CONTENTS

Insight

Friday July 19, 2013

Personal Insurance
One team protecting what matters

Signals of Change Scanned by the Strategic Innovation Team

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Insight: Highlights

Friday July 19, 2013

First formal policy statement from the US Transportation Department on self driving cars prescribes testing and launch of a 4-year research project on how to safely use automation

$1.3 billion project to build a Supercomputer Replica of the Human Brain could change the game for neuro-technologies

NSA PRISM scandal impacts big data companies and the cloud computing industry: will it reinforce the case for alternatives to the Silicon Valley giants?

Programmable sensors are making the Internet of Things possible and revolutionising one of the key asset classes we protect: homes

The future of work decoupled from traditional organisational paradigms is accelerating: productivity is benefiting from technology progress whereas job creation remains anaemic

3D Printing shares are soaring and outperforming StockExchange indexes as the industry keeps maturing

The Strategic Innovation framework helps us determine the relevance of signals of change for our business. 11 Strategic Risks to the PI business emerge from 7 areas of Structural Change.

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Insight
NEURO-TECHNOLOGY

Friday July 19, 2013

$1.3B Supercomputer Replica of a Human Brain

Wired Magazine introduced this project with an emphatic "Even by the standards of the TED conference, Henry Markrams 2009 talk was a mindbender". His plan is to build a complete model of a human brain - down to synapses, and to simulate it on a supercomputer to deliver a fully sentient (i.e. conscious) hologram of the brain. This endeavour has several remarkable features: Whilst they consider some of his ultimate goals unrealistic, leading figures in neuroscience and computing (including Nobel-prize winners) believe this initiative is important because of the data it will amass, the collaboration it will foster between labs around the world, and the learnings gathered on the way, including data 3D visualisation. This has convinced the European Union to award Markram 1 billion Euros. This program goes further than the 'BRAIN project' funded by Obama (mentioned in a previous Insight) which is looking at mapping brain circuits but is leaving out what happens at the molecular level; and also further than 'Human Connectome', another major project looking at the correlation between specific genes and brain structures.

Markram's first 'Blue Gene' IBM supercomputer could simulate a single neocortical column in a rat, which has 100,000 of them. The Human Brain Project will need far larger power to simulate the 86 billion neurons, and the 100 trillion connections that link them.

Markram's project is deliberately designed to approach the brain as a complex system. His goal is "not just about understanding one brain disease, but about understanding a complex system that can go wrong in 600 different ways, about finding the weak points. In doing so, it will lay the ground for cross-disciplinary effort beyond neuroscience, and deliver benefits and learnings irrespective of whether the simulation of a whole brain is ultimately successful. Such research contributes to the acceleration of complexity computing and artificial intelligence, which underpins the strategic risk that we have called "VIRTUALISATION". This risk emerges from digitalisation of ourselves and our lives, of our assets and of the services we use, therefore creating an incoherence with our current business rationale predicated on dealing with tangible assets and unambiguously human customers unaided by AI.

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Insight
SELF DRIVING CARS

Friday July 19, 2013

First formal policy statement from the US Transportation Department on self driving cars
The US Transportation Department made its first formal policy statement on autonomous vehicles. In a nonbinding recommendation to the states, it said that driverless cars should not yet be allowed, except for testing. But it said that semi-autonomous features, like cars that keep themselves centered in lanes and adjust their speed based on the location of the vehicle ahead, could save lives. It is the latest example of the tension between technological innovation and regulation moving at different speeds. On the technology front, Google has gone the furthest with cars driving employees to commute the 40 miles between San Francisco and its Mountain View HQ along the curves of California State Route 1, a treacherous road overhanging the Pacific Ocean. The cars have driven more than a half million miles, according to the company. They are not the only ones: car manufacturers are also contributing to a quiet revolution, integrating selected elements of driverless technology: Mercedes have radar systems that brake to prevent collision, stay in lane and sense when a driver is fatigued. Ford midsize Fusion sedan has a lane-assist system that alerts drivers when they stray from the roadway. So the statement from the US Transportation Department illustrates broader cultural and regulatory issues about autonomous systems in general, not just cars: authorities are also struggling to regulate flying drones. And now that they have acknowledged the coming shifts, they are buying time before adjudicating.

Ryan Calo, law professor and co-founder of the 'Legal Aspects of Autonomous Driving Centre' at Stanford, captured the issue when he commented The first time that a driverless vehicle swerves to avoid a shopping cart and hits a stroller, someones going to write, robot car kills baby to save groceries. Its those kinds of reasons you want to make sure this stuff is fully tested. On the other hand, it is difficult to write regulation for something that is only just entering into prototype.

