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Ecosystem-Based Business Models

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.

Insurtechs Are Specializing

Money has been pouring into insurtechs, reaching a record of almost $2 billion in Q4 2019. Since 2018, investors have put more than $1 billion per quarter into companies seeking to shake up the industry. Not a single market segment has been untouched.

In 2020, the focus will be on innovating with insurtechs that enable incumbents. One report found that 96% of insurers said that they wanted to collaborate with insurtech firms in some way. Those surveyed favored partnerships and the software as a service (SaaS) approach to developing new solutions. There’s a rapidly growing list of insurer and insurtech partnerships.

See also: An Insurtech Reality Check  

Insurtechs are developing to solve niche problems, and most aren’t aiming to tackle every vertical or every phase of the process. We all know the saying, jack of all trades, master of none. Insurtechs are focused on being the master at very specific parts of the value chain. Allianz has partnered with Flock, an insurtech startup offering pay-per-flight drone insurance; Aviva partnered with Digital Risks in the U.K. to develop insurance for startups and small and medium-sized enterprises (SMEs); and State Farm partnered with Cambridge Mobile Telematics to deliver usage-based insurance to drivers in the U.S.

One big driver of these partnerships is the inability of one company to do everything at once. Synergies can be realized when combining complementary skills. In Germany, Generali formed a partnership with Nest to offer homeowners insurance that leverages Nest’s smart home technology. Nest’s technology detects smoke and carbon monoxide and sends alerts to customer’s phones, reducing the risk for the insurer. Nationwide’s partnership with sure.com allows it to sell renters insurance through an app; Nationwide is still handing the underwriting and policy management separately. 

More and more, incumbents are working with several insurtechs that integrate to bring change to every aspect of the industry. 

Insurtechs bring the speed, agility and technological skills that incumbents need.

As Deloitte’s 2020 Insurance Outlook pointed out, “Despite some attempts to upgrade legacy marketing and distribution systems… carriers continue to struggle to drive more effective connections with consumers accustomed to online shopping and self-service.” Trying to bring legacy systems into the current age of digitization simply isn’t working, and, if incumbents try to build in-house, they face a longer time to market and higher costs.

Partnering with an insurtech company allows incumbents to quickly bridge the innovation gap, where technology changes faster than their ability to keep up. The estimated timeframe to develop solutions in-house is around 18 months, whereas you can be up and running in as little as three months if you partner with an insurtech. Moreover, incumbents that partner can respond more quickly to changing customer demands and lessen their risk of losing market share to a competitor. 

See also: How Tech Makes Sector Safer, Smarter  

For their part, insurtechs have realized that seeking to disrupt and replace incumbents can be too costly. To run a successful insurance company, you need significant capital, which is difficult for startups to raise. The insurance industry is also regulation-heavy, making it difficult for newcomers to find a place. Startups struggle to access the complex networks that support insurers. The industry presents too many barriers to independent disruption, but partnership benefits everyone involved.

Insurers are ready to innovate and have the data and distribution networks to support large-scale rollouts. Insurtechs have the technology and the agility to come into a large organization in the midst of change, work with its legacy systems, partner with insurtechs solving other problems in the supply chain and provide immediate value in moving them into the digital world. Both sides of the equation are ready and willing to realize the benefits of working together.

A Shift to Service, Away From Price?

According to the U.S. Small Commercial Insurance Study, after three years of declining rates, insurance providers are no longer able to compete primarily on price and are now focusing their efforts on ways to please their customers.

The payoff is a significant increase in satisfaction among their small business commercial customers, with a 30-point improvement in overall satisfaction in 2016, to 823 on a 1,000-point scale, up from 793 in 2015.

The study, now in its fourth year, examines overall customer satisfaction and insurance shopping and purchasing behavior among small business commercial insurance customers with 50 or fewer employees. Overall satisfaction is composed of five factors (in order of importance): interaction; policy offerings; price; billing and payment; and claims. This marks the third consecutive year when satisfaction has improved.

