Early adopters of ecosystems in insurance demonstrate how to create near-term value and build a foundation for long-term success. As first movers and early adopters have already demonstrated, winning with insurance ecosystems requires both a clear strategy and effective execution, with a strong underlying foundation of customer centricity.
This article, part of a series, outlines six initial steps insurers can take to formulate and then execute their strategies.
Further, they will be able to realize near-term value, make steady progress towards long-term strategic goals, and remain nimble to respond opportunistically as the market evolves.
Such a balance of focus and flexibility will be a common attribute of top performers in the ecosystem-driven insurance industry of the future.
1. Build your ecosystem roadmap based on where you are
Your current market position, brand value, business models, talent pool and level of technology sophistication will help determine the right ecosystem strategy. Having a clear understanding of where you are, which core strengths you can build on and which weaknesses you need to address will clarify the best path to reaching where you want to be.
Ecosystem roadmaps should be designed around two time horizons:
- Which actions offer tangible near-term benefits?
- Which capabilities are necessary to deliver on the long-term ecosystem strategy?
New technology creates new possibilities and relieves insurers from having to build everything on their own. They can partner with InsurTechs or other firms that provide access to cloud-based, “plug-and-play” tools and capabilities for specific points in the value chain.
Increasingly, firms can use core development platforms with modular services to assemble customer-facing and back-office capabilities in an ecosystem.
Digital talent is also critical to ecosystem success. Among the skills insurers need are agile development, customer experience design, behavioral economics, data analytics and partner management (see Insurance Claims Management).
To attract, retain and make the most of digital talent, insurers typically require a deeper culture and process transformation to support more nimble work styles, promote a test-and-learn mindset and focus on minimally viable products.
The upside is that insurers expanding or enhancing their business models through ecosystems create interesting problems for digital teams to solve, which helps attract and retain scarce digital talent.
2. Think big, start small
Once insurers identify the customers they want to serve via ecosystems, they can begin testing how to reach them. Most will start with those lines of business and product sets most suited to ecosystems.
Focusing initial efforts on the line of least resistance reduces risks and helps to create a foundation for expanding across the business. The experiences of first movers and early adopters can also provide valuable lessons about which initial steps to take and how.
Starting small should not preclude executives from thinking big about the potential of ecosystems and evaluating the full range of options. P&C insurers will have more options for embedding their products within other purchases, but forward-looking life and health insurers are gaining traction with platforms that offer richer experiences and diverse services that promote financial security and physical health (see review about Embedded Insurance).
Typically, these efforts focus on behavioral prompts designed to change behaviors (e.g., saving more for retirement, exercising more frequently). They may also include access to associated features such as financial planning or rebates for gym memberships. In evaluating offerings and features, it’s critical to prioritize those that customers will find most relevant.
3. Measure what matters
The best route to ecosystem success is a focus on what creates value for customers. Thus, metrics should reflect how that value is delivered. For many companies, this requires a significant shift not just in measuring performance, but also in the organizational culture.
Metrics need to drive the whole organization toward meeting more customer needs and doing the right thing for the customer.
That means cutting across traditional fiefdoms and organizational boundaries where necessary. It’s also important to articulate a clear link between these metrics and how they will ultimately translate into value for the group and its stakeholders, including investors and shareholders.
Insurers should also look beyond the financial numbers in assessing ecosystem performance. The COVID-19 pandemic has reinforced how important it is for insurers to deliver on their purpose and provide protection and financial well-being to customers, employees, businesses and society as a whole (see Short- & Long-Term Challenges for Global Insurance Industry after COVID-19). Ecosystem performance should be evaluated along these lines, too.
4. Understand why ecosystems fail
A shift of this scale presents significant risks, ranging from the strategic (e.g., poorly aligned incentives among partners or incentives that diverge as the ecosystem grows) through execution (e.g., failure to engage target customers successfully) and financial (e.g., under-investing or cost overruns) to tactical (e.g., sub-par project management). Failure to execute against the plan is a particularly common, and dangerous, risk.
Lack of – or loss of – a clear vision or strategy is another significant threat. Vision and strategy are important in that they create the guardrails and corporate governance framework that allows not just a single team, but teams of teams, to drive change inside large organizations.
Such vision needs clear articulation and extensive communication to customers, distribution partners and your own staff. And it needs to be refreshed and sustained in the face of a constantly evolving market, particularly where well-established practices or cultural norms need to change.
Clarity of strategic vision should not preclude market realities or course corrections. One European insurer set out to create a mobility platform for the second-hand car market.
It quickly learned that, rather than going direct, it was better to engage customers through existing channels for automotive servicing and assessments. It continues to add services aligned to the entire life cycle of car ownership. That level of flexibility is essential for insurers to diversify their offerings and capture more share of wallet via ecosystems.
5. Get good at partnerships
While competitive pressures create urgency for insurers to engage with ecosystems, they must be thoughtful in finding the right partners. Potential ecosystem collaborators should be evaluated in terms of their ability to fulfill specific business needs and their willingness to contribute fresh thinking and innovative ideas.
When it comes to choosing partners, cultural fit may be as important as complementary offerings and attractive commercial terms.
Beyond complementary service providers (e.g., financial planners involved in the ecosystems of life insurers), suppliers and customers, strong ecosystems typically feature a number of other specialists playing specific roles (see Largest Life Insurance Companies in United States).
Those can range from cyber security firms protecting the integrity of the ecosystem through InsurTechs with targeted solutions for specific functions (e.g., policy administration, pricing), to digital marketers, analytics and cloud computing platforms. In some cases, regulators, industry analysts and even competitors may also be involved.
Cultural fit is critical for success. Without alignment on the strategic priorities and operational requirements, it becomes much more difficult to eliminate potential conflicts of interest.
Clearly defined roles and responsibilities coupled with open communication can help build trust and minimize the risk of working at cross purposes. The bottom line: the better the partners, the better the ecosystems.
One European bank consolidated from having a range of insurance providers for different product lines to having a single provider covering each jurisdiction in which it operates. The key was finding a partner that bought into the vision of creating value for customers and a consistent customer experience for all product lines.
6. Design for the speed of change
While technology is not the only variable in the formula for success, it plays an essential role. Specifically, open architectures, sophisticated use of application programming interfaces (APIs) and seamless data sharing are necessary elements of successful ecosystems.
To get it right, insurers should select a platform that facilitates integration with ecosystem partners, including InsurTechs and other non-traditional players. The legacy technology infrastructure in place at most insurers is simply not up to the task.
AUTHORS: Chris Payne – EY EMEIA Financial Services Insurance Technology Leader; Jason Whyte – EY EMEIA Financial Services Markets & Business Development Leader, EY UK Life & Pensions Specialist