The Rise of Digital Ecosystem Insurance Products
By Martin Blake, Chairman of KPMG New South Wales and National Sector Leader, Insurance, KPMG in Australia
Change is inevitable. The traditional insurance model, based on serving customer needs through provision of homogenous products with prices decided through actuarial models, has started its gradual but inevitable decline. Evolving customer expectations, as well as the opportunities presented by new technological capabilities, present insurers with a choice: evolve your offerings or face obsolescence.
One way that some insurers are embracing a digital future is through the provision of ecosystem products. Digital ecosystems can be broadly described as networks of companies, individual contributors and consumers that, through interactions, create combined services and mutual value. Insurers who participate in or partner with companies in these digital ecosystems are then enabled to sell targeted products to the customer community on a preferred access basis.
Alliances with technology partners are thus creating opportunities for insurers to improve distribution and reach through partner technologies, methodologies and distribution channels. These partnerships provide value to all participants: more robust online offerings, improved service and more targeted options for customers, and accelerated customer acquisition for insurers.
Integrating insurance into everyday purchases
Innovative use of these new digital ecosystem products are already cropping up in geographies around the word. Everything from online airline ticket sales to connected Internet of Things devices provide insurers with unique opportunities to engage and market to a targeted customer base.
For example, in China an online used car platform includes integrated financial services provided by Ping An Insurance. Individuals buying or trading a used car online are provided with an opportunity to buy car insurance at the point of purchase—and customers are responding. Upwards of 20% of Ping An’s current car insurance sales are currently generated through this high-volume platform.
Flare HR from Australia takes a different approach. Flare provides an all-in-one HR platform for businesses, providing on boarding, payroll and well-being services entirely without charge. Flare then partners with financial services licensees who provide financial advice and insurance opportunities to enrolled employees at particular trigger points in each individual’s life. Notification of a change of address, a new marriage or divorce, or other major changes through the Flare platform allows the licensees to market targeted home insurance, life insurance, retirement savings plans and other products at moments when the potential customer will be most receptive.
Another ecosystem that presents significant future opportunities is that surrounding the connected car. Connected cars are internet-enabled vehicles equipped with entertainment systems, communications, telematics and advanced sensors—and represent another step down the road toward fully automated driverless cars. The digital ecosystem surrounding the connected car includes automakers, telcos, sensor and chip manufacturers, technology giants like Apple and Google, and digital platform giants like Amazon and Uber. While the rise of this ecosystem is changing competitive landscape for all participants, insurers are particularly affected by the threats and opportunities that these automotive changes represent. A connected car provides robust information for the claims process and opens avenues for new products such as on-demand coverage, while an autonomous car could cause a shift from driving liability to product liability insurance.
Engaging with digital ecosystems
By tapping into digital ecosystems, companies are making big bets on opportunities that have the potential to bring about change on a global scale, transcending any single business or industry. These digital ecosystems present significant risks to the traditional model—and even bigger opportunities for insurers willing to embrace innovation. Partnerships with these networked players can provide insurers with opportunities to improve distribution, reach and breadth of customer base, and achieve these goals on a much shorter timescale than they could achieve on their own.
Insurers interested in engaging with digital ecosystems are encouraged to consider the following areas:
- Increase flexibility and agility in innovation processes. As the speed of change increases, insurers need to ensure that their innovation processes and strategies are sufficiently nimble to enable a quick response to competitive threats and opportunities. Innovation can no longer be restricted to a single part of the business or forward-thinking group, but must shape the way decisions are made throughout the organization.
- Create a forward-looking view of digital ecosystems. Now is the time to “put up the periscope” and take a wider view of happenings both within and beyond the insurance market. Current technology innovations are providing the opportunity for insurers to expand their boundaries. One approach is to take a look at the innovation currently happening in China and in the US, particularly in Silicon Valley, and consider how you can use these developments and new models in other markets and geographies.
- Foster partnerships and alliances. Rather than fighting with emerging competitors, consider how you can work with or acquire these businesses to achieve competitive positioning. Think broadly and look to cultivate partnerships and alliances with businesses outside of the insurance industry, such as original equipment managers, telcos, technology providers, and more. Create a process to continually scan the horizon for new competitors, insurtech players and others that could become potential partners.
Insurers that establish strong partnerships with upstream channels and digital ecosystems can mitigate the disruptive risk of losing customer relationships to adjacent players while bolstering their own technological capabilities. This means that not only are these partnerships critical, but the corporate competence to develop strong alliances now and in the future will be vital to insurers’ continued success.
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