The study finds that interaction improved the most among all study factors, increasing 32 index points from 2015. Within that factor, website performance showed the largest jump year over year (up 36 points), followed by agent/broker (up 34) and call center (up 28). Interaction is driving the overall increase in satisfaction.

This is the only J.D. Power insurance study in which Gen Y is the most satisfied generation. As expected, Gen Y businesses have been operating for a much shorter time, but they typically have higher revenues than the businesses of their baby boomer counterparts (51% of Gen Y business customers report annual revenue of more than $500,000, compared with 42% of baby boomers).

The study found that American Family, Allied and Nationwide hold the top three positions in terms of satisfaction.

Find more on the study here.

4 Ways Insurance Is Disrupting Itself

Coming from the Insurance Executive Conference earlier this month in New York, I am extremely excited by what I heard regarding where the industry is heading.

I attended both the life insurance and P&C tracks, picking up the following insights about how the industry is disrupting itself before others can:

  1. Insurance carriers are embracing change.
    Anwar Haneef, partner at IBM Watson, said, “We have not seen much disruption in the insurance industry in the last 100 to 200 years” and acknowledged that new technologies have the potential of changing that. Jeffrey Killian, vice president of in-force service and operations at New York Life, stated, “We could become Blockbuster (Video) if we don’t go through the change.”
  1. Insurance carriers are focusing on their customers in a new way. For example, Gerald Patterson, senior vice president of retirement and investor services at Principal Financial group, spoke of Principal’s move away from thinking about customer service to focus instead on the customer experience. Principal tries to provide value to the customer and understand that young consumers expect the same technology from insurance carriers that they experience with other service providers. He also stressed the importance of embedding experimentation in your customer experience on a regular basis.
  1. Insurance carriers are embracing technology and planning for a different future.
    At the highest level, for example, Jane Chwick, former partner in charge of global technology at Goldman Sachs, provides technology expertise as a board member of the relatively young company Voya Financial. Patterson mentioned that he has recently spent time visiting Silicon Valley and attending Fintech conferences.

Killian acknowledged that realizing a company’s vision of customer experience requires investment and pointed out that Principal is committed to making the right investments to accomplish this. He remarked “We have invested a lot in Lean Six Sigma. It’s amazing how much energy you can unlock through these processes.”

Joe Beneducci, chairman, president and CEO of Prosight Specialty Insurance, said, “Technology is a catalyst that affords us options.” Life insurance executives discussed their expectation that the analytics movement will affect carriers’ entire value chain. They also saw predictive analytics enable insurance carriers to be learning organizations.

West Hunt, vice president and chief data officer at Nationwide, discussed the capability of scaling human expertise through cognitive computing. At the same time, the rise of robo-advisers and their potential threat to the business was mentioned. Finally, the recent trend toward digital and what it means to the industry was raised. Technology was discussed all over the conference.

  1. Further opportunities to leverage technology were identified. Colleen Risk, senior analyst at Celent, mentioned the opportunity insurance carriers have of enhancing their websites to provide transaction capabilities for consumers, such as changing beneficiaries. Recent research by Celent showed that less than 25% of life insurance carriers are doing e-delivery of contracts. Other opportunities include: making data available throughout the company, producing strategies to sustain customer loyalty, developing a compelling message for life insurance and educating Millennial consumers.

I was happy to participate in the conference and felt energized by the discussion of new topics that position the industry to continue to thrive into the future.

What do you think? Post your comments below!

Don’t Be Dissuaded by Medicaid Myths

Brokers hesitate to offer Medicaid enrollment services to their clients because of the perceived stigma surrounding them.

But the reality is that those stigmas are all talk and no bite – most Americans don’t have a problem with public benefits like Medicaid. In fact, those who qualify for it generally prefer it because it offers lower costs and better coverage than many private plans do. Brokers who offer this government-subsidized coverage give themselves an advantage over those who don’t while better meeting workers’ healthcare needs.

