Unintended Consequences

Taking the time to do a detailed review of investment opportunities, an analysis of a range of likely outcomes, and a consideration for consequences should be a part of every planning cycle.

(Image credit: Chinmay Jade/Unsplash.)

At the risk of stating the obvious, the business climate insurance carriers are operating within is changing rapidly. Technology advances, demographic shifts, regulatory changes, and environmental factors all play into the framework that will define the budgeting and planning process for 2024.

Understanding what problem(s) we are trying to solve becomes a critical first step in order to properly allocate finite resources. Taking the time to also consider the downstream implications of decisions made can also be crucial, lest one wander into a situation where the “cure is worse than the disease”. It’s worth considering some out of industry examples to frame the issue.

A recent Washington Post article noted that as internal combustion engines have advanced, tailpipe emissions have plummeted. A newly understood source for pollution which is worse now than exhaust gases turns out to be from tires and brakes which naturally decay as they are being used. Now, as we race toward a world of EV’s, which are dramatically heavier than their IC brethren, we could be headed toward some really unfortunate unintended consequences if the goal was cleaner air.

The added weight/density of those EV’s may also be a contributing factor in a parking deck collapse in NYC recently. A sudden need to review building safety and remediation costs was an unexpected outcome which has potentially longer-term implications for many municipal governments and private business owners.

For insurers, transformational efforts can create similar challenges. One of the participants on a recent Silicon Valley Innovation Tour noted wryly that a laser focus on eliminating technical debt had crippled their ability to bring new products to market, with an array of adverse financial consequences the result. While reducing risks was an enviable goal, doing it at the expense of a leading position in the market was not how it was supposed to play out.

Another noted their push to moved workloads from mainframes to cloud based solutions, in part driven by what felt like “greenmail” pricing on critical infrastructure software as PE firms facilitate vendor consolidation.  This helped them “make” the financial case for a wholesale shift in environments for supporting critical functions. While the short-term implications were reasonably clear, they hadn’t considered the possibility that the new environment could suffer from an even more egregious pricing structure surprisingly quickly. It will be interesting to see how that plays out in the coming years.

While no one is gifted with prophecy, taking the time to do a detailed review of investment opportunities, an analysis of a range of likely outcomes, and a consideration for consequences should be a part of every planning cycle. Getting it wrong on big ticket items can leave a lasting mark that is hard to wash away.  The meltdown of Southwest Airlines earlier this year remains a cautionary tale about how things can go wrong in spectacular fashion when only the “happy path” forward is considered.

The Imperative for Analytical Rigor in Insurance

Rob McIsaac // Rob McIsaac is the President and CEO of RPM Ventures NC, LLC, an organization focused on developing deep and actionable insights that are specific to the insurance industry in North America. Prior to creating this, Rob served as an Executive Principal at Novarica (now Datos Insights), a technology research and advisory firm, where he leveraged his expertise in IT leadership and transformation as well as technology and business strategy for life, annuities, wealth management, and banking. He has broad experience in IT strategy and management in the insurance and financial services industries. Prior to joining Novarica, he served in a series of senior technology management positions including leading the Business Transformation Office at Nationwide Insurance, and as the Enterprise CIO for First Citizens Bank. Rob spent the majority of his earlier career at Guardian Life, where he was the Divisional CIO responsible for annuity, distribution and broker dealer operations, and at Prudential Insurance, where he held a variety of positions including leading e-Business development efforts. Rob holds a BA in Economics from Montclair State University, an MBA in Information Systems from Seton Hall University, and has received a number of business and technical designations from both LOMA/LIMRA and MIT. He can be reached directly at rob@RPMVenturesNC.Com.

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