Ecosystem-Based Business Models

More insurers now see ecosystems as an effective, flexible and capital-efficient way to grow the business and promote customer-centricity.


Across the insurance industry, boards and senior executives are coming to terms with the need to become more digital, efficient and agile. The current environment is prompting insurers to find new revenue streams, boost customer engagement, achieve sustainable profitability and generate higher returns on equity. 

In reimagining their customer engagement models, many forward-thinking insurance executives view ecosystems as essential. Early adopters have already leveraged ecosystems and collaborations with insurtechs to get closer to customers. One carrier created on-demand access to insurance for ride-sharing drivers. Another offered free home monitoring services to its policyholders. A third developed a digital health platform to help customers achieve personal health and wellness goals. 

These programs and business models are helping drive growth mainly because they are centered on leveraging partnerships and shifting non-core capabilities outside of the enterprise. No wonder more insurers now see ecosystems as an effective, flexible and capital-efficient way to grow the business and promote customer-centricity. 

What ecosystems are and why they matter

Ecosystems are networks of companies that choose to collaborate and may produce a higher level of business value than any individual business can produce on its own. 

Typically, ecosystem-based models feature leadership or orchestration by a single company, which provides a platform of core capabilities and participants that offer complementary services and add-on features and functionalities. Consumers engage with this ecosystem, paying for various products and services and benefitting from the value created by the leaders and participants.

Within insurance specifically, ecosystem-based models typically enable interactions across the value chain by leveraging a differentiated infrastructure to allow for better service offerings, richer customer interactions and higher rates of automation. 

See also: New Actuarial Model for Unclosed Business

The journey to ecosystem success

While the benefits are often compelling, insurers may need to have a road map in place to create the most effective ecosystem strategies and business models. The following three core actions can help map out a fruitful journey.

1. Engage insurtechs for stronger customer engagement and increased agility

Insurtechs are integral to the development of successful ecosystems and can foster meaningful innovation across the industry. Insurers have a multitude of opportunities to invest in or collaborate with insurtechs – be it to launch products faster, engage customers in new ways or enhance back-office processes. Consider how Nationwide, a leading U.S. insurer, used an ecosystem model and extensive insurtech collaboration to launch an entirely new digital business focused on millennials within only seven months. 

Insurtechs can help insurers in multiple ways, starting with access to customer-centric technology and analytics and the ability to deliver rich and tailored customer experiences. Typically, companies can derive value from these collaborations by clearly defining strategic imperatives and adopting a test-and-learn mindset.  

Many insurers also benefit culturally from insurtechs’ relentless focus on innovation, agile working style and next-generation thinking. The most fertile opportunities for collaboration and new capabilities often involve the most advanced technologies, including the Internet of Things, artificial intelligence (AI), machine learning and robotics, with potential applications across the value chain. 

2. Scale faster by digitizing existing business models and embracing advanced technology

For years, many insurers have been constrained by inflexible legacy technology. Today’s advanced technology offers meaningful upside for insurers that modernize their core systems. Early adopters are using software-as-a-service (SaaS), AI, machine learning and robotics to enable straight-through processing, self-service and smarter cross-selling. Within the claims function, AI and robotics can deliver faster and more accurate payments, starting with frictionless first notification of loss, which may lead to higher customer satisfaction. 

Similarly, predictive analytics, another game changer for insurance, can allow insurers to make better use of internal and external data for pricing risk. 

By moving more processes and data to the cloud, insurers may effectively engage with ecosystem partners and streamline digitization of key processes. 

3. Enhance the operating platform to increase effectiveness and agility with innovative workforce and sourcing strategies

Strategically, ecosystems allow different participants to play to their strengths. In that sense, insurers can look to enhance their operating model, focusing on core, differentiated capabilities and adopting the right sourcing strategy for everything else. 

One large U.S. insurer determined that a new spin-off company would be able to compete more effectively in the personal life and annuities markets. The new company was designed to be lean, cloud-based and asset-light. Freed from the constraints and complexity of legacy technology architecture and able to engage with a range of partners for non-core capabilities, the company became poised for long-term growth.

Offshoring and outsourcing can drive efficiencies and cost savings across routine processes, freeing human and financial resources to focus on the highest-value activities. Policy administration and call center support are typically the first to be migrated to nearshore or offshore captives. Third-party administrators (TPAs) are often a viable option, while other insurers have turned to SaaS models as an alternative to expensive and risky system upgrades or replacements. 

Ushering in the new age of ecosystems

Given how ecosystems can be an effective go-to-market strategy across industries, thanks largely to success in driving growth and innovation and the creation of relevant products and personalized experiences, the collective and widespread adoption of these models within insurance may be imminent.

In fact, to some extent, ecosystems are already driving innovation at an outpaced scale and speed within the insurance industry. Additionally, such models are helping carriers overcome long-standing challenges related to outdated technology and weak customer engagement. 

See also: The Pandemic and a New Ecosystem

However, the first step for insurers to effectively integrate these models into their businesses may require a shift in management thinking – one that is willing to understand why the whole is bigger than the sum of the parts. With a clear vision for profitable growth, strategic foresight and operational and technology investments and an appetite for significant cultural change, insurers may be able to successfully embark on the ecosystem journey.

Gaston Messineo

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Gaston Messineo

Gaston Messineo is EY-Parthenon principal, strategy and transactions, insurance, Ernst & Young LLP. He is a leader in EY-Parthenon's insurance practice with deep experience in consulting and corporate leadership.

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