Throughout history, myths and legends have evolved as accounts based on long-held assumptions and wide-spread stories
that share at least one common dominator: the ability to verify
them. Ah … the legend of Britain’s Camelot, and Ireland’s mischievous leprechauns with their pots of gold. But there are two
legendary and mythical creatures, the unicorn and black swan,
which have come to mean something else in modern culture.
The unicorn, which goes back centuries as an animal
mentioned by the Greeks, became legendary during the middle
ages and renaissance periods, achieving mythical status that has
continued into modern history. The black swan experienced an
abrupt drop from legend status when it was found to be made
of the stuff that legends are not: verifiable reality. It was originally believed that all swans were white until 1697, when the Dutch
explorer Willem de Vlamingh found black swans in Australia,
and profoundly changed the science of zoology. Who knew?
Fast forward to today’s business world, where the Black
Swan and Unicorn have taken on new identities, and have come
to be known as the modern-day equivalents of things or events
that reflect the momentum of the impossible achieved through
disruption and innovation. Black Swan business theory was
introduced in 2007 by Nassim Nicholas Taleb, a scholar, statistician, and risk analyst. His book The Black Swan quickly became
one of the top “must reads” in the world of business.
Black Swans are defined as unprecedented, unexpected, or
low probability/high impact events that significantly disrupt
and change assumptions, businesses, and industries. Modern
examples often cited include the rise of the Internet, 9/11, and
the 2008 global recession. The theory is that if we are able to
detect and analyze Black Swan events, we have a better chance
to effectively respond or manage the impact of such an event.
From there, it is not difficult to make the cognitive leap to insurance. In essence, risk management is the very core of insurance.
In contrast, the Unicorn stepped out of myth only lately and
has taken on the persona of a new and real thing (not an event
like the Black Swan). The Unicorn of today is a pre-IPO tech
startup with a billion-dollar market value. A January article
in Fortune, “The Age of Unicorns,” by Erin Griffith and Dan
Primack, credited Cowboy Ventures founder Aileen Lee with
coining the term in a TechCrunch blog post. Fortune has identified 39 venture-capitalist (VC) backed U.S. tech startups that
have topped $1 billion in valuation in the past decade, noting
that even Google and Amazon were never valued at a billion
as private companies, nor were any others that emerged from
the original dot-com era. As a result, the billion-dollar valued
companies, like the unicorns, were believed to be a myth.
However, in less than 15 months, Fortune noted there is
a growing roster of billion-dollar startups, and Unicorns are
showing up everywhere. The magazine identified more than 80
privately held start-ups valued at $1 billion or more, observing
that Unicorns appear rapidly, often without warning. While
some wonder if this represents the start of a new dot-com bust,
the article notes these companies learned lessons from that era,
and have a solid business model and customer base.
Even more stunning, Fortune further noted, is that some
VC firms are searching for “bigger game,” those startups with
the potential to rapidly reach a $10 billion valuation, calling
them “Decacorns.” Facebook was the only private company in
late 2013 to reach this threshold. Yet, by the start of 2015, a little
over a year later, there are at least eight companies valued at
more than $10B and growing. Uber alone is already valued at
$41.2B, making it more valuable than 72 percent of the Fortune
500. Whether Unicorns or Decacorns, these companies have
momentum, access to capital, and innovative solutions built on
technology that is disrupting existing industries and businesses.
So, the Unicorns and Black Swans have a significant importance to insurance: They are critical influencers of change and
disruption for traditional industries and companies. And why
is that? Simply put, technology. Technology is fueling change
and disruption, from the Internet, cloud, mobile, social, and
collaboration to new emerging technologies like the Internet
of Things, drones, wearables, driverless vehicles, and artificial
intelligence. We are seeing the emergence of new economic
and business trends like the shared economy, digital business
models, omni-channel environments, new risk models, and
many more, fueled by the technology-enabled Black Swans, all
of which are influencers of change and disruption for insurance.
These Black Swans are disrupting and reshaping whole
industries—transportation, media, hotels, communication,
manufacturing, music, retail, healthcare, and insurance. SMA’s
research report, Next-Gen Insurer: Fueled by Innovation recognized these outside influencers of change that are creating new
products, solutions, and businesses … new Unicorns. Furthermore, these Unicorns are gaining market recognition and
acceptance that is fueling their growth.
Consider the disruption for hotels (and insurance) with
Airbnb, which is being recommended by Warren Buffet for use
by shareholders who plan to attend the Berkshire Hathaway
shareholder meeting in Omaha, Neb., in May as a cost-effective
alternative to hotels.
Companies on the Unicorn list include many that SMA has
been tracking to assess the impact to insurance, including Uber,
Black Swans Meet Unicorns
Insurers examine ways to fuel disruption and innovation.
By Denise Garth