“Ecosystems” is likely among the most frequently heard buzzwords across boardrooms—and with good reason. To succeed in the long run, insurers need to approach ecosystems correctly. McKinsey spoke with Ulrike Deetjen, a partner in the Stuttgart office, to understand more about ecosystems for insurers and their benefits.
McKinsey: What are the latest trends that you’re seeing when it comes to ecosystems?
Ulrike Deetjen: Ecosystems have transcended from just a buzzword to a real strategic priority for insurers all over the world. When I say “ecosystems,” I mean customer-centric networks in which services from across industries are provided throughout one seamless user journey. For example, an ecosystem in mobility might extend from car insurance to car sales, services, financing, gas, and parking. A health ecosystem might extend from symptom checking to teleconsultation, online pharmacy, and medication management.
This is an exciting approach for insurers because it breaches new territory—with high risk but also high reward. The response to ecosystems may look different for every insurer, but ecosystems are developing in any case, and they should have an answer to that.
McKinsey: How do insurers benefit from ecosystems?
Ulrike Deetjen: First, ecosystems contribute to the core insurance value chain. They can generate leads—for instance, selling car insurance at the same time that you sell the car. They can increase loyalty, because people are more likely to stay with an insurance company if they are offered access to a whole range of convenient services. They can also reduce claims; in the healthcare sector, for example, claims could be reduced by offering services that steer people toward the right care setting or engage them in healthier behaviors.
Second, data is the central currency in ecosystems, and harnessing that power could help establish new data-based business models. Insurers could combine activity data (from ecosystem services) and outcomes data (from the insurer’s claims data) to link payments to what improves outcomes.
And finally, ecosystems can help raise the growth prospect of any player, resulting in higher market capitalization and better financial attractiveness to investors. This is particularly true for digital business models, which have had rising investment levels over the past few years due to the COVID-19 pandemic.
McKinsey: What should insurers do to get started?
Ulrike Deetjen: They should start by figuring out what their key strategic aims are and then align their ecosystem activities accordingly. For large insurers that play across different ecosystems, this might mean building up a broad set of partners to cover key journeys; smaller insurers, meanwhile, may participate in a more targeted way. There is no one-size-fits-all approach.
Next, insurers can think about what truly adds value for the customer and where they can position themselves to have an advantage. Insurance is an industry with a low frequency of touchpoints. But at the same time, in the health ecosystem, for example, insurers already collect structured data from a lot of players. This puts insurers in a position to personalize offerings and provide better services by evaluating health outcomes. Don't think you have nothing to add just because Amazon, Apple, and Google dominate the ecosystem game. They are precisely the reason insurers should strengthen their direct interface with customers.
Fortunately, many levers to succeed in the ecosystem are the same ones that will help companies succeed at digital transformation more broadly. For example, platforms and APIs help insurers connect and use the touchpoints generated to discover cross-selling opportunities. Analytical capabilities also help insurance carriers target current and prospective customers. And customers will only use services provided by their insurer if they meet the digital sophistication of other industries—and that happens by leveraging talent, capabilities, and a truly customer-centric mindset.
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Ulrike Deetjen is a partner in McKinsey’s Stuttgart office.
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