Whilst the Traffic Safety Administration acknowledges Driverless Car technology is not advanced enough to develop safety standards yet, it is beginning a 4-year research project on how to safely use automation, including studies of how humans interact with the cars, the reliability of the technology and risks like cyber attacks. This issue is pertinent to the strategic risk RISK 2.0 which sees adaptive self managing systems significantly reducing uncertainty and therefore risk, creating an incoherence with our current business rationale based on car insurance uptake because of the risk of human error when driving. The strategic risk of REGULATION is also at play: traditionally slow regulatory timeframes, which used to protect incumbents, are now accelerating to keep up with technological changes, hence introducing more uncertainty for insurers.

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Insight
3D PRINTING

Friday July 19, 2013

Why are 3D Printing shares soaring and outperforming indexes?

A narrow profit posted this reporting season by 3-D printing newcomer ExOne (NASDAQ: XONE) has buoyed the 3D Printing sector. Not only has ExOne risen by more than 6.5% the day it announced it earned $902,000 in net income, compared to a consensus estimate of a $2.8 million loss; but competitor 3D Systems (NYSE: DDD) also jumped that day, gaining 3.5%.
The current 'bull rally' on 3D printing stocks is underpinned by 2 factors: expectations related to the technology itself, and the low number of listed players.

Scarcity pushes stock price upwards: ExOne are only the fourth 3D printing company to join the US stock exchange, alongside 3D Systems (NYSE: DDD), Stratasys (NASDAQ: SSYS) and Proto Labs Inc (NYSE: PRLB). So with such limited options for 3D printing investments, investors wanting industry exposure are forced to choose between them; hence the positive mechanical effect of scarcity on share prices. The sector is differentiating: ExOne has decided to approach 3-D printing from a completely different angle from 3D Systems, which has recently embraced a tiny consumer market with low-cost machines for homes and hobbyists printing plastics. Instead ExOne focuses on corporate customers and machines able to print industrial materials such as silica ceramics, stainless steel, bronze and glass, or aluminium. So the 5 machines they sold for $1.6 million apiece in the first 2013 quarter amount to $8 million in revenue.

ExOnes largest machine, the size of a person

3D Systems low-cost machine

Although cautious, analysts compare this bull rally with the rise of Amazon shares 4,000% since 2001, as Internet sales rendered big-box retailers quasi obsolete; or with Apple (up 6,000% since 2004) as smartphones pushed telephone landlines towards irrelevance. An insight is that 3D printing companies are clearly taking steps towards shaping sustainable business models: e.g. 3D Systems has been making aggressive moves, most recently acquiring 3-D modelling software company Geogmagic. This is evidence of our 'ASSETS' strategic risk which points to a shift in manufacturing paradigms from tangible products to design (owning or leasing the 3D file is more important than the physical object itself). It represents medium term opportunities for our repair centres, but in the longer run it reshapes how the assets we insure are produced and therefore the risk of loss or damage they represent.

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Insight
THE INTERNET OF THINGS

Friday July 19, 2013

Programmable Sensors revolutionising homes

A decade after wifi put computers on a global wireless network, and half a decade after the smartphone revolution put pocket-size devices on that network, a new technology era is beginning with the Internet of Things. Also called the Sensor Revolution, it is enabled by devices we use in our daily lives communicating amongst themselves, performing tasks on command, giving us information and insight. Cisco predicts 50 billion connected devices by 2020; Intel sees 16 billion devices by 2015. The critical factor for the Internet of Things to be ubiquitous is for a massive amount of smart devices to be interconnected via the Internet: not smart phones, but also clothes, cars, appliances, light bulbs, door locks, etc. Signs of this new paradigm are accumulating. In the industrial sector, GE estimated that one of their high tech ceramics factories generates some 10,000 data points every second. Capturing that data with smart sensors has allowed them to eliminate high defect rates.

Already, scores of products have emerged to take advantage of Bluetooth Smart, a low-energy radio protocol that hit the market in Oct 2011. They include watches, heart rate monitors, and even some Nike shoes (which use built-in pressure sensors to send workout data back to your phone).

Closer to our homes the CEO of Washington-based start-up 'SmartThings' has connected over 200 sensors and objects in his house, which he uses as a laboratory to create a 'physical graph' (an analogy with Facebook describing its data as the 'social graph' of who is connected to whom) A key point to understanding the significance of this emerging paradigm of physical and digital connectivity is to know that the goal is to build applications on top of connected objects. This will enable us to go beyond just tying together simple behaviours - like a sprinkler triggered by a moisture sensor - to create complex interrelationships that integrate outside sources and analytics, mashing-up diverse data sets such as health, location, financials and security. That creates a market for users and developers sharing their simple "if-then" apps and, in the case of more complex relationships, making money from apps, just like mobile marketplaces.

