Ecosystems: Drive growth, engage clients and scale business
The insurance ecosystem era has arrived.
The long-term impact of the COVID-19 pandemic appears to have accelerated several tech-related adoptions across insurance. In fact, even before the onset of the pandemic, insurance businesses had already started to realize the need to seamlessly interact with their vendors and partners.
However, the sudden shift to remote work likely confirmed the need to strengthen digital platforms and processes. This shift also potentially exposed just how reliant insurers are on their key suppliers and partners, bringing the subject of ecosystems top of mind for the insurance businesses and providers.
The benefits of a strong ecosystem
Ecosystems have remained in discussion within insurance circles for the last few years. In fact, more than 75% of global insurance executives view partnerships and ecosystems as essential to creating competitive advantage, according to 2019 research from Swiss Re. However, with the industry-wide urgency to deliver value to customers while also keeping an eye on business growth, curiosity around the topic has resurfaced.
The ecosystem — essentially a network of companies working together to collectively produce value for customers — isn’t a new concept. Typically, an ecosystem allows a single leader or orchestrator to provide a platform of core capabilities, with other participants offering complementary services and add-on features. A strong ecosystem can help boost collaborative capabilities and reduce risks associated with third-party dependencies while also helping to create more consumer benefits than any one company can create on its own.
An ecosystem should not be confused with a supply chain. In an ecosystem, all brands are present, seen and active, and the value each brings is obvious to the consumer.
Insurance and collaboration
It’s tempting to assume that insurers have been late to join the ecosystem party when in reality, insurers’ operating models have long featured various ecosystem-like collaborations. Common use cases include the use of third-party administrators for claims processing or other core functions, or the widespread distribution networks of independent agents. Though they weren’t designed as ecosystems, such models have been prominent features on the insurance landscape for decades. Similarly, warranty insurance and point-of-sale coverage offerings are among the most successful ecosystems involving insurers. The warranty market alone is estimated to be $1.1 billion, according to IBISWorld.
Embedding insurance offers within purchase processes has also gained considerable traction. Research from PYMNTS.com shows that 62% of online shoppers are now offered insurance policies for their electronics purchases. In some cases, such as with travel insurance or automotive insurance, it is packaged as part of a lease, and the policy is private label. For other purchases, insurers’ brands are front and center.
These are clear examples where insurers have engaged with ecosystem partners (consumer goods manufacturers, for instance, or retailers) in search of new revenue streams. Insurers that construct their own ecosystems can use them to develop new offerings, strengthen customer relationships and expand their fundamental value propositions. For instance, some small-commercial carriers now combine broader business services and new offerings, such as risk prevention advice, along with insurance coverage.
Underscoring market dominance
Within personal lines, a number of high-profile ecosystems have helped broaden customer relationships by increasing the number and quality of interactions. One prominent U.S. carrier offered support services for car buying and home buying, with pricing and estimating tools designed to reduce the stress of price negotiation. Others have developed on-demand products that help protect individuals working in the gig economy, such as ride-sharing drivers looking for extra protection when they’re “on the clock.”
In designing profitable ecosystem models, insurance companies can explore a range of strategies. They may develop targeted offerings for microsegments (e.g., first-time home buyers, classic car enthusiasts or certain types of appliances), look to monetize core data assets (e.g., data-as-a-service programs that support other industry stakeholders) or engage with InsurTechs to optimize specific back-office operations or links in the value chain.
On a larger scale, insurers stand to play a lead role in public-private ecosystems designed to model, manage and protect against the risks presented by climate change, pandemics, retirement savings gaps and even cybercrime. With forward-looking and tech-enabled ecosystems that facilitate better services, richer customer interactions and higher rates of automation across the value chain, insurers have an opportunity to re-invent all traditional lines of business.
Winning with ecosystems: How insurers can deliver value
There are a number of steps that insurers can take if they are to embrace ecosystems in a way that moves the needle on growth, performance and ROI.
- Define the strategy. What are the right opportunities for you to participate in ecosystems developed by others? What’s the business case for developing your own? It should be clear what or how each partner will contribute uniquely to the overall consumer or business value proposition and earn a fair return on their investments.
- Think through the technology implications. Most ecosystems are entirely cloud-based, with all participants having strong application program interfaces that simplify and streamline integration.
- Understand what customers need and meet them where they are. By mining their existing customer data and analyzing relevant third-party data sets, insurers can gain insight into the types of products and services consumers might buy via ecosystems and when they need them.
- Find the right partners. It’s not just about finding the hottest InsurTechs or the biggest brands in related sectors, but also about ensuring a good cultural fit, clearly defined objectives and complementary offerings.
- Address the organizational factors. Cultural resistance to collaborations that require shifts in work style and management thinking, or that seem to make insurers’ brands subordinate in other ecosystems, may arise.
Ecosystems are a natural part of the industry’s DNA, so organizations can build on their experiences (and the lessons from other industries) as they seek to execute their growth strategies in new ways. Finding the right partners can help address a range of longstanding challenges, from technology modernization to accelerating new product development and accessing scarce data science skills.
Ecosystems are gaining traction because they offer insurers the ability to develop and scale the new capabilities they very much need. Insurance by its very nature has always been a collective product. Ecosystems are simply a new, technology-enabled way to create customer value that’s greater than the sum of its component parts.
Martin Spit (martin.spit@ey.com) is the Americas Insurance Strategy and Transactions Leader at EY. This piece is reprinted with permission from EY and may not be reproduced.
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