Creating effective partnerships on digital platforms, what can others learn from China’s success?
This in-depth article will explore the partnerships that underpin digital ecosystems, what has worked and how insurers and startups should prepare for this era. Digital ecosystems are tipped to be the model of the digitalised insurance world. They offer incumbents an insight into what needs to change in their business for them to achieve evolution instead of obsolescence.
Read on below, or jump straight to what has worked and how insurers and startups should prepare for this era were we outline three key models – arm’s length, integrated and the full ecosystem – and look at some examples of how these partnerships work.
The world around us
Ecosystems offer hope to an industry struggling to transform in a digital world confined by strict regulation and legacy technology platforms. After all, ecosystems bring together people that have an interest in a certain things, whether that is auto insurance, health and wellness cover, or insurance for their mobile phone.
Rather than have to deal with each individual through traditional channels, customers are serviced via app, social media, email and SMS.
The real prize is data – and there is lots of it. Ecosystems generate vast amounts of data that provide unparalleled levels of insight into customers, how they behave, how they can be influenced to behave and what they want to buy. This allows insurers to transform themselves by delivering tailor-made products that people need, even if they hadn’t realised it, yet.
Ecosystems are therefore viewed with awe – for their size, audacity and possibilities – and some fear for the control that they have over distribution.
Trailblazers rule the roost
But insurer owned ecosystems are few and far between. Ping An, as the largest insurer in the world is leading the field as an insurer creating ecosystems, says Hugh Terry, founder of The Digital Insurer.
It is often forgotten that this ‘overnight success’ took blood, sweat and tears and a 15-year strategy to put Ping An in this position of being the only insurer to have created an ecosystem.
China’s dominance of ecosystems comes from the “double lock of social media and online payment”, says Terry. “The likes of Tencent can make use of the data and connectivity to deliver targeted offers that can be fulfilled 100% within WeChat.
“Nowhere in the Western world has that capability been developed,” adds Terry, and while these Chinese giants are trading a lot of data, it brings operational and regulatory challenges. Not many insurers will be able to do that even if they wanted to. Some may look to acquire other ecosystems, take a stake, or develop partnerships with others, but it will require the insurer to work with the owner of the ecosystem. And it is not a way of bypassing the digitalisation projects that are taxing incumbents.
“The ecosystem owner will demand the insurer has a modern tech stack that allows new products to be launched quickly, APIs to integrate to ecosystems, and real time reporting to understand how products and campaigns are working,” says Terry.
Ecosystems also play a key role in enabling new products that help consumers to manage and avoid risk with the use of telematics, home sensors, cyber security monitoring systems, wearables, etc.
“Offering consumers risk avoidance and reduction nearly always beats paying the claim,” adds Terry, “so insurers need to do both in future.”
More than just a tech play
Insurers need to understand they may have a different role to fulfil in the insurance world of tomorrow, but they do have a role. And it’s an important one.
But what are the strategic implications that need to be considered by insurers? Is coupling with an ecosystem about leveraging technology, or is there more to it?
While insurers outside of China can sometimes struggle to execute one business model really well, the big players in China probably have four, says Dr Evangelos Avramakis, head of digital ecosystem research and development at Swiss Re Institute.
“They play the direct consumer channel, then they have B to B, B to C or a B to B to C channel where they offer products to other players in the market.”
This consists of a pure b2b technology game and data concerning aggregation and insights.
“The technology is already commoditised,” says Avramakis, “so it’s really about where you see value being created in the future, and how you make this accessible. You need technology in order to be able to access other markets, players or technology enablers. But it’s more a strategic consideration with the technology facilitating that path.”
Here, the technology is not the most important element, but facilitates the strategy, so there is no need to reinvent the wheel. It is far more crucial that you find the right partners, the right teams that will design how insurers will service their markets and how they find those capabilities.
“That may require a change of culture and mindset,” says Avramakis, “making it more about change than about technology.”