What is remarkable isnt the use of sensors, nor that sensors and objects are linked together. Its the fact that once enough of these objects are networked, they are no longer one-off gadgets or data sources but instead become a coherent system that can be choreographed. The future context evoked here was captured in the H@me Future in Marco Polo, depicting structural change in the house environment driven by domotics: significant technology development converting homes into spaces where value is created. H@me-health solutions (such as telemedical sickness diagnosis, biometric evaluation with tailored exercise programs, bio-rhythm wake-up calls). H@me-work as buildings become fully functioning nodes of the Internet. It is from those changes that the 'ASSETS' strategic risk emerges: homes, as a key asset class we insure, may undergo such transformations that would require us to significantly change the protection we provide.

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Insight
THE FUTURE OF WORK

Friday July 19, 2013

Technology is destroying traditional jobs and organisation of work

Erik Brynjolfsson and Andrew McAfee, from the MIT Sloan School of Management, contend that the global economy has entered a phase of healthy productivity growth and anaemic job growth. They argue this great decoupling is caused by technology elbowing aside traditional jobs. W. Brian Arthur, a researcher at Xerox Palo Alto Research Centers intelligence systems lab, has another term for it: the autonomous economy. Digital processes are talking to other digital processes and creating new processes, which has removed the need for human intervention. Brynjolfsson and McAfee laid out their argument in their book Anecdotal evidence that digital technologies threaten jobs is, of course, everywhere: from automation in manufacturing to services. But this time around, the process of "creative-destruction" is lagging behind. In the past, jobs destroyed in the first phase of a technology revolution have been regenerated i.e. new jobs might be expected to arise as robots work with humans instead of replacing them totally. But this current transition is more painful than anticipated for many because the gap between digital winners and losers has widened. Employment trends have been polarizing the workforce and have hollowed out the middle class, which explains the current global social tensions in all developed economies. The top and bottom are clearly getting farther apart.

Race Against the Machine

The lesson that history taught though previous technology revolutions in developed economies is that secondary education became accessible to many people at a time when employment in agriculture was drying up. The result, at least through the 1980s, was an increase in educated workers who found jobs in the industrial sectors, boosting incomes and reducing inequality. So today, the emergence of digital work systems captured by our strategic risk ORGANISATION is not only creating incoherence on the employer side but also on the employee side, which comes back as a significant problem to businesses as the middle-class represents the core of their customer base. This trend is a risk to manage for organisations around the world as they devise workforce strategies to meet the challenges of digital transition.

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Insight
DATA AND PRIVACY

Friday July 19, 2013

How will the NSA PRISM spying scandal impact big Tech companies?
Over the years, more or less implicitly, the Silicon Valley giants have had a deal: we allow them to gather data about our lives. In return, we get free or very cheap services that we have fun using or that make us more productive. The deal has always been ill-defined because its inherently one-sided. We dont really know what kind of data is collected and happens to it.

Nine major US Tech companies - including Apple, Google, Facebook, and "Dropbox next on the wish list" - have just been reported to be part of PRISM, a grand scale surveillance programme run by the NSA. Beyond the debate on the role of the US Govt, one of the dimensions of this affair is the impact on the relationship and level of trust between those technology players and their users.

Yet despite the significant potential for abuse, people carry around devices with surveillance capacities that former East German officials would not have dared dream of. Our machines know who we talk to, what we buy, where we are; basically how we can be blackmailed. But neither Facebook nor Google have judiciary powers to indict people, to refuse visas, to access Tax Files, whereas the US government does, hence the storm over this affair. In the long run, a scandal such as PRISM may change the calculus we have allowed to evolve: - If users perceive they cant truly trust these firms promises, it may spark demand for alternatives to centralised clouds. This could boost true peer-to-peer solutions, and make anonymous search engines more attractive. It might set up a market for encrypted email services, for apps that shut down location-tracking on phones, for web browsers and plug-ins that prevent from being followed online. - Another implication is geopolitical: the EU, already in a fierce debate over data privacy, is pushing for data protection laws, which the US want watered down. PRISM is a major blow to US lobbying.

This type of affair further makes the case for the emergence of virtual and open work systems to challenge our industrial corporate paradigm and its reliance on proprietary value chains. This is identified in our strategic risk 'ORGANISATION' which emerges from the incoherence between our organisation relying on systems that our customers may increasingly distrust, try to bypass or seek alternatives. This risk requires us to understand how consumer demand for managing data might evolve. Consumers may likely shrug about PRISM per se, and will continue to share their lives online. In the long run, however, this affair makes the case for private services and protectionist reactions more compelling. The French (of course) have two national clouds under development and recently blocked Yahoo! from investing in competitor Dailymotion controlled by Orange-France Telecom. It might have further consequences in altering the current trend of a global, unified Cloud run by data-mining companies making big data projects such as self-driving cars possible. It might also change the economics of the online world. Those wanting to move away from proprietary services won't have their operating systems subsidized by ads, and they will pay a lot more for it. The possibility they might prefer that trade-off needs to be factored in our strategy.