How insurance ecosystems drive successful transformations
Harnessing Innovation: A go-it-alone approach to insurance modernization often falls short.
Insurers are grappling with a challenging terrain marked by a constricted reinsurance market and record loss severity.
Consider that the U.S. P&C insurance sector incurred $65 billion in catastrophe losses in 2023, according to AM Best. Globally, insured losses reached $118 billion.
In response to these conditions, insurers in the U.S. have been pulling back from some markets, tightening terms and raising rates. Consequently, policyholders are paring back their coverage. This contributes to a widening insurance protection gap and highlights the need for insurers to design products that effectively address rising risks and evolving policyholder demands.
Insurers are increasingly applying technological innovation to adapt. Advances in generative and predictive AI, IoT devices, aerial and satellite imagery, and modern analytics enable insurers to leverage real-time data to enhance risk management and deliver tailored solutions to policyholders.
However, when employing new technologies, a go-it-alone approach to innovation can often fall short of a company’s vision and objectives. Robust insurance ecosystems offer a solution to that pitfall by providing the experience and expertise to quickly get insurers on the innovative track.
Insurance ecosystems are integrated networks of partners, technologies and services that work together to support and enhance insurers in their innovation and adoption of new technologies.
More than 75% of global insurance executives consider digital ecosystems and partnerships crucial for achieving a competitive edge, Swiss Re reports.
Four prominent opportunities to deliver greater value
Insurance ecosystems are more than a partnership initiative; they offer pre-validated solutions from various providers. These solutions can be rapidly utilized on their own or in combination to enable innovation and new value propositions. By supplementing innovations with data, regulatory expertise, and service delivery capabilities, the value created by ecosystems far exceeds what’s possible individually.
Insurers can get ahead of the curve in leveraging new forms of insurance based on ecosystem partnerships, including in:
- Parametric insurance: Parametric insurance leverages predefined triggers, such as hurricanes, floods, or specific crop yields, to automate payouts. This approach ensures swift financial support for policyholders during crises, often bridging the gap between insured and uninsured losses. Integrated with modern cloud platforms and payment solutions like One Inc. and Salient, parametric insurance facilitates digital payouts and predictive catastrophe analysis. In 2023, the demand for parametric insurance exceeded $13 billion and is projected to approach $30 billion by 2031. This growth is driven by its ability to provide rapid, reliable compensation using real-time data and advanced analytics, making it a valuable tool for managing risks associated with extreme weather events and natural disasters.
- Embedded insurance: Embedded insurance bundles coverage with third-party products and services at the point of purchase, eliminating barriers to protection and reaching new customer pools. Whether it’s a warranty on your Apple iPhone, auto coverage for a new electric car, or trip cancellation insurance with your flight, this approach extends the reach of insurance, closing the protection gap for millions worldwide when they are most likely to buy coverage. According to Swiss Re, embedded insurance revenues are expected to reach $1.5 trillion worldwide by 2032. By integrating insurance into everyday purchases, insurers can provide seamless, accessible coverage, enhancing customer experience and expanding their market reach.
- Usage-based insurance (UBI): Usage-based insurance (UBI) leverages telematics, mobile telephony, and IoT technologies to monitor policyholders’ behavior and offer personalized premiums based on actual usage. Currently, smartphone-based “pay-as-you-drive” auto policies have a 17% penetration overall and 26% among new auto customers. By 2025, over 60 million UBI subscribers are expected worldwide, incentivizing safer behaviors, promoting risk mitigation, and narrowing protection shortfalls.
- Proactive CAT response: Proactive CAT response relies on actionable, real-time geospatial intelligence (from providers like Nearmap’s Betterview and ICEYE), which is critical for triaging and deploying claims teams. Modern technologies are transforming insurers from mere financial first responders into proactive crisis managers. Leading insurers are now investing in next-gen drones and robots to quickly transmit images and intel to claims offices, expediting claims processes without putting adjusters in dangerous situations. Additionally, augmented reality and virtual reality solutions enable claimants and field adjusters to report and settle claims quickly by simply uploading pictures of the damage and providing details.
By leveraging an insurance ecosystem of collaborative technology partners, insurance carriers can innovate quickly with new technologies — and offer new lines and new services — to better meet the evolving needs of the insurance market.
How to get started
Getting the most out of an ecosystem approach requires a modern insurance platform enabled by API-connected applications, embedded analytics and flexible workflows, all of which help leverage the full value of a growing array of external and core data.
Carriers must be intentional in selecting ecosystem partners to build upon this platform or foundation. It’s not just about sourcing the next whiz-bang technology. It’s about fostering the relationships needed to transform complex challenges and capitalize on new opportunities aligned with business goals. The following steps have proven beneficial to those who have successfully harnessed an ecosystem:
- Start with the business opportunity: Don’t start with a shiny new technology in search of a problem to solve; start with the business question you’re trying to answer, the market frictions you want to remove, or the unmet needs you aim to meet.
- Define your ecosystem strategy: Long-term goals also play a role. Some insurers may integrate into larger ecosystems, while others may form their own.
- Define criteria for partners: Define clear criteria for partners, particularly ensuring that candidates have a strong leadership team and market traction.
- Set expectations upfront: Develop a lightweight contract and detailed program guide. Transparency is crucial, allowing partners to know what to expect and how best to contribute ideas.
- Understand barriers to success: Create an environment where issues can be candidly identified and addressed. Different carriers might have varying partnership choices based on risk appetite, culture, and skill set. Define what works best for your organization.
- Develop your go-to-market strategy: A go-to-market plan can boost the program’s effectiveness by educating stakeholders about the ecosystem’s goals and value propositions.
Embracing insurance ecosystems allows insurers to adapt and employ innovative technologies quickly to meet rising risks and evolving customer demands.
Guidewire Chief Evangelist Laura Drabik is a frequent commentator on issues of innovation and insurance ecosystems in the P&C industry. She also leads the Guidewire Insurtech Vanguard program, which helps insurers learn about new insurtechs and how to leverage their capabilities efficiently. Drabik is the author of the Drabik Digest blog and the host of the InsurTalk podcast.
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