Thursday, September 22, 2016

Insurance: The FT's Izabella Kaminska Will Probably Not Be Going to This Year's Andreessen-Horowitz Christmas Party.

Last year, when Ms. Kaminska was pointing out* that Andreessen-Horowitz investee 21inc. ($116 mil from A-H, Khosla et al) seemed to be another solution-in-search-of-a-problem company, I was reasonably sure she wouldn't be invited to the 2015 party.

Now this latest pretty much rules out her attending the 2016 get-together as well.

First some background. From our January 2015 post "Andreessen Horowitz On Insurance: "Software rewrites insurance" (nudge, nudge)":
From Andreessen Horowitz:
Insurance is all about distributing risk. With dramatic advances in software and data, shouldn’t the way we buy and experience our insurance products change dramatically? Software will rewrite the entire way we buy and experience our insurance products — medical, home, auto, and life. Here’s how:
By changing the way insurance companies price risk
So many more signals are available for insurance companies to better price the premiums we should pay. Drivers that drive carefully in safe neighborhoods vs. recklessly through accident-prone intersections ought to pay different amounts to insure the same car — but all that data isn’t reflected in an annual odometer reading. Water damage is one of the top sources of claims for home insurance customers: Why don’t we charge customers with water sensors less, since if they know water is leaking, they can stop it before the damage gets expensive to repair.

New data sources, better data, ongoing data reporting — all are possible now with mobile phones and inexpensive Internet of Things devices....
And today at FT Alphaville:
Breaking insurance models with big data
In the brave new world of machine learning, big data and artificial intelligence, no good deed will go unnoticed and no bad deed will go unpunished. Or so at least the dream goes.

The proposition here is simple. Soon enough, telematics companies will gather data from all our connected devices, fitbits and cars, scrutinise it intricately, then determine whether we are “good” or “bad” agents. Good behaviours will be rewarded with cheaper insurance policies, bad ones will be penalised. The relative cost of being a bad agent, meanwhile, will incentivise good behaviours, eliminating evil from our world forever. Amen.

If you thought that was a far fetched vision, however, you’d be mistaken. The burgeoning telematics sector is well on its way to partnering up with insurance companies, automakers and more. And in almost all cases the companies believe actuarial or insurance services are the best path towards the monetisation of their data intensive business models.

There’s only one problem. Personalising insurance contracts to this degree undermines the whole concept of insurance.

Insurance doesn’t really work unless risk is pooled in such a way that good agents pay over the odds to the benefit of the bad ones.

A world where insurance is personally tailored to reflect every individual’s behavioural history is consequently a world wherein unfettered discrimination becomes the celebrated norm, where only the super rich, the super gifted, the super lucky or the genetically well-endowed will ever be allowed to drive fast, eat bad food or to take any risk at all. As a consequence, it’s also a world where the poor or physically under-privileged become uninsurable (unless, of course, they’re prepared to be permanently tracked, controlled and monitored by their data overlords).

It’s hard communicating this point to techies though, who like to say things like: “If you’re a good citizen with nothing to hide, what’s the problem with sharing your data?”

Luckily (phew) the FCA is nudging towards recognising the brutally Darwinian social side-effects. On Wednesday, they published this. If you’re a big investor in a telematics or big data analytics firm betting that insurance holds the key to your monetisation dreams, it’s worth paying attention to, not least because they note things like:...MORE
I don't want to imply there is absolutely no there, there. I mean Warren Buffet isn't invested in IBM solely for the stock buybacks, but the way this plays out may not be what the software guys want.

*Anyhoo, here's Izabella on 21 Inc. last year:
Sept. 23
21 (grams of digital coke)
May 19 
21 Inc and the plan to kill the free internet

I couldn't find any recent mentions of 21 Inc. other than this Wall Street Journal story, September 5:

Blockchain Art Exhibitions Explore the Bitcoin Technology’s Future
Simon Denny uses cultural references like computer cases to explore blockchain.
Simon Denny uses cultural references like computer cases to explore blockchain. Photo: Joerg Von Bruchhausen
Pokémon, postage stamps and the strategy board game Risk. Simon Denny uses everyday objects like these to illuminate how technology shapes the way we live and work. In his latest exhibition, the Berlin-based New Zealand artist explores blockchain, the little-understood technology underpinning the digital currency bitcoin.

Opening Thursday at New York’s Petzel Gallery, “Blockchain Future States” looks at competing views about how the technology should evolve. Large cutout images of the leaders of three leading blockchain companies—Digital Asset Holdings LLC, 21 Inc. and Ethereum—stand near globe-like structures meant to highlight how new currency systems could challenge traditional forms of statehood. A Risk board for each firm lays out the company’s strategy to create a new world order. A similar installation, “Blockchain Visionaries,” is at the Berlin Biennale until Sept. 18....
...“Blockchain Future States” sets out his observations. His Risk board for Digital Asset replaces countries with financial capitals—reflecting the fact that the firm, led by former J.P. Morgan Chase & Co. executive Blythe Masters, is creating a platform geared toward financial markets. The board for 21 Inc., which focuses more on bitcoin, eschews traditional geography for nationalist lands and technologist clouds, while Ethereum, an open software platform, is set in outer space....