Insurance Ecosystems: Opportunity Knocks

Insurers must apply unfamiliar skills – customer intelligence, speed and coordination – but can achieve benefits of scale without asset intensity.

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Ecosystems have been growing in scale and importance in recent years, but the pandemic has greatly accelerated their evolution. Customers rapidly turned to remote engagement, bolstering their expectations of 24/7 service and easy interactions. Insurers’ legacy limitations now look increasingly out of step with contemporary buying behavior and distribution.

Rather than taking several years to fulfill digitization road maps, insurers will find that participating in a connected supply and demand service model offers something better, faster and cheaper.

Enabling technology is affordable and effective. Cloud-based technology and machine learning have helped insurtech firms grow quickly without the burden of legacy systems and are now helping carriers fill gaps, particularly as many insurers modernize their core systems to make external integration more practical. The same technologies support innovation from competitive sources that offer services or components that are “good enough” at relatively low cost.

Strategic considerations

Now that the building blocks are in place, industry leaders are increasingly engaging in ecosystems that serve broad consumer needs, often where insurance is only one offering among many. Strategic options are multiplying.

Similar organizations might make very different choices on roles, investments and partnerships, depending on their risk appetite, organizational culture, technical capabilities and ability to invest.

Here are four things to consider as you determine how to compete in insurance ecosystems:

1. Choose your ecosystem role(s) strategically

You can become involved in an ecosystem in many ways, with different levels of commitment and investment. Your role(s) reflect how you’ll relate to other participants and the degree of your commitment. This may be complicated.

  • As an owner, you’ll build and control the ecosystem, but at significant cost and the risk that nimbler players could overtake you.
  • An orchestrator creates a foundation, including technical platforms, and captures customer data but may not be able to curate the entire customer experience.
  • Adaptive participants plug into one or several ecosystems. This is a lower-risk strategy, but it’s more behind-the-scenes and could cause you to lose contact with end customers.
  • Abstainers are entirely responsible for their own offering. This could put them at a significant disadvantage if buyers find an ecosystem’s holistic approach more appealing. Abstainers also may miss the opportunity to provide their capabilities as inputs into other participants’ offerings.

Some insurers may take different roles in several systems at once, depending on resources and focus, but we expect ecosystems to evolve within a particular sector, with both industry and non-industry partners joining forces to develop markets that work for all.

2. Find the right match – and quickly

Companies comfortable with ecosystems have learned to make quick buy-build-borrow decisions. When you’re facing potential tie-ups, you’ll need to decide fast, because the most appealing opportunities won’t last.

Ecosystems benefit from having a variety of partners. Whether you’re the organizer or are providing products as an adaptive participant, look for tie-ups that add complementary and scalable products or services to drive more traffic into the ecosystem. Ideally, partners leverage each others’ capabilities and knowledge to help the ecosystem grow. Whether you’re considering a potential partner or an acquisition target, your due diligence process should include intangibles. Your stakeholders should know what your brand promises: value, service, innovation, trust, stability, etc. If a potential partner or acquisition doesn’t bolster that image or its culture doesn’t fit the ecosystem, then you probably should move on.

See also: The Intersection of IoT and Ecosystems

Complacency is a big risk; you likely can't wait indefinitely to determine the best corporate development strategy. When certain ecosystem positions are taken, or when the insuriech player that can fill a key need has been bought by a competitor, you’ll be out of luck.

3. Adjust your approach to match an ecosystem’s maturity

Ecosystems vary considerably by maturity and focus. You may see partners offering components but, for now, a fragmented user experience. That doesn’t mean you should wait for clarity; rather, you may have an opportunity to significantly shape the outcome. You’ll want to be patient, recognizing that whatever you build may be an interim solution. In other instances, some ecosystems will be further along, which means you’ll need to quickly decide how to integrate, and on what terms, as you catch up.

Ecosystems don’t necessarily come with clear labels or governance. Some may start with a bilateral partnership model, offering additional value for customers by bringing together two non-competitive providers. This may become more like a product marketplace, or vertically integrated, even if some capabilities are white-labeled. Regardless, relationships are developing faster than before, and today’s opportunities are unlikely to exist six months from now.

4. Make deliberate choices with your ecosystem investments

Ecosystems typically require fresh thinking about product design, data and technology. You’ll likely need to expand these capabilities to:

  • Provide individualized recommendations that drive engagement and adoption. Few insurers have invested much effort in improving the (internal and external) user experience (UX). Like social media sites, ecosystems depend on keeping users “plugged in” with communication that’s relevant and personal.
  • Open systems securely to your employees, employers and partners so you can be more flexible about the products, services and experiences you offer. This means building a well-functioning API framework and enablement process, as well as expanding integration capabilities to support secure connections to external parties. This may require changes to the back end to your data management programs, data storage and exchange platforms, as well as developing analytical capabilities that enable data-driven decision-making and discovery.
  • Use data, analytics and business intelligence assets to “sense” market insights and package them to add value to ecosystem offerings.
  • Design, develop, source and manage products and services to meet customer needs, while offering value to other ecosystem members and reducing the capital intensity of your own business. This requires prioritization. You can’t do it all, and ecosystems provide a way to meet those needs without “owning” a product. By involving ecosystem participants, you can quickly satisfy customer needs, widen your offerings and improve the customer experience. 

Conclusion: Don’t miss out on the best opportunities

Ecosystems’ appeal is undeniable. They offer carriers a chance to reach beyond conventional insurance products and strengthen their relationships with customers, and are a logical response to a changing, highly networked business environment. Although they require insurers to apply unfamiliar skills – flexibility, customer intelligence, speed and coordination – they can provide the benefits of scale without the asset intensity and command-and-control leadership that historically have characterized the industry.

Many prominent insurers have been watching developing networks with curiosity and interest but often without urgency. This approach typically worked in the past, when the industry changed slowly and competitors were known quantities. Carriers now need to understand where they fit before the appealing opportunities are taken. There is tremendous upside, but not for those who sit on the sidelines.


Marie Carr

Marie Carr

Marie Carr has 20 years of experience in financial services. While her management consulting experience spans healthcare, real estate and the public sector, her primary focus is in insurance (group, P&C and life).

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