The insurance industry and the commercial property industry have always gone hand in hand. Every real estate deal also coincides with the creation of an insurance policy so insurance companies handle the same information that property companies do, often at the same time. Both industries are expected to make large, risky bets based on a huge amount of information. Both deal with unstructured data from a variety of sources. But, unlike real estate, the insurance industry has built incredibly sophisticated systems and technologies around it to help it make these big decisions faster and more confidently.
So what are the differences between insurance companies and property firms when it comes to thinking about data technology? Well, first of all, most modern insurance companies have technology in their DNA. They likely see tech as an existential threat to their historically labor-intensive businesses. All of the processes that they have painstakingly refined over the last century could become irrelevant thanks to developments in software like machine learning. While the real estate industry thinks that their portfolios can insulate them from the disruption happening in the business world right now thanks to technology, insurance companies know that at any time a more efficient competitor can kick the legs out from under their entire business model leaving them with only a slick marketing campaign and a charming celebrity spokesperson to defend their market share.
Cherre is one of few companies in the world that is creating a product that is being used by both the insurance and the property industries. They have developed technology that can gather, organize and analyze huge amounts of data, no matter how incompatible the formats or data structures that they are in. Its founder L.D. Salmanson told me that one of the problems is how commercial real estate teams are structured. “Most CRE debt and equity funds don’t have internal product and technology teams and are therefore ill-equipped to evaluate and adopt any meaningful and potentially disruptive technologies,” he said. “They often have IT teams or CIOs, but they are typically responsible for keeping your internet running, or selecting an end-point software solution. There are some notable exceptions of course. However, they are few and far between and are limited to the largest funds in the world.”
So, rather than just hoping the right solutions to their problems get developed, insurance companies are incredibly proactive in how they will the right solutions into existence. L.D. told me that one of his first insurance clients actually identified a use case for his company’s technology that was only visible to those inside the organization. The company then worked with their other technology vendors to make sure that Cherre’s solution was integrated into their workflow. He credits this ability to the fact that insurance companies often have formal processes for evaluating every part of their tech stack, as well as clear procedures and formats to find better technologies for their problems.
From what L.D. has seen he thinks that there are a few important lessons that the property industry should learn from their insurance counterparts. His first one is simple: “Hire a real CTO.” He also thinks that a firm should have stakeholders well aligned on the overall strategic goals, while truly recognizing the existential threat. As “robo-advisors” are starting to outperform humans when it comes to investing we could soon see an end to a real estate industry that gets away with “business as usual.” He also suggests that property companies hire a real implementation team, starting with a strong product manager. This is different from a dev team which needs a large amount of oversight and direction so that lots of money isn’t wasted without anything in return because “you’re not going to become a tech firm overnight.” He also advises having a procedure for rapid and massive testing of new solutions, with the mindset of “making it work” rather than “looking for shortcomings.” Technology isn’t always a perfect fit out of the box, but can usually be linked to a larger tech stack with a little bit of hard work and ingenuity. The return is worth it.
So, for as much as the insurance and property industries have worked together in the past, it seems that they have developed a different approach to adopting technology. Even though the insurance industry doesn’t have the same amounts of real assets on their books, they are not the only ones that should feel threatened by the amazing amount of software innovation that is taking place. The insurance companies know that finding, adopting, and using technology is the only way to stay competitive in this quickly changing technological landscape. Property companies would be smart to adopt the same kind of thinking.
Building the Future at NYC Real Estate Tech Week Join Cherre CEO L.D. Salmanson at Propmodo’s kick-off to NYC Real Estate Tech Week on November 11, 2019 at The Times Center in Midtown Manhattan. REGISTER >>