Ecosystems continue to rise as the borders between sectors blur, and the trend has implications for insurers looking to stay competitive. In this video, McKinsey senior partner Johannes-Tobias Lorenz talks through why ecosystems will be important for insurers, as well as ways they can stay relevant as the landscape evolves.
What are ecosystems?
Ecosystems are customer-centric networks through which products and services are offered by various players.
At the heart of ecosystems are platforms—systems that make integration easy. Large ecosystem players such as Amazon and Google operate in parallel several ecosystems centered around specific customer needs.
By securing the customer interface, ecosystem players skim parts of the traditional value chain. McKinsey’s research suggests that by 2025, 30 percent of global GDP will be represented by ecosystems.
Why are ecosystems important for insurers?
The insurance industry has traditionally been a low-involvement, low-interaction industry, thereby not attracting too much of customers’ affection.
With respect to ecosystems, there is one notable exception: Ping An from China, which has created companies like Good Doctor for healthcare or Lufax for finance. Thereby, through the ecosystems, entering the daily lives of 350 million customers, converting more than 160 million of them to insurance buyers.
But you don’t have to be Ping An to be a successful participator or orchestrator of ecosystems in insurance.
What role can insurers play in ecosystems?
Within these ecosystems, insurance players can play two roles: first, being a participant in an ecosystem, and second, being the orchestrator of an ecosystem. Both roles hold value.
Participation essentially means offering insurance as a service by integrating with existing platforms. Especially B2C ecosystems offer new distribution channels and new customer access. For example, Liberty Mutual and Generali are integrating with Google’s Nest platform, thus entering customers’ homes and daily lives.
Orchestration means bringing together services from different participants on one platform, thereby fulfilling customer needs really end-to-end. Insurers benefit not only from selling more policies through an ecosystem but also from better risk selection, higher customer experience, and thereby better retention.
While orchestration brings more benefits to insurance companies, it’s also the harder role to play. It requires digital excellence, true customer access, and analytical power. At the same time, you face fierce competition from the likes of Apple, Google, or Amazon.
How can insurers get started with digital ecosystems?
To play a relevant role in the ecosystem world, insurers need to take three steps.
First, they need to define a clear strategy. They need to evaluate their strengths and assets vis-à-vis other industry players to decide whether they can find a meaningful role as an orchestrator. Or, they need to define which kinds of ecosystems they would like to participate in and what their specific contribution can be.
Secondly, insurers need to define compelling use cases, which benefit the customer and the insurance company at the same time. Take the example of cyber insurance: by including cloud providers and cybersecurity experts, insurance companies include prevention and crisis response into their product, making the offering more attractive for customers, and, at the same time, reducing the risks and the loss ratio for themselves.
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Third, insurers need to take a leap of faith and start to get going. As orchestrators, they need to define a clear value proposition for the ecosystem, they need to build a platform which makes integration easy, and they need to identify incentives for other partners to join.
As participants, they need to create a seamless link to the ecosystem, come up with a clear monetization strategy for the services they contribute, and come up with a protection strategy for their role in the ecosystem.
With more data available and continuous customer feedback, insurers will benefit from a virtuous cycle and be able to expand their ecosystem play over time.