It is quite evident that traditional business models are collapsing in every industry, including the insurance industry. As service standards continue to rise, it becomes increasingly difficult for any single insurance agency to deliver the seamless digital integration that customers have come to expect. Partnerships are therefore becoming critical to rapidly developing the flexibility and agility companies need to stay relevant in today’s digital world.
The rate at which this change has taken place is astronomical, to say the least, thanks to the enormous increase in the amount of electronic data, the relevance of mobile interface, and the power of AI. Insurance companies have a golden opportunity to create new revenue streams by rethinking their traditional roles and embracing an insurance ecosystem methodology.
Paving the path for a digital insurance ecosystem
In the current digital insurance ecosystem, insurers act primarily as risk aggregators. Their interaction with customers is limited thereby increasing their exposure to commoditization, disaggregation, disintermediation, and invisibility. The key to adopting a digital insurance ecosystem is by reevaluating their current business model and engaging in partnerships to rejuvenate their strategy.
The Role of a Digital Insurer
In the new digital insurance ecosystem, insurers can play multiple roles. If you take a look at the auto insurance ecosystem, you can see the opportunities and risks that auto insurers face. Innovation has been the leading cause of disruption which has resulted in the emergence of four natural stakeholders in the ecosystem: Insurers, Telecom providers, OEM’s and high-tech players. As the mobility evolution takes place, the first movers can seize the opportunity to transition to orchestrators, from stakeholders, in three crucial areas that are service management, analytics, and customer relationships.
Thanks to their current customer base, insurers already possess a key mobility advantage. By building their capabilities in a number of key areas like customer interface, mobile sensors, and analytical tools, insurers can position themselves as true ecosystem players. As more OEMs are increasingly designing wired telematics devices and companies such as Uber in network management, insurers must move from risk aggregation to risk prevention.
How Insurance Ecosystems Can Drive Competitive Advantage
- Achieving data dominance
Big data analytics is restructuring the game in the insurance industry. While more data is being produced, insurers are able to leverage data to provide customized experiences to their customers. And to successfully secure data dominance, they must build and scale big data ecosystems. Since most carriers have vast amounts of data, based on past success factors, new technologies can be leveraged to recommend optimal benefits plans.
- Compartmentalization to boost innovation
The role of the CTOs and CIOs are to curate new experiences for the ecosystem. Componentization also enables IT planners to clearly define the roles of various components. This illustrates personal responsibility and makes it easier to identify bottlenecks and increases efficiency while improving the quality of services.
- Optimization of customer experience
Today’s customers have great expectations from businesses. The modern customer relationship is quite fluid as plan and pricing comparisons are freely available. Digital insurance ecosystems ensure that the customer experience is optimized by increasing the number of touchpoints and by offering personalized services. Using technology via chatbots, digital loyalty points via partnerships, and connected smart devices make this process easy.
Transferring the value pools
Building Strong Customer Relationships
The insurance industry is highly regulated, which plays to the insurer’s advantage due to regulatory skills and high capital requirements. The Economist noticed a trend with fintech companies and banks: “If fintech doesn’t kill banks, it might instead sap the sector’s profitability. A future as a sort of financial utility—ubiquitous but heavily regulated, unglamorous, and marginally profitable—is hardly a gratifying outcome for banks.”
A few insurance ecosystem examples are Google and Amazon, which have made avenues to penetrating the insurance industry. Google has already mastered its ecosystem diversity by complementing its ad-based services with new offerings to leverage its core skills.
Analytics and Risk Engine Capabilities
Analytics has always been at the core of even the traditional insurance business model. Digital ecosystems offer traditional insurers valuable opportunities to further develop and expand their business models with the help of analysis. Insurers can also utilize analytics to enhance risk-accumulation control and pricing. Risk management continues to require a large amount of data modeling and advanced analytics.
Thanks to their established analysis functions, insurers can offer analytics-as-a-service to other players in the industry in new digital ecosystems. What this encompasses is predictive modeling and optimization services that enable smarter and faster business decisions across the entire value chain.
Volatile Nature of Risk and New Markets
There are two main reasons why risks are now volatile in today’s market. Firstly, significant changes in actuarial models and risk distribution are further exasperating the trend. An ensuing demutualization could transfer the focus to predicting and managing the risks of individuals rather than communities. As a result, premiums will come under noticeable pressure and increasing the volatility of risks. Although the inclusion of new addressable markets could make up for lost revenue, insurers need to take a more objective view of all opportunities and developments.
The insurance ecosystem is in a constant state of evolution. As any fintech industry would, it is always best to capture opportunities as and when they present themselves in order to ensure they stay ahead of the competition. To become an ecosystem player, it is not sufficient to only have technology investments. Whether it is a life insurance ecosystem or a health insurance ecosystem, insurers must take a detailed and elaborate inventory of the organization to ensure that the investment aligns with the requirements. After all, customers reward providers who understand and provide the personalized experience and products they offer.