Busting the Medicaid Myths

The common notion that Medicaid provides inferior coverage when compared with private plans is patently false. Study after study has shown that Medicaid recipients are actually happier with their coverage than enrollees in individually purchased plans or employer-sponsored private plans. In three southern states, low-income residents said they preferred Medicaid’s quality of care to that of private plans. Nationwide, 87% of Medicaid enrollees feel positive about their health insurance, compared with 73% of those with private plans.

Medicaid’s doubters note that only 66% of those eligible for Medicaid are enrolled and say the figures demonstrates inadequacies in the program. Under-enrollment has many causes, but pride is not among them. Many people don’t know they’re eligible for Medicaid, and the application process is complex. In addition, the application process is largely online, and a significant number of low-income individuals lack computer skills or access to the Internet.

The Truth About Medicaid

The reality is that Medicaid provides affordable, high-quality care to working people. It also presents brokers and business leaders an opportunity to lower costs while increasing the number of employees who have health coverage.

Contrary to the misconception that Medicaid offers little coverage, the program provides more comprehensive coverage than most private plans. Medicaid includes vision and dental benefits for children throughout the country and for adults in most states. It also includes benefits like non-emergency transportation and substance abuse treatment.

What’s more, care under Medicaid is just as accessible as care under private plans. Only 2.8% of Medicaid enrollees can’t access nearby care – while that number isn’t zero, it does suggest that the vast majority of enrollees can find primary and secondary care.

Not only does Medicaid cover a wide range of services, but it’s also quite affordable. The vast majority of Medicaid enrollees pay no premiums, and employers pay no additional cash for their employees enrolled in Medicaid. Even in the handful of states that do have premiums, enrollees typically can’t lose coverage for failing to pay. Medicaid has no deductibles and minimal co-pays, often charging just a few dollars for prescriptions and doctor visits. Medicaid covers the whole family; unlike many private plans, there are no drastic rate spikes for dependent coverage. For many families, Medicaid is the only path toward insuring the whole family.

In addition to saving money on premiums, people who have Medicaid are significantly less likely to incur significant medical debt than eligible people who do not sign up for Medicaid. Medical debt remains the most common cause of bankruptcies in the U.S., and Medicaid reduces the risk that a devastating medical complication will also bankrupt an individual.

When brokers help companies provide Medicaid enrollment services in the workplace, most employees are grateful to get help with this process in a comfortable and familiar venue without having to make appointments during their limited hours outside work.

How Brokers Can Benefit

It’s clear that Medicaid benefits enrollees, but what about the brokers who provide the benefits? Medicaid helps them, too.

Offering Medicaid enrollment support sets brokers apart in a crowded field. By bringing a new solution to the table – particularly one that many people are unaware of – brokers distinguish themselves.

Medicaid options also represent cost savings for employers, so brokers can find footing among business clients if they choose to offer Medicaid. In an increasingly commodified health insurance market, the ability to provide an option that requires minimal or no payroll deductions while offering access to high-quality care gives brokers an edge over the competition.

If attracting business clients wasn’t incentive enough, brokers can also earn sizable commissions through third-party enrollers on all workers they enroll in Medicaid, including those who were previously uninsured and thus generating no commission at all. At the end of the day, these additional commissions can actually generate more revenue for brokers than they would receive without offering Medicaid enrollment services.

Employers associate high costs with high quality, but that’s not always the case in the world of healthcare. Brokers who help employees find the right coverage for the right price help everyone save money while providing high-quality care to those who need it.

With Medicaid myths busted, it’s up to brokers to help individuals access care when they need it – and for a reasonable price. As the American population becomes increasingly insured, Medicaid enrollment continues to climb. Brokers who don’t offer Medicaid enrollment support might find themselves on the outside looking in if they fail to provide their clients with the cost savings, coverage and care that Medicaid brings to the table.