This is because it is not the technology that will save insurers as the data driven insights that will create their competitive advantage.
“All the data has been shared among silos, and we need to make sure which kind of technology can maximise or leverage those data insights,” says Avramakis. “Technology is just the enabler, but you have to discover how you stay relevant in the future. It concerns each part of strategy and change, and not technology alone.”
This is an important message about the development of ecosystems. They are seen by many as the Holy Grail for the insurance industry. But there’s more to their success than just technology alone.
Watch a ten minute TDI Talks! video interview on ecosystems with Dr Evangelos Avramakis, head of digital ecosystems research and development at Swiss Re Institute, here.
The power and the glory
In China, the three biggest ecosystems of the past decade have been the holy trinity of Baidu, Alibaba and TenCent. Each has been founded on a core competency – Baidu on tech, Alibaba commerce, and Tencent social media and gaming. Their US counterparts Google and Amazon have, to date, more or less stuck to their core business, whereas the Chinese ecosystems have expanded, not vertically, but horizontally, according to Chinese tech expert, John Artman.
“There’s a strong services innovation in ecosystems, where you can take services online where there is a serious gap in consumer demands and market capability,” says Artman.
This is how internet companies were able to create delivery systems to connect pedestrians with cheap, efficient transport, or deliver groceries or hot food in places like Beijing, which is vast, making connections difficult.
“Because of this, ecommerce grew quickly because the likes of Taobao were able to offer products that could not be found close to home. With COVID-19, the situation has been similar, except that people did not want to leave the house.”
The industry of the future?
While these services are online and based on technology, China is hailed as the poster child for digital ecosystems. However, Artman suggests we shouldn’t get too hung up on the level of tech being deployed in most of these applications.
“People who haven’t been here read stories about mobile payments and the social credit system and they get the sense that everything is high tech – like Blade Runner – but it’s not,” says Artman.
China’s artificial intelligence (AI) abilities are based on enormous amounts of data, but its development of AI has been down to capabilities in data processing and data labelling. However, the dirty secret about this data labelling is that there remains a great deal of manual labour going on behind the scenes.
“Some of the biggest technological breakthroughs of the past 10 or 20 years have been in the United States,” says Artman. “Even in hardware, especially with chips, as a lot of the chip design is coming from the west and China is trying to catch up.”
But that doesn’t mean it was the tech that was superior, but how it was applied in the market and delivered to customers. As Avramakis indicated, there is more to the success of the digital ecosystems than just having good tech.
“Where China’s technology companies have really shone is in service innovation,” says Artman, “being opportunistic when seeing a gap in a market and filling it.”
Education, education, education
This is where the challenge lies for insurers, as far as Terry is concerned. Through their partnerships, they must educate the ecosystems owners that there is more to the relationship than a transaction – a relationship with the customer needs to be developed.
This has not been a problem in the high volume, low value product arena, but as higher value policies such as life and health are introduced, this is where the sales channels will break down.
Ping An controls its own ecosystem for itself, as insurance is its core business. For the likes of WeSure, it makes more sense to rely on the partner, especially if it is in an adjacent sector, says Terry.
“This allows them to build up the platform to up/cross sell to the consumer, building on the customer lifetime value,” he says.
Google and Amazon in the US represent the closest example of the Chinese ecosystems outside China.
It is often suggested they are keen to diversify their businesses away from tech and retail respectively into new sectors, such as drugs, healthcare and insurance. Yet they continue to acquire capabilities, rather than seek to partner with specialists. But could one of these platforms seek to bring in partners in the same way the Chinese ones do?
“It might,” suggests Terry. “But any insurer being brought in to a platform will have to fit.” And that’s not only in terms of tech and whizzy APIs.
“Tech alone would not be enough for the partnership to work,” adds Terry. “It would have to be a good cultural fit as well as an appealing technological fit.”
China as a digital role model
While China is a good example for inspiration, the business model is not necessarily easily replicable. The reason this works in China and hasn’t been made to work elsewhere is because it is China, says Artman.
“A bit like Japan, while there is a great deal of innovation in the local market, rarely does it ‘escape’ simply because it is optimised to serve that specific culture and market,” says Artman.
Human capital is crucial not only because it is used to label data, but because the resource is so available, and this is due to work culture. Employment is very different in China and Chinese engineers spend most of their time at the office.
Almost every single successful large Chinese tech company is built on the back of overtime.
“There’s a saying in China that if you are working in the tech industry you’re working ‘996’, which means working from 9am to 9pm, six days a week,” says Artman.
Lie of the land
The work that goes into bringing together the various components that make up an ecosystem is often overlooked. Part of that is how ecosystems and insurers choose to work together. Here we outline three key models – arm’s length, integrated and the full ecosystem – and look at some examples of how these partnerships work.
There are a number of components that determine the the success of strategic partnerships and affinity distribution.
Firstly, insurers must identify the digital destinations that support their target customers. This may seem obvious, but it is often difficult for insurers to know this exactly.
Secondly, the commercial terms differ significantly between theory and practice. How the use of customer data, use of branding and long term objectives and pitched or built into agreements will differ greatly.
The third and most important component is the level of engagement from consumers and how embedded they are in the ecosystem – and it is in their lives or lifestyles.
Once determined, insurers may decide on which of the following three types of partnership they will enter into.
1) Arms length
This form of partnership – also known as the ‘supporting act’ role – offers little integration between the insurer and their digital partner. In most cases, the insurer provides a specific product – or range – and they are simply bolted on to the insurer’s operation.
It is symbiotic, but each role is clearly defined. The digital partner does not get involved in developing products and the insurer simply provides a product and has little or no influence on the customer journey.
This is a popular choice to expand reach, because implementation is easy. However, aside from brand awareness, there is little benefit to the insurer and it does not deliver long-term relationships with clients, or an opportunity for greater cross selling.
This model has been used to good effect in China by Wu Kong Bao, a Chinese online insurance broker that carries product offerings for life, auto and scenario-based cover.
The strength of its performance has been on the use of its data mining engine to derive intelligence from its customer interactions, as unlike more integrated online models below, it must collaborate with partners to develop products and create value.
Gojek, which grew out of an app for bringing together motorcycle drivers and passengers, has, through partnership, developed a super app with more than 20 services covering transport, food delivery, payments and entertainment.
In February 2020, it launched an insurance service – GoSure – with partner PasarPolis offering cover for travel, motor vehicles and mobile phones.
Powerful partnerships, such as Gojek’s deal with Singapore’s largest bank, DBS, can transform reach and accelerate growth.
2) We two are one – an integrated approach
This approach fully integrates the insurer and digital partner across the the entire process. The products are developed specifically for the digital channel, and the management of customer data is integrated.
Characterised by tailored products, a greater degree of data – and therefore trust – is required, but this is far more rewarding for both the insurer and the digital partner.
It’s good to talk
As TenCent’s insurance platform, WeSure works with Chinese insurance companies to co-design insurance services, which are distributed via the WeChat super app. This gives the platform access to its 1 billion, mostly Chinese in mainland China, customers.
WeSure is the insurance agency within the WeChat ecosystem, providing incredible reach for the insurance business, as it provides access to all WeChat users.
WeChat has an integrated digital payment solution, which is used to collect premiums and pay claims, but is also a primary customer acquisition channel for WeSure.
Having started by distributing mostly small, short-term, micro insurance products, WeSure is to break into other parts of the value chain.
It seeks a more involved role in other parts of their users’ lives, such as through the WeFit app that offers health-based discounts
Partnerships that work
ZhongAn, China’s first internet-based insurer, used this approach to extend its reach into new markets. It formed a joint venture with Grab Holdings, the Southeast Asian online-to-offline mobile platform to create a digital insurance marketplace offering insurance products in directly to users of the Grab mobile app.
The products are microinsurance in nature – low-cost, short-term – with premiums collected via GrabPay, the app’s payment solution, or other payment partners.
The service launched with an insurance product developed with Chubb, for drivers to cover losses due to illness or accident.
The concept of ‘ecosystem’ has come to be perceived as the ‘Holy Grail’ of achievement for insurers undergoing digital transformation.
Whether or not it is a suitable path for many incumbents remains to be seen, as the number of ecosystems will be few compared to those offering services from them.
But the ecosystem allows direct distribution to customers, with core services ranging from transportation through mobile payments to healthcare.
That may sound like cross selling rebranded, but building an ecosystem is a major undertaking that requires deep pockets and extensive engineering talent.
All require an online platform, that catches, matches and despatches customers. It must operate as a customer acquisition portal, user interface and a data cache to log traffic flows, user behaviour and customer profiles.
Once this data is captured, it must be accessed. Data mining is an essential component and this is likely to be coupled to a dedicated data centre that creates scenario based financial services that are integrated into the online platform.
The last requirement in insurance is for the ability to cover online to offline (O2O). That ranges from the delivery of everyday services from healthcare to mobile payments. This often uses new technology to disrupt current providers.
Health as a springboard
South African insurer Discovery Health’s platform uses engagement to influence the behavioural and lifestyle choices its customers make.
The benefit is two way, as the individual is able to improve their health and live a better – hopefully longer – life and be rewarded through incentives. These are tangible rewards that include retail, airline and travel discounts, not savings on premiums, which hold little currency among consumers.
Vitality has extended beyond South Africa into the US and a joint venture with AIA Group in Singapore and Australia resulted in an integrated life assurance product.
The whole world in its ecosystem
Ping An’s ecosystem is wide ranging and covers online and offline health (Good Doctor), auto (AutoHome), wealth management (Lufax), real estate (Haofang) and payment (1Qianbao).
Last year, the company embarked on a major overhaul of its one million strong agency network, by introducing artificial intelligence (AI) into processes governing the recruitment, training, retention and reward of agents. It will also identify leads and assist with administration, transforming a dysfunctional and inefficient structure into one that is seamlessly integrated into the ecosystem as a whole.
Get them when they are young
If an ecosystem is a play to get consumers from the cradle to the grave, Allianz and BCG Digital Ventures’s launched a product targeting those who were to yet to be born.
The customers were Chinese consumers who were expecting a child. The product – XinKaishi, meaning “start of a new heart” – was a device to listen to the heart of the unborn child and share it with with friends and family across social networks WeChat and Weibo.
The accompanying app allowed women to provide information on nutrition and health, but it also raised awareness about protection for the newborn, and so it could be used to sell insurance. Other products were bundled with the app while brand partners could provide offers to the users.
China is the world’s largest ecommerce market and this is an untapped market. Almost 15 million children were born in China in 2019 and the lifting of the one child policy means it may be an opportunity for growth.
The final analysis
There is little point in trying to pretend that China’s ecosystems won’t remain the envy of insurers in other markets. But insurers should also reflect that while they have a long way to go to catch up, the Chinese models are not without their own weaknesses.
That doesn’t mean insurers can be confident these Chinese models won’t be launched in their own markets, but that it is less likely. This is not only for regulatory and cultural reasons, but because there are operational issues less easily dealt with overseas – boots on the ground and the number of bodies available, too.
To make it in an environment with ecosystems, it is important to tackle complexity and accessibility, says Avramakis.
“We need to change the way we deliver the products and services in the future,” he adds. “This has a significant impact on the organisation because today’s products might not be similarly applicable, especially when you want to play in an ecosystem game. You must consider this very carefully.”
Products must be simpler and easier to plug into a third party’s platform and this is happening rapidly with travel insurance. Avramakis believes that P&C will be the first area to really engage in terms of auto, cyber and home insurance.
From the perspective of accessibility, if consumers are focusing on very specific touch points, it is essential to demonstrate that insurers can service the business independent of the value proposition and life business.