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Insurtech insights: digital ecoystems - the role of the insurer

Ecosystem. This was THE buzzword at this year’s Insurance Innovators Summit which was attended by the Freshfields insurtech team at the QEII Centre London on 13/14 November. There we participated in numerous discussions around how to enable today’s consumers to access services (including insurance) in a convenient, fast and tailored manner (and, of course, from a mobile phone!). For our thoughts on other key themes from the summit see our blog post here.

What is a digital ecosystem?

McKinsey define ecosystems as “customer-centric networks through which products and services are offered by various players” and its research suggests that, by 2025, they will represent 30 per cent. of global GDP.

Think of an app on your phone which provides all of your needs in relation to a core part of your life, for example, your car (e.g. insurance, maintenance, replacement service etc) or your house (insurance, cleaning services, building work etc). These services might be provided by a range of different companies, but all of these providers enjoy the benefits of an ecosystem generating increased traffic, customer satisfaction and data. In turn the benefits of the ecosystem enable the participants to understand their customers better so that services can be further tailored and added to create hyper-scale efficiencies in order to cut costs to the consumers.

An ecosystem doesn’t need to only focus on one area (or vertical) – it could be an ecosystem for all of your travel, entertainment and clothing needs. The bigger the ecosystem the bigger the potential benefits of the hyper-scale efficiencies.

There are various examples of companies utilising this business model, but larger tech companies are best placed with their digital expertise, recognised brand and large customer base. For example, see the move into banking by Google (with its recently announced partnership with Citigroup, Stanford Federal Credit Union to offer checking accounts) or cryptocurrency by Facebook (with Libra). However, insurers also possess many, if not all, of these key elements required to establish an ecosystem.

Why is this relevant to insurers?

Every digital ecosystem (regardless of its focus) offers an opportunity for insurance services to be distributed to ecosystem inhabitants. This is the case regardless whether the insurance service was the reason for the customer entering the ecosystem (such as the ecosystem established by Ping An in China) or as an add-on.

Additional services provided as part of an ecosystem need to give the customer real value add in order to create “stickiness” – it needs to be a customer-centric ecosystem and not an “egosystem” for a large corporate. Therefore, whatever role an insurance product serves, it needs to meet the key digital ecosystem criteria of being convenient, fast and tailored. This is where insurtech plays a vital role.

The role of insurtech in the ecosystem

Insurtech provides insurers with a sophisticated and fast moving pool of potential partners and service providers to enable insurers to plug into (or create) ecosystems in the most effective way possible.

Insurtechs can help insurers to create, distribute and service digital ready insurance products - be that with online claims handling, customer-centric apps or more efficient collection and use of data. Insurtech not only offers insurers the opportunity to make existing processes more digital-ready, but also offers new ways of engaging with customers – e.g. through the customer submitting pictures of damage to property through the ecosystem portal which can then be digitally assessed.

There is a clear drive to innovate within the insurance industry, but in our view a recognition that insurers cannot do this all on their own. Insurtech provides insurers with quick access to new ideas and valued-added services that insurers can then utilise to their own and, importantly, the consumers’ advantage.

Challenges facing digital ecosystems

The main shift in mind-set required for the digital ecosystem model to prosper is the idea of sharing the customer journey between the participants of the ecosystem – they are no longer the customer of a single provider. This aligns with the increasing shift towards a customer-centric (rather than corporate-centric) focus in a digital world.

Data is the key concern for an ecosystem, for two principal reasons:

  1. The sharing of data – what is the legal basis for sharing of data between the ecosystem participants? The ability to share data is essential to achieving the full potential of the ecosystem. A legal framework needs to be in place. The scope and requirements of that framework will depend on the nature of the relationships between the participants and the type of data being shared – for example, an ecosystem focused around healthcare would likely require more stringent data sharing protocols and arrangements than an ecosystem for your car.
  2. Combination of large data sets - in Europe, regulatory and competition authorities are focussing ever more on the combination of large data sets (rather than only revenue) and the impact this may have on the market. How an ecosystem is structured will impact the relevance of this increased interest and potential greater scrutiny.

Data will play a key role in the best way to integrate ecosystem participants and effectively collaborate.

Insurers participating in any digital ecosystem will also need to be conscious of the regulatory framework for online sales.

Decision time for insurers

Strategically, insurers need to decide on their business model and what role they will play in the growing digital ecosystems. Insurers could, for example, seek to own the whole vertical integration value chain (e.g. in healthcare), be the ecosystem “integrator” simply bringing the services and products together or be a service provider to ecosystems.

Each route has its own benefits and challenges. Whatever the route chosen, navigating the digital ecosystems will be made easier with the expertise, speed and innovation provided by insurtech.