Digital ecosystems dominate the headlines, as online experience worlds that provide seamless access to a diverse set of products and services, as digital integrations of suppliers from different industries and as real opportunities for insurers seeking to expand their customer base. By 2030, digital ecosystems will represent around € 60 trillion in revenue globally, and the hopes attached to them are as vast as their potential.
At the same time, insurers are still wondering about their role and the impact of this transition. German trade publication Versicherungsmonitor recently published a story with the title “Farewell to Ecosystem Dreams,”, Which indicates that many auto insurers have resigned themselves to playing only a marginal role in the worlds of digital mobility. Likewise, in a survey of health insurers, respondents saw themselves in the middle of the pack compared to other adopters of more proactive ecosystems.
But leveraging digital ecosystems is not an all-or-nothing prospect. While some companies will shape the customer interface as the primary orchestrator of the ecosystem, others will participate in distinct aspects or areas of the ecosystem. But there is more to these two extremes; the spectrum of attractive possibilities is more colorful and nuanced.
Five lessons learned by insurers on the path to orchestration and participation of ecosystems will help ensure the effectiveness of their efforts in favor of the digital ecosystem:
1. Basic principle: Improve the value chain from the customer’s point of view. Responding skillfully and quickly to customer needs not only creates value, but also provides cross-selling opportunities and builds customer loyalty. For example, Prudential’s Pulse ecosystem offers healthcare for everyone, but 70% of users are not yet Prudential customers. With the click of a mouse, they can become one. Almost two million policies were issued in the first year alone to health-conscious, digitally-minded customers.
2. Prerequisite: First establish a qualified digitization in the core business. If there are problems in the core business, ecosystem approaches will not have the desired effect either. For example, customers shouldn’t have to re-enter their data and login information after accepting advertising and checking cookies. Such drawbacks kill success. Additionally, data silos make it difficult to measure the benefits of digitization. Discovery has integrated its core business with appropriate ecosystem services into the Vitality One platform and has found that its users’ healthcare costs are up to 14% lower than those who do not use these ecosystem services – a combined effect of greater loyalty, changed habits and an attractive customer experience.
3. Impact: Building from the core to the ecosystem. It may take time for ecosystem services to become financially relevant alongside the core insurance business. After all, the priority is growth, not direct monetization. Of course, the business model must be sustainable in the long term, but in the short term the benefits are often more indirect. Chinese insurer Ping An now generates a third of its customers from its 700 million ecosystem users, even if the activity alone is not necessarily profitable and hardly compares to other countries like Germany in terms of regulation.
4. Scaling: don’t do it alone. Expanding ecosystems requires a mixture of three things: manufacturing, purchasing and partnering. The last element is particularly difficult because it requires ensuring that ecosystem participants do not offer the same or similar products or services to ecosystem customers. Therefore, successful models are better thought out. Take, for example, the recently launched “WELL” ecosystem, which combines the offerings of Swiss insurance companies CSS and Visana with telemedicine provider Medi24 and online pharmaceutical company Zur Rose. All participants target different customer segments for their core business, but together they can reach two million users, or a quarter of the Swiss population.
5. Vision: Develop specific strengths. Insurers often think they don’t stand a chance in the ecosystem world, and the hesitation is understandable. Major tech companies have built ecosystem empires on the foundations of loyal customers who use their products and services in everyday life. Other industries also have inherent competition; some companies already sell insurance with their core product. Tesla, for example, recently launched its own independent insurance provider with rates it says will be 20-30% below the market average. However, insurers can counter these developments with their own customer data and resources, such as medical billing data from health insurers and driver and vehicle data from auto insurers. By focusing on harnessing these strengths, insurers can continue to develop their digital customer interfaces and value chains in a targeted manner.
Ecosystems are here to stay, one way or another. For digitally savvy insurers, ecosystems offer the opportunity to create profitable value in a connected world and stay ahead of the competition in the long run. There are exciting opportunities for everyone, and no single strategy is always the worst strategy. Thus, for insurers, ecosystems are not only a safe bet for the next year but also a promising route to success in the next decade.
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