standard Oil’s blue barrels became a common sight at railroad yards across the country.
While Rockefeller achieved market dominance through many additional mechanisms, including aggressive pricing, his control of the transportation network was a centerpiece of his accomplishment.
The New Yorker recently featured a profile of Axon Enterprise, formerly Taser International. Because more than 600,000 law enforcement officials already carry Tasers, the company has found it necessary to produce Act II: body cameras. Axon’s efforts have been successful, as it holds body camera contracts with more than half the major police departments in the country.
Axon’s upcoming Act III will feature its “killer app.” This “killer app,” a concept I have previously discussed in Carrier Management, also points the way for InsurTech startups as they search for their own game changer.
Body cameras collect vast amounts of information. The Los Angeles Police Department adds 11,000 videos each day to a library that already contains 5,000,000. While Axon is more than happy to sell body cameras to law enforcement agencies, it recognizes the processing of this information as being the killer app. According to Rick Smith, company co-founder and CEO, “As things become connected, they become intelligent and powerful. It’s the processing of information, and there’s nothing more powerful in this world than nervous systems.”
With this knowledge in mind, Axon works hard to sell body cameras to all major law enforcement agencies. They realize a nervous system can only be as strong as its weakest connection.
This brings us, at long last, to InsurTech’s killer app. Not too long ago, I was pulled over by a police officer for speeding across New York’s Throgs Neck Bridge when returning from a wedding. I compounded my infraction by not signaling as I changed lanes. This information has been helpfully collected in a database, not so helpfully resulting in a higher insurance premium. On a happier note, I have thus far managed to not set fire to any of the three houses I have owned. This cheerful information has also been collected in one or more databases.
Because InsurTech is data-driven, companies operating in this space are ideally positioned to build and take control of the risk marketplace’s nervous system. Just as Amazon collects purchase histories of an ever growing number of consumers and Google collects search histories of an ever growing number of Internet users, an InsurTech company or collective could record, process and disseminate insureds’ risky behavior through a nervous system.
The current trend points toward corporate hegemony. Facebook has 2.23 billion active monthly users. There is no No. 2. Google processes 3.5 billion searches per day, with a 63 percent market share. No. 2 Microsoft has a 24 percent market share. Together, they control 87 percent market share. Amazon is projected to control 50 percent e-commerce market share by year end. There are only two viable smartphone operating systems: Apple’s iOS and Google’s Android. Look around at any time, and most people within your field of vision will be engaging with a smartphone. The fact only two companies control this marketplace is nothing short of astonishing and causes one to wish he had bulked up on Apple stock when it split.
The legacy carrier market today is fragmented. Even a midsize broker can have relationships with 20-plus carriers. The trend line points to fewer carriers going forward.
We now return to John D. Rockefeller and Standard Oil. By controlling the transportation network, Standard Oil gained control of the refined oil and kerosene marketplace. One InsurTech company or a collective—I believe it is more likely to be a collective—can do the same by taking control of the risk marketplace nervous system. This nervous system would be the risk marketplace’s transportation network. Other participants could be forced to either get in line or lose their place.
What would I do if I had the money, stamina, vision and nerve? I would start by listing major risk categories: flood, fire, personal injury, professional liability, theft, cyber, auto. You get the picture. I would then build a nervous system through combination, acquisition or invention that collects and processes all these risk events. Acquisition efforts, coverages, modeling, pricing and all other parts of the insurance transaction would be driven by this nervous system.
By controlling the nervous system, I could potentially control the risk marketplace. This would be my killer app.