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Shifting Industry Borders in Insurance: Ecosystems and Interconnected Environment

Digitalisation is riding the wave in insurance and the pace of transformation is mind-blowing. This nudges market players to change their mindset and ways of doing business. Online communication has increased tremendously, AI and data-driven solutions are dragging the market along. Over 100 thousand new mobile apps were launched per month in 2020 – if you’re not on mobile, you don’t exist. As the rules are strict and ruthless, insurers can do nothing, but to embrace the competition saturated with digitalisation.


Platforms and Ecosystems Define New Industry Borders

Traditional industry borders have faded away, and the future of insurance will greatly be influenced by platforms and ecosystems. A platform can be defined as a model that connects several participants, both merchants and consumers, allows them to interact with each other, as well as to create and exchange value. Great examples of businesses that were initially built on platform models include Alibaba, Amazon, and Facebook.

Now, an ecosystem is an interconnected set of services that fulfils a variety of users’ needs in an integrated experience. Currently, most popular B2C ecosystems are focusing on covering demands for travel, healthcare, or housing. On the other hand, B2B ecosystems concentrate on certain tasks or functions, such as sales and marketing, operations, procurement, or financing.

Ecosystems develop through network effects. They enable to create products and services that companies wouldn’t be able to offer on their own. Ecosystems create services around the customer, increasing the need for data processing and smart systems, which enables to launch better and personalised offerings backed by technology, AI, and machine learning. Customer-centric approach opens the door for new value creation throughout the value chain, creating end-to-end journeys with one single point of entry for the customer. The new normality is using Airbnb for booking accommodation, hailing a ride on Bolt or Uber, and ordering in from GrubHub. In the same way, Apple is far from being a phone manufacturer, and Google is not just a search engine. Not to mention social media platforms that have become our way of life. Everything we need for a comprehensive user experience is in our reach, just a click away.

Customer-oriented mindset in every digital activity has enabled companies to unleash new value. In fact, the most successful and highly capitalised companies in the world drive their revenues from B2C and B2B ecosystems they have created. E.g., Amazon brings together e-commerce, cloud services, logistics, and consumer electronics, yet Tencent covers social media, gaming, finance, and cloud services.

Top 7 companies by market capitalisationSource:McKinsey, 2020

How Is the Value Created in Ecosystems?

Ecosystems create value along multiple dimensions and allow their members to merge a wide range of customers across sectors. Ecosystems provide mainly three types of value by:

  • acting as gateways for seamlessly switching across services;
  • applying network effects;
  • integrating information across services.

Let’s take Messenger as an example – it allows users to perform a variety of activities like shop, check into a hotel, or chat with a friend. You don’t need to jump between different websites or log in to various environments – necessary actions can be done through one interface.

Speaking of network effects, smart home products, like Amazon Alexa or Google Nest are a good example. In fact, the latter shares a monthly overview of energy consumption with its customers. This also adds value for utility providers by equipping them with consumption data and allowing to optimise production.

Regarding data integration, the key is to combine datasets that currently sit in silos within ecosystems, e.g. using trustworthy healthcare data to encourage people towards living a healthy lifestyle.


Ecosystems Will Soon Account for 30% of Worldwide Revenues

Digital ecosystems will provide companies better opportunities to take advantage of global markets thanks to the new age of borderless industries. By 2025, they are expected to result to a staggering 30% of global revenues.

estimated total sales 2025Source:McKinsey, 2018

Insurance, just like other industries, is becoming more and more interconnected. It’s not about offering casco, vehicle, or travel insurance, rather than creating a comprehensive experience around different events of life or business – just as Insly’s CEO Risto Rossar predicted in his interview. The trend is towards value creation across the whole customer journey, and combining services from different industries to create a unique and fruitful experience. Insurers and MGAs have the opportunity to unleash new sources of revenue by adjusting their roles and accepting the ecosystem mindset. The most relevant ecosystems to the insurance industry include mobility, housing, health, wealth protection, and B2B services.

How Should Insurers Act in Digital Ecosystems?

Ushering in the ecosystem mindset gives a chance to embed insurance products into seamless customer journeys. Insurers must realise that that value is created differently in ecosystems. There is no way to escape from the need to redefine their role from a passive observer to creating active relationships with customers and building a strong contact network. Also, reinventing the business model, and aiming at partnerships with players inside and outside the industry.

This is how strategic alliances are formed. We see new type of products like offering insurance as additional value when buying electronics online. Or in mobility sector – a customer rents a car at a corner of a street and doesn’t have to worry about his 15-minute drive being insured. This calls for new types of solutions for handling digital business. Interoperability between inhouse systems, as well as those of partners, is crucial. Interconnectedness also requires more knowledgeable decisions in risk assessment. Only with a seamless data flow can insurers personalise their offerings. This can be done by automating sales and policy administration, underwriting desk, and claims handling.

In our next blog post, we’ll take a closer look how insurers and MGAs can achieve success and efficiency in insurance ecosystems.

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