The signs of a seismic shift in how insurance companies intend to compete for, and connect with, customers are difficult to miss.
In China, Ping An Insurance Group is executing a tech-forward diversification strategy that includes development of integrated business ecosystems in five markets: financial services, health care, auto services, real estate services and smart city services. In North America, AXA XL, the property & casualty and specialty risk division of AXA, is winning awards for its construction ecosystem digital platform, which provides construction industry contractors access to a range of pre-vetted products and services, from curated technology offerings to tailored insurance products to knowledge-share resources. And in Europe, Movinx, a new joint venture between Swiss Re and Daimler Insurance Services, is developing fully digital automotive and mobility insurance products for vehicle manufacturers and mobility providers.
“Our joint long-term ambition,” said Pravina Ladva, Swiss Re’s digital transformation officer, “is to unlock an ecosystem interplay where insurance supports the introduction of new technologies such as advanced driving assistance systems and autonomous cars as well as new business models in the mobility area.”
Notice a common thread here? Each of these ventures relies on an ecosystem, or extended business network. And these ecosystems are laying the groundwork for a new network-based economic order that promises to reshape our lives and our lifestyles as consumers. They are reinventing how many of the world’s largest industries, including insurance, engage with and deliver products and services to their customers. In industries from insurance to mobility to personal finance and beyond, we are witnessing a disintermediation where entire value chains are collapsing into single, integrated business networks. As this dynamic continues to play out, we are seeing competition shift from company vs. company to ecosystem vs. ecosystem. That’s happening in the mobility sector, for example, where Movinx faces a challenge from the likes of ERGO Mobility Solutions, an arm of European insurer Munich Re, and where companies such as Tesla and General Motors are moving into auto insurance.
Following this ecosystem thread leads to one place: the customer. New plays by Tesla, GM and insurtech Lemonade are pressuring insurance companies to reach across industries to build, or become part of, networks so they, too, can deliver the heightened experiences and rich, value-added services and seamless, end-to-end digital journeys that customers have come to expect.
The consulting firm McKinsey was among the first to pick up the ecosystem thread. Noting that 71% of consumers say they’re ready for integrated ecosystems, it predicts that by 2030 the integrated network economy — and the 12 ecosystems it sees emerging across the globe — could account for revenue of $70 trillion. This represents 25% of the total economy, up from 1% to 2% today. What’s more, as McKinsey notes, there’s a golden opportunity for insurers to carve out an important role in multiple ecosystems. “The ecosystems most relevant to the insurance industry — and that thus represent the most salient entry points — include mobility, housing, health, wealth protection and B2B services,” McKinsey says.
See also: Power of Partner Ecosystems
An ecosystem-based approach makes sense for insurance companies for multiple reasons. First, it provides opportunities to counter disruptors by developing new revenue streams and business models, opening doors to customers and markets to which the insurers previously lacked access. It affords them access to huge volumes of customer data that they can use to develop, monetize, improve and refine their product and services. What’s more, as McKinsey points out, it “can help generate new leads, lower distribution costs, increase customer retention and improve prevention and assistance to reduce claims.” It also enables them to share risk with, and leverage the strengths of, their ecosystem partners, as AIG is doing in partnering with insurtech company Amodo to fortify the technology behind its usage-based insurance offerings.
Why take on the huge expense and distraction to develop in-house technologies to support usage-based insurance when a potential ecosystem tech partner has already developed the technology you’re seeking?
Insurers already are positioning themselves to thrive in a network-based economy by choosing the ecosystem partners with which they want to align, and the products and services to develop. Allianz is doing just that through its new Allianz X digital investment unit, for example. Its target ecosystems are mobility, connected property, connected health, wealth management and retirement, and data intelligence and cybersecurity.
Another critical step for insurers is to define the role they want to play within the ecosystem(s) in which they participate. Do they want to play a lead role and be an ecosystem orchestrator, as Ping An is doing, or are they better suited to supporting a risk-management/risk-mitigation role? While there are merits to both, the Amazons and Googles of the world have shown that being an orchestrator can pay big dividends. Because insurance touches so many industries, insurers should have plenty of potential roles from which to choose.
And let’s not overlook the vital role data and digital technologies will play in the success of these ecosystems and the products and services they offer. Companies will need the ability to securely and seamlessly share, digest and act upon huge amounts of data (financial, operational, customer experience, etc.) in collaboration with their ecosystem partners. They’ll need machine learning and artificial intelligence tools to create the kinds of elevated experiences and outcomes their customers expect. They’ll need a robust, yet flexible, digital infrastructure to accommodate and integrate new business models, revenue streams and partners. And they will also need advanced analytics, modeling and business process tools to help them evaluate how those new business models are performing and how to innovate by developing new products and services on tighter launch cycles.
See also: Insurance Ecosystems: Opportunity Knocks
Most important, perhaps, to their success in an ecosystem-driven economy is a willingness to evolve and embrace a new network-driven, collaborative and highly customer-centric competitive mindset. Customers inside and outside the insurance market have made it clear they expect convenient, quick and seamless digital journeys that ultimately lead to value-added services. If insurance companies and their partners can’t meet those expectations, customers will find someone that can. And that someone could be Amazon or Tesla or some other skilled ecosystem orchestrator.