Exponential gains in information technology are transforming the insurance and financial services business. The advances represent a threat to advisors whose services might easily be automated. But for those who boast strong relationship-based skills, the tech gains could be a boon for their practices.
That was a key theme of a Friday morning session, “Mapping the Future with Big Data,” at the Retirement Income Industry Association’s 2015 Annual Conference in Indianapolis. Co-presenter Anand Rao, a partner in PwC’s Advisory practice, explored how IT advances are transforming industries and products, including medicine, self-driving vehicles, facial recognition tools, investment advice and financial planning.
A look back
Rao said a key factor to weigh in retirement planning, life expectancy, has been following a non-linear path. In 1541, average life expectancy was to age 35. It took another 300 years (to 1895) to reach age 45. But in just the last 100 years, life expectancy it has nearly doubled in some advanced economies. (In the U.S., average life expectancy is 79.)
The trend, driven by technological improvements in sanitation, medicine and other health-related factors, represents an exponential increase in longevity. This growth trajectory is now fueling other technology-related medical advances.
Prime example: DNA sequencing, a process used to determine the order of four nucleotides or bases — adenine, guanine, cytosine and thymine — that make up an organism’s genome or DNA dataset. DNA sequencing of the first human genome, said Rao, required an investment of $100 million over eight years.
Today, an individual’s genome can be deciphered for just $3,000. Parts of DNA can be sequenced for as little as $99 over three days using DNA taken from a saliva swab.
This quantum leap in the technology, said Rao, is evidence that Moore’s Law — a doubling of computer power every 18 months thanks to advances in chip technology — remains a principal guideline for forecasting tech-fueled gains.
Turning to gene therapy, Rao said the ability replace damaged genes with healthy ones using gene splicing — a process analogous to cutting and pasting text in Word documents — has enormous implications for arresting cancers.
Microbiologists are experimenting with the technique on multiple genes to better understand how they act in concert, and to develop treatments customized to an individual’s genome.
Medical advances, said Rao, are also being enabled by the development of “organs-on-a-chip:” microchips lined by human cells that could revolutionize drug testing and development. A pioneer in this space is Wyss Institute, where multi-disciplinary teams of researchers are engineering microchips that emulate the architecture and functions of living organs, including the heart, lungs, liver and intestines.
Exponential gains in technology can be seen, too, in hardware and software powering self-driving vehicles. In 2004, said Rao, participants in a challenge sponsored by the Defense Research Projects Agency (DARPA) competed to develop a self-driving car that could complete a 750 kilometer race. The winning vehicle managed to go only 7.2 kilometers.
One year later, three competitors, including a team from Stanford University — went the full distance using improved self-driving technology. The winning Stanford team joined Google; and, since last year, its technology has been approved for use on roads with a 35 mile-per-hour speed limit.
Computer scientists are enjoying similar exponential gains in technology, said Rao, in the fields of facial recognition software, neural networks (programs and data structures that emulate the human brain), as well machine or artificial intelligence that have applications across industries.
Among them: insurance and financial services. The gains have been most notable in recent years in the development robo-advisors, or online wealth management services that provide automated, algorithm-based portfolio management advice without the use of human financial planners.
Several of the start-ups in this space have grown significantly in size or been snapped up by big investment advisory and asset management firms. The market’s players include Betterment, LearnVest, Schwab Intelligence Portfolios, Vanguard VPS and a host of other companies.
“By 2020, the e-advice industry should reach $2 trillion in assets under management,” said Rao. “This is a major growth industry.”
That growth, he added, will be enabled by advances in software. Used by both retail advisors and big institutional investors, the technology is now incorporating cognitive computing capabilities to better serve self-directed investors.
Rao acknowledged industry fears that robo-advisors and related financial planning technologies could evolve so far as to make interfacing with a human advisor unnecessary. But the more likely scenario, he suggested, is that the technology will further empower advisors who have strong, relationship-based businesses, planning expertise and interpersonal skills that can’t be automated.
For these advisors, the tech gains will enable them to do much more sophisticated and personalized “cradle-to-grave” financial planning.