Article Synopsis :
Insurance companies, asserts this monograph from McKinsey, have the opportunity to create new sources of revenue by rethinking their traditional roles and adopting an ecosystem mind-set.
Tremendous increases in the volume of electronic data, the ubiquity of mobile interfaces, and the growing power of AI, have the insurance industry on the brink of a paradigm shift.
A platform is a business model allowing multiple participants (producers and consumers) to connect to it, interact with one another, and create and exchange value. The most successful companies in the digital era—Alibaba, Amazon, and Facebook—are all designed on platform business models.
An ecosystem, meanwhile, is an interconnected set of services that allows users to fulfill a variety of needs in one integrated experience. Consumer ecosystems currently emerging around the world tend to concentrate on needs such as travel, healthcare, or housing. B2B ecosystems generally revolve around a certain decision maker—for example, marketing and sales, operations, procurement, or finance professionals. Furthermore, software companies such as Infusionsoft or Clickfunnels have combined both B2C and B2B services into one ecosystem to effectively service the expanding online sector.
Seven of the ten largest companies by market capitalization are ecosystem players—Alibaba, Alphabet, Amazon, Apple, Facebook, Microsoft, and Tencent—and that only hints at the power of digital.
To succeed in ecosystems, insurers will have to take a hard look at their traditional roles and business models and evaluate opportunities to partner with players in other industries. They must also understand how ecosystems will shift value pools and change the nature of risk.
By 2025, McKinsey expects 12 distinctive and massive ecosystems to emerge around fundamental human and organizational needs. These 12 ecosystems will account for $60 trillion in revenues by 2025, or roughly 30% of all global revenues. The ecosystems most relevant to the insurance industry—thus representing the most salient entry points—include mobility, housing, health, wealth protection, and B2B services.
Ecosystems typically provide three types of value:
- They act as gateways, reducing friction as customers switch across related services.
- They harness network effects.
- They integrate data across a series of services.
For insurers, shifting from an industry to an ecosystem perspective requires a significant change in how they define their role in the economy. Currently, insurers act primarily as risk aggregators. They have a passive and limited relationship with customers, which increases their exposure to disintermediation, disaggregation, commoditization, and invisibility. If insurers were to lose their distribution and customer relationships, they would be left with few options to reinvent their business models. Adopting an ecosystem perspective—reevaluating the traditional business model and considering partnerships with players both within and outside the industry—could reinvigorate insurers’ digital strategies.
Insurers already have a strong foundation in the mobility ecosystem thanks to their current customer base, distribution power, and stock of personal data from auto insurance policies. To position themselves as true ecosystem players and fend off moves by other stakeholders, insurers need to build capabilities in a number of areas, including mobile sensors, analytical tools, and customer interfaces.
As ecosystems enable and necessitate a focus on risk prevention, forging partnerships will be a critical priority. The industry has already seen a number of high-profile partnerships between established insurers and tech and analytics start-ups. Progressive, for example, partnered with Zubie, a vehicle-tracking and engine-diagnostic device, to give customers visibility into how their driving habits affect their premiums.
Digital natives have proven that ownership of the customer relationship is a stepping-stone to an ecosystem play. Strong customer relationships not only directly contribute to the user experience but also provide access to customer information—the Holy Grail of data and an absolute necessity in the ecosystem world. Insurers can harness consumer adoption of, for example, IoT to create opportunities for better and more frequent customer interactions (for example, through wearables) and improve efficiency through sensor-based automation (such as trigger-based claims payments and apps).
Insurers also have strong analytics capabilities compared with their peers in other industries, as data analysis has been a core component of the traditional insurance business model. Because of their established analytics capabilities, insurers in new digital ecosystems can provide analytics-as-a-service to other industry players. This offering could include predictive-modeling and optimization services that enable faster and smarter business decisions across all industries within the entire analytics value chain.
Becoming an ecosystem player requires far more than technology investments alone. Insurers must take a 360-degree view of the organization across multiple dimensions to ensure investments align with requirements. Answering several key questions can help shape the discussion:
- Strategy: Where does ecosystem strategy rank in the organization’s priorities?
- Customers: How does the organization’s customer ownership, access, and engagement look?
- Partnerships: Does the organization have a strong network of partners that will allow it to extend beyond traditional industry boundaries?
- Technology: Is technology seen as the fuel for the organization’s strategy?
- Talent: Is the organization positioned to attract and retain the most innovative and entrepreneurial talent?
- Culture: Are customers at the center of everything that the organization does?
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Digital Insurer's CommentsSuccess with an ecosystem strategy requires new approaches to culture, technology, and customer engagement. Insurers tend to be control-oriented, whereas digital ecosystem partners are more open and sharing. Same goes for technology, as insurers tend to have control-oriented closed systems, unable to interoperate with more open systems. And engaging customers on their terms, where they live, may pose the biggest challenge of all.
Add it all up, and an ecosystem strategy represents not magic pill or fad diet but real lifestyle